If you are of a certain age (on the wrong side of 50), you probably remember the Facit calculator. It was a thing of beauty. It was adorned with all sorts of dials, buttons and switches that made it look fantastically futuristic by 1950s standards. If a Cadillac had somehow mated with a Royal typewriter, the Facit calculator would have been the result.
But underneath those spiffy looks, the Facit was a resolutely analogue device. And as such, it arguably had more in common with an abacus than any modern conception of the calculator. So when the digital calculator arrived on the scene, the Facit’s days were numbered.
Yet the company that produced it (Facit AB in Sweden) refused to address this existential threat.
In fact, engineers at Facit all walked around with cheap Japanese pocket calculators that they used to double-check the accuracy of the mechanical calculators rolling off their line.
Refusing to Change
A clearer sign that one’s product had become obsolete could scarcely be asked for. But when faced with this evidence, Facit did… nothing. It kept operating in exactly the same way as it had a decade earlier. Consequently, it went from being a market leader to largely irrelevant in a span of six months.
At the other end of the spectrum, we find another Scandinavian brand: Lego. The Danish company has rebounded spectacularly, but for a while there, it was touch-and-go. In contrast to Facit, Lego very nearly innovated itself out of existence.
In the late 1990s, Lego was convinced that brightly-coloured bricks and square little Lego men were passé. Kids wanted TV shows, video games and action figures, didn’t they? So Lego did a silly thing — it decided to try and cater to the capricious whims of the most fickle demographic on the planet: ten-year-old boys.
The result can only be described as rampant and reckless innovation. Lego abandoned most of what it did well and tried to reinvent its offerings from the ground up.
It had some hits (such as Bionicle and Lego Star Wars) but it also had a plethora of failures — too many to handle. For a time, it genuinely seemed as if Lego might go under. It was only when the company figured out how to balance innovation with its inherent Lego-ness that it managed to reverse its fortunes.
Exploration and Exploitation
Striking this balance isn’t easy. According to Knut Haanaes, a strategist for the Boston Consulting Group, it is something most companies struggle with. The majority of businesses lean too heavily in one direction: They either innovate too much, or not enough.
“To me, the real solution to quality growth is figuring out the balance between two activities: Exploration and exploitation,” said Haanaes at a TED conference in 2015.
“Exploration is about coming up with what’s new. It’s about search, it’s about discovery, it’s about new products, it’s about new innovations. Exploitation is the opposite. Exploitation is taking the knowledge we have and making good, better. Exploitation is about making our trains run on time. It’s about making good products faster and cheaper.”
The Balancing Act
Both are necessary, but they need to be balanced carefully. You make money by finding an opportunity and exploiting it. In the short term, it is low-risk and lucrative. However, the goldmine will eventually run dry, which is why you need to search for new opportunities even while you’re exploiting an existing one.
The logic behind this is obvious — especially in an era where products become obsolete in about the same space of time that it takes Usain Bolt to complete the 100m dash — yet few companies manage it.
“Only about 2% of companies are able to effectively explore and exploit at the same time, in parallel. But when they do, the payoffs are huge. So we have lots of great examples. We have Nestlé creating Nespresso, we have Lego going into animated films, Toyota creating hybrids, Unilever pushing into sustainability — there are lots of examples, and the benefits are huge,” says Haanaes.
A big reason companies struggle, says Haanaes, is what he calls the ‘perpetual search trap.’ “We discover something, but we don’t have the patience or the persistence to get at it and make it work. So instead of staying with it, we create something new. We see this in the public sector as well. We all know that any kind of effective reform of education, research, health care, even defence, takes ten, 15, maybe 20 years to work. But still, we change much more often. We really don’t give them the chance.”
It’s a tendency that’s very prevalent amongst start-ups, but even large companies can make this mistake. Compared to exploration, exploitation can be boring, but it’s crucial if you want a business to grow.
The Success Trap
“Facit fell into the success trap,” says Haanaes. “They literally held the future in their hands, but they couldn’t see it. They were simply so good at making what they loved doing, that they wouldn’t change. We are like that, too. When we know something well, it’s difficult to change. Bill Gates has said: ‘Success is a lousy teacher. It seduces us into thinking we cannot fail.’ That’s the challenge with success.”
How do you prevent your company from falling into this trap? Haanaes suggests the following:
1. Get Ahead of the Crisis
If you see a storm brewing on the horizon, change course. Netflix used to deliver DVDs to people’s homes.
Today it is a streaming service. It realised that DVDs were going the way of the dinosaur, and decided to reinvent itself long before its existence came under threat.
2. Think in Multiple Time Scales
According to Haanaes, you need to simultaneously look at the long and short term.
“Taking a one-year perspective and looking at the valuation of a company, innovation typically accounts for only about 30%. So when we think one year, innovation isn’t really that important. Take a ten-year perspective on the same company — suddenly, innovation and the ability to renew accounts for 70%. But companies can’t choose. They need to fund the journey.”
3. Invite Talent
“I don’t think it’s possible for any of us to be able to balance exploration and exploitation by ourselves. I think it’s a team sport. I think we need to allow challenging. I think the mark of a great company is being open to be challenged, and the mark of a good corporate board is to constructively challenge,” says Haanaes.
4. Be Skeptical of Success
“It’s useful to look back at the old triumph marches in Rome, when the generals, after a big victory, were given their celebration,” says Haanaes.
“Riding into Rome on the carriage, they always had a companion whispering in their ear: ‘Remember, you’re only human.’”
When things are going really well, it’s all too easy to buy into your own PR. Don’t let success lull you into a false sense of security. No organisation is too big to fail. We live in an era of constant disruption, and no industry is off limits.
Knut Haanaes’s excellent talk, Two reasons companies fail — and how to avoid them can be found on the TED website.
6 Common Decision-Making Blunders That Could Kill Your Business
Among the logical errors nearly everybody makes is thinking only everybody else makes logical errors.
Humans are often very irrational. If you’ve ever explored behavioural economics or psychology, you may have found a host of examples demonstrating situations when we make objectively bad decisions.
Below are six of the largest decision-making blunders we all make. Avoiding them will dramatically improve your decision-making, your quality of life and success.
1. Sunk-cost fallacy
Of all the ones on this list, the sunk-cost fallacy is the most common. Many of the decisions we make are final or difficult to change. For example, let’s say you invest R1 000 in Facebook, and the price of the stock goes down to R600 the following day. The fact that you put in R1 000 initially is irrelevant to the situation at hand; you now have R600 worth of Facebook shares.
What this means is that once the decision is made and our cost is incurred, there’s no point thinking back. You already put in the time, money or other form of investment. Considering that in any future decision is illogical, despite how tempting it is. Instead, present yourself with the new options at hand — without considering the sunk cost.
2. Narrow framing
Would you take this bet? You pay me R1 000 if a flipped coin lands on heads and I pay you R1 200 if it lands on tails. Most people would say no. We tend to be risk-averse, unwilling to risk something like R1 000, despite the reward being a bit greater.
Now, what if I offered you that bet, but I promised we would flip 100 coins? Each time, the loser pays up. Would you take it then?
Almost certainly, right? The chances that you lose money, overall, are extremely slim. This idea can be applied throughout life. When we’re in situations that will repeat themselves over time, we should take a step back and play a game of averages.
3. Confirmation bias
Another common one in the worlds of psychological and behavioural economy is confirmation bias. It hurts our ability to keep an open mind and shift our opinion. When we have a held belief, we typically look for information that confirms our opinion while ignoring data points that tell the opposite story.
For example, if I’m really excited about a new software product that I just integrated into my business, with ten of my employees as users, I might have made up my mind about the quality of the service before we put it to use. I would then be more likely to listen to the three employees who enjoy it, not the seven who don’t.
There’s almost always information that will validate our opinions, no matter how wrong they might be. That means we need to always look for conflicting evidence and, from there, make judgements based on more well-rounded information.
4. Emotionally driven decisions
When we’re angry or upset, we’re much worse decision-makers. When you have to make an important decision and happen to be in a bad mood, you should hold off. Instead, wait until you cool down and can think more clearly. It will remove the outside influences and let you think more rationally.
5. Ego depletion
This one makes intuitive sense, but it’s one of the most common ways to make bad decisions. The idea of ego depletion is that when we’re drained, physically or mentally, we’re less likely to think critically. Think about the times you’ve been exhausted after a long day of work. In those moments, you don’t want to have to think hard about anything. Instead, you want your brain to work automatically.
What that means is that when you’re tired and faced with challenging choices, you’ll rely more on your instinct or automatic processes as opposed to analysis and thought. That can be extremely problematic in situations that require effort.
6. Halo effect
The halo effect says that once we like somebody, we’re more likely to look for his or her positive characteristics and avoid the negative ones. This is similar to confirmation bias, but it’s oriented around people.
Related: 10 Stupid Mistakes Smart People Make
For example, let’s say I just hired someone named John, who was great during his interviews. Through his first few weeks, John does a few things well at work, but he also does many things poorly. The halo effect — brought on by his wonderful interview persona — could cause me to ignore his poor attributes and emphasise his good traits.
This can be detrimental to our ability to make judgements about others. We have to realise our biases toward certain people and eliminate them.
These are a handful of the many decision-making errors we’re all prone to. Although it’s challenging to scrutinise your preconceived notions, doing so is worthwhile. It gets easier over time and will, ultimately, make you a more effective decision-maker — personally and as a business owner.
This article was originally posted here on Entrepreneur.com.
8 Reasons Why Failure And Focus Are Essential To Business Success
There are two Fs that define the long-term and sustainable success of your business – Failure and Focus.
There is an event that runs globally across countries such as the United States, Spain, France, Brazil and Israel. It is a conference that is aimed at the entrepreneur, the investor, the developer and the designer. It also caters exclusively for failure – FailCon asks the entrepreneur, specifically within the technology space, to embrace failure. However, this focus on failure isn’t about leaping blindly into the ball pit of collapsed dreams and wallowing in its sorrow as you shout ‘Bazinga!’. It’s about being comfortable with the idea that failure can happen and using it to drive your business focus and long-term success. These eight steps define exactly how…
1. Not big, iterative
Giving someone advice to fail big isn’t practical. It isn’t the kind of attitude that investors will be drawn to either. Instead, embracing failure is about being open to the fact that it may very well happen to you and some of your ideas. It isn’t necessarily going to be a gigantic failure on a scale of company-wide collapse. It could just be that you had an idea, and it wasn’t a very good idea so it failed.
2. Focus on your agenda
If you’re not focused on your end game and business agenda, don’t expect your staff to be. This level of focus is critical as it gives people direction. They then understand exactly where the business is going, what it hopes to achieve, and the role that they play in taking it there.
If you don’t have this level of focus, your staff don’t have anything to latch onto.
This is where your ability to fail is of value. You need to test your assumptions and ideas and then use their failures to learn more about how they could potentially succeed in the future. You have to learn from your mistakes. Don’t drown in self-doubt, take the mistakes and move them towards enhancing your business.
4. Success isn’t easy
Look, if being a hugely successful entrepreneur was easy, everybody would do it. You need to keep the focus and intensity you brought on your first day all the way through to today. Create short term goals and objectives that give you endless purpose and a sense of achievement and use their success to drive you onwards towards your final destination.
5. Build in plenty of goalposts
Justify every decision and long-term goal through relentless measurement to ensure they are the right decisions. The last thing you want is to hit your goal in 10 years and discover that it wasn’t the right one, your business hasn’t gone anywhere and you’ve worked incredibly hard for nothing. The effectiveness of your time, decision making and execution is critical.
6. Define failure
What does failure mean to you? Understand how you define it and then use this as a barometer to define your idea of success. As long as you have clear objectives for both, you can assess your business, its effectiveness and your results. As mentioned in above, always set goals and objectives so you give your company and people a sense of purpose.
7. Your ideas aren’t always that good
Some of your ideas are not going to fly. They’re going to collapse with an embarrassed sigh. The lesson is that you should be constantly questioning yourself so when you are in a situation where your ideas don’t work, you can objectively examine why they failed and use these learnings to change and adapt.
There needs to be a healthy tension between learning through theory and practice. The latter is learning to win and to handle defeat in real time with real results.
Related: Your Business Failure is Your Fault
8. Get over it
It’s quite easy to wallow in your failure misery and lose years to personalised anguish. It’s harder to just get over it and move on. The thing is, it’s moving on that counts. Those who get up, dust themselves off and start again are those who end up thriving. The ability to compartmentalise and learn is invaluable as you take your business from your first idea through to a sustainable, epic enterprise.
How To Embrace An Exponential Mindset For Your Business
In the age of exponential technologies, it’s a risk not to take a risk.
Think global and exponential
If you’re an entrepreneur trying to establish a successful business, it’ll be dead before it even takes off, if you don’t build it for the future. You have to think three to five years ahead, so when it launches, it’s still relevant.
Think like former Canadian pro ice hockey player Wayne Gretzky, who said: “I skate to where the puck is going to be, not where it has been.” And these days it’s easier for entrepreneurs to predict the future thanks to technology and data insights.
Consider what Singularity University co-founder Ray Kurzweil calls The Law of Accelerating Returns. He says the only thing that’s constant is change and that change itself is accelerating exponentially. As per Moore’s Law, information-enabled industries are doubling their performance and halving their price every 18 months, according to the price-performance ratio. The field of biotechnology has managed to surpass that.
There’s no time to slow down, your business has to constantly evolve, and you have to keep asking “what’s next”. Encourage experimentation and innovation in your company. Innovation focuses on incrementally improving your already existing products and services, while experimentation allows for fresh outlooks and breakthrough strategies that leapfrog old ways.
We should reprogramme our linear mindset into an exponential one. Don’t aim to grow your business by 10 per cent year-on-year, but rather 10 times. The first thing I learned at Singularity University is the potential of exponential growth. If you take 30 linear steps, you only move 30 places, but if you move 30 exponential steps your place doubles with each step and by the 30th step, you’ve moved over a billion places.
We’ve seen this happen with unicorns – not the magical creatures, but start-up companies that are valued at over $1 billion within their first year – like Slack (cloud-based team collaboration tools and services) and Square Inc. (a mobile payment company). It once took around 20 years for American companies to reach the billion-dollar valuation mark, now it may take less than a year.
In the early stages – until your third step – your progress may seem linear. Many exponentially-geared companies give up at this point – just as their growth rate is about to explode. Persevere!
A few decades ago it was unthinkable for an individual or start-up to disrupt entire industries. Start thinking globally, not locally. Use staff-on-demand and crowd souring to propel your business ahead of the competition. It’s unlikely that you have the world’s smartest minds working for you, however with the power of the crowd, you just might.
If you’re struggling to find a solution, turn the challenge into a game and offer prize money. You’ll have thousands of people attempting to solve your problem, but will only pay for the best solution. Kaggle is a platform for predictive modelling and analytics competitions. It lets statisticians and data miners compete to produce the best models for predicting and describing data. Mining company Gold Corp placed its geological data online and offered money to anyone who could locate gold at their Canadian mine. Four of the five winning entries struck gold. And in 2011 it took a team of gamers 10 days to solve an enzyme riddle that could hold the key to curing AIDS.
The six Ds of tech
As companies become information-enabled they should internalise what Singularity University co-founder Peter Diamandis calls the six-step growth cycle of digital technologies. These Six Ds of Tech Disruption are digitisation, deception, disruption, demonetisation, dematerialisation, and democratisation.
The first step is digitisation. Once something enters the digital realm it gains the potential for exponential growth. Think of the radio and CDs. You no longer need either, instead you can stream online, listen via YouTube or download music. After digitisation, growth appears slow, even deceptive. Sadly that’s when many companies opt out. Be patient!
No one imagined Kodak would disappear after a century. Kodak thought they were in the business of printing photographs, while they were in the business of memories. Think about the need your business solves. Kodak invented the digital camera, but was too scared to disrupt its own industry. It didn’t realise that people were no longer taking photographs in the same way, so their competitors disrupted the industry instead.
Today, the camera has become part of the smartphone and photographs are predominantly shared via social media. Instagram epitomises the next step in the equation: demonetisation. With time technology becomes cheaper and even free. Instead of printing photographs, many people instantly share them on a free smartphone app like Instagram.
Next comes dematerialisation. The radio, camera, video recorder, GPS, calculator and calendar are disappearing from the physical world as they’re being built into the smartphone. The wallet will dematerialise next with the advent of online transactions and cryptocurrencies.
Finally, democratisation happens when government, corporates and the wealthy no longer hold control and masses of people have access. Just think, the average South African with a smartphone has access to much more information than the president of the United States of America had 20 years ago.
In the age of exponential technologies, it’s a risk not to take a risk.
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