The recent financial crisis caused more than just an economic downturn. Major shifts are taking place in almost every industry around the world as new rules for success and failure are written. History tells us that the major winners and losers of a recession actually emerge only in the aftermath of the downturn – as the upswing begins. We therefore need to prepare ourselves for a decade of turbulence as we live with the after-shocks of the “Great Recession”.
The most successful companies will be those that find ways to be strategically responsive. To do this, it is important that everyone – at every level in the organisation – has an understanding of the forces that shape the next decade. Only then can they contribute meaningfully to your company’s success. You can develop these insights through regular analysis of your environment and strategic conversations with all of the people throughout your organisation. Their understanding will help them buy into your vision and strategies. And it is also essential for problem solving, creativity, innovation and the proactive identification of opportunities and threats in your industry and marketplace. Here’s a helpful framework: consider, on an ongoing basis, five key disruptive forces that will reshape the world in the next decade. These are the tides of change. Use this framework on a regular basis in your team meetings and informal conversations to make sure that everyone is ready for the next few years of turbulent change. Let me explain. There are five tides of change, each one outlined below.
Continued increases in computing power and the rapid development of digital tools to enhance and simplify our lives will dominate the next decade. The workplace has never been so far behind the technology curve as it is now. When I first started work (at KPMG in the early 1990s), the office had the best technology (the latest computers, mainframes, fax machines, colour photocopiers and more). I arrived early and left the office late in order to spend more time on the Apple SE/30s KPMG Johannesburg had just purchased (they’d make good doorstops now). But today, instead of trying to take things out of the office, young people are desperate to smuggle technology into the workplace. They’re frustrated at the out-of-date hardware, old software and restrictive IT policies that characterise many office environments. Companies need to catch up quickly and take advantage of the most important technology trends for business in the next decade: social media, augmented reality and mobility.
This is being driven not by teenagers who want to tell the world what they had for breakfast, but by our human desire to connect and interact. At last, computers have stopped creating space between us and are providing ways to connect us. This will change how you communicate – if your website is just a brochure and does not encourage interaction, feedback and conversation, you’ll be left behind. But it has even more potential to change your entire business structure, with collaboration at every level. For a detailed look at what social media might do to our industries, see http://tr.im/socialmedia2.
This is our ability to see the data associated with the physical objects around us. We’ll quickly get used to doing this, and your organisation could be left behind if you don’t make all the data anyone might like to see available to them in visually stunning ways.
And all of this will need to be done in such a way that it can be accessed and interacted with via mobile devices. Cloud computing will drive our ability to access any (and all) information anywhere, on any device or platform, all the time. In this world, geography counts for nothing and competition is everywhere. How mobile can your staff and customers be? How mobile is your offering? The next steps in the technology revolution are all about how we use technology to connect us and help us interact. Don’t be left behind.
2. Institutional Change
Almost every sector is in the midst of a period of disruptive change where the old rules for success don’t seem to hold true. This is because many industries are currently experiencing deep structural changes, including changes to the nature of relationships, the means of producing profit, how companies are structured internally, their risk profiles, where and how capital can be accessed, the basis for success – and failure, and the structure of the industry itself. Kenichi Ohmae foresaw this in his 2005 book The Next Global Stage: “Over the last two decades, the world has changed substantially. The economic, political, social, corporate, and personal rules that now apply bear scant relation to those applicable two decades ago. Different times require a different script.”
The key to understanding this disruptive trend is that we are finally being forced to deal with the implications of the shift from the industrial to the information age. We should not be surprised that it has taken nearly half a century for the implications of this transition to be fully felt. It took longer than that for the first motor vehicles and steam trains of the industrial revolution to mutate into the consumer economy epitomised by Henry Ford’s assembly line. By “institutional change” I mean that the very rules of an industry are changing. Most industries have these “rules” – the unwritten laws for success. It is inherited wisdom that everyone in the industry accepts as gospel. It’s hardly ever questioned. As we emerge from this recession I suggest two things:
- That the rules have changed – not all of them, but enough of them to make your industry feel like an unfamiliar place
- That competitors will question the rules and make changes that would have been unheard of just a few years ago. It would be better for you to be ahead of this curve, than behind it.
Each industry will be affected differently, but there is no doubt that institutional change requires new thinking from you and your team. Our default reaction to such seismic change is to protect ourselves. This will happen in your industry too. But now would be a good time to go against the flow, and question the assumptions that threaten to constrain you and your competitors.
The third of the five tides of change is demographics. There are many trends we could consider as we look at the study of changing populations, but the most important ones that will impact business in the next three to five years are: an ageing population (and changes in retirement), rising life expectancy, plummeting fertility rates, the potential for generational conflict, migration and diversity.
We took nearly a century to reach one billion consumers (roughly defined as the middle class people around the world who have disposable income and can purchase appliances). It will take us less than a decade to grow that number by another billion (or more). And almost all of these new consumers will come from the developing world – they will have different mindsets, languages, cultures and worldviews. At the same time, the developed world will get older, and migration from rural areas to cities, and from poor, overcrowded countries to rich, ageing countries, will increase. This points to a very different looking world in ten years’ time. A key part of management’s role in the years ahead will be to manage conflict between competing worldviews and demographics, and to find ways to release the wealth locked up in true “mindset” diversity – in both staff and customer pools.
4. Environmental Issues
You can’t walk past a newsstand these days without a host of magazine covers shouting something “green” at you. More often than not, it seems the articles are trying to fuel debates about whether climate change is happening or not. But, regardless of what you or I think about these issues, the governments of the world have made up their minds and are instituting policies and programmes to deal with carbon emissions and energy usage.
Energy will cost more, and therefore so will transport. Input costs will rise. Money will be made – and lost – in carbon trading schemes. But it’s more than just global warming we need to be worried about. As James Martin points out in his excellent book, The Meaning of the 21st Century, there are at least 16 major issues facing the world in the next few decades – each one of which could ruin the planet and change life on earth forever. These include pollution, extreme poverty, pandemics, runaway computer intelligence, dwindling water and food supplies, increasing violence and weapons of mass destruction, and more. Not only must you consider the possible threats of these issues to your business in the next decade, but you should also anticipate where potential opportunities will emerge for you. With activists and ethical consumers becoming ever more vocal, this issue has game changing potential in the next decade.
5. Shifting Social Values
If the previous four trends are changing the world as I have suggested, then it should not be surprising that people’s values, their dreams and aspirations, their expectations of what a good life looks like, their desires for their lives, work, families and careers are all changing, too. Many companies are hoping that we will soon get “back to normal”, but it isn’t going to happen.
The downturn has been more than economic – it has served to catalyse many social, political and values changes that had already been underway, and will now change the world forever.You need to consider how your staff, customers and business partners have changed their own expectations – not just in relation to you and your offerings, but to their entire lives and how what you do for them fits into these. This trend has the most potential to surprise you. Therefore, it is also the key to gaining access to the hearts and souls of your stakeholders – and that’s where the new sustainable competitive advantage in your industry is to be found.
Facing the Future
It’s not just the short-term challenges caused by the recent economic difficulties that have made business more complicated. Over a period of time, competition, the speed of change, globalisation and the technology that we’ve implemented have simply led to greater complexity. One of the ways that businesses have responded is to reduce layers of management and bureaucracy, passing responsibility and authority further down the line into our organisations. We thus expect people at all levels to act with the type of understanding, critical thinking, initiative, agility and responsibility that just a decade or so ago were largely reserved for people in the executive suite.
To be successful in the coming decade of turbulence and opportunity will require the involvement and commitment of everyone throughout your organisation. Nothing can guarantee your success. But by using the tides of change framework to guide your formal meetings and informal conversations, and to help focus your team on the forces that will disrupt your industry and change your market considerably, you can be off to a great start. The point is to make the most of turbulent times.
The Art Of Pivoting: How To Know If The Time Is Right
Keep the vision, change the strategy to serve the market according to what they really need.
The word “pivoting” has become as over-used as the phrase “disruptive innovation”, but much like innovation, businesses have been pivoting for many decades (if not centuries) before the word became an everyday verb. You only need to look at Twitter, which started as a podcasting business, or Nintendo, which started by selling vacuums, or even Youtube, which was supposed to be a dating site for some inspiration.
These businesses may have all changed their product, service, or even target market in a major way, but they survived and have been thriving ever since. They kept their vision of achieving successful sustainable businesses, despite a change in strategy. And that, my friends, is pivoting: Keep the vision, change the strategy to serve the market according to what they really need.
Ask the right questions to your market: Are you solving a problem?
If you haven’t done user testing, user interviews, focus groups, or called anywhere between 10 and 50 of your highest value possible clients, you might want to take a step back and get that done to define if you actually have a problem to solve.
Many founders start by speaking to a handful of family members, and a handful of friends about their business idea, and are met with unbridled excitement and encouragement that you would expect of people in your life who unconditionally love you.
The reality is, these people have to live with you everyday – they don’t want to risk offending you and shattering your dreams. They basically have to tell you that your idea is great. Get tangible proof from real-world customers or clients that they see the problem you see, and that the problem is as big as you think it is.
Set your vision
What are you really trying to achieve in your business? In other words, what is your “why”? If you set this in a very clear one liner, you will quickly realise that there are many ways to achieve that vision, if you are able to take emotion out of the equation.
This will take you away from the detail to the big picture. For example, a vision along the lines of “To save people time” could be achieved in hundreds of different ways, and your current offering could be tweaked to increase your market size and save people much more time than your current offering, even if it wasn’t that idea you initially got so excited to tell your dog and three cats about.
To paraphrase Eric Ries of Lean Startup, pivoting is simply a change in strategy, not a change in vision.
How do I know when to pivot?
If you’re going through difficult times in the business, I would recommend going back to the most important people in your business – your clients / customers. Get their thoughts and opinions on what’s working; what’s not working; is your offering solving their problem adequately; what would they like more of, etc.
Finding out how to improve your offering from your existing client base will almost certainly not only help you retain your existing client base, but also grow a new client base by helping you solve the problem more effectively. This process can also reveal if your clients see something in your product that you didn’t – ie.to help you pivot. You will find out what your target market really wants and what your product could be if you weren’t so attached.
This requires extreme open-mindedness, and willingness to implement your learnings, even if what your market wants isn’t as “sexy” as your initial offering. On the flip side, if you can keep improving your current offering without changing direction, and if you still have cashflow and clients in the pipeline, it may not be necessary to pivot yet.
Pivoting is often necessary when the current offering reaches a glass ceiling, it’s impossible to close sales, and when cashflow becomes a problem. However, if you realise that your offering is so far removed from what your customers want that you would have to change your strategy and your vision – that, my friends, could be the time to quit and apply the learnings to the next venture. The key lesson from that eventuality is to do more extensive product-market fit research in the beginning next time, and make sure your product is meeting an actual market need.
What if things were different?
I have an experiment for you to apply within your own business. Remember, open-mindedness is essential to break through the glass ceiling:
- What if you kept the exact same product / service, but changed your target market? What would the new target market be?
- What if you changed your product / service, but kept the same target market? What would your new offering be?
- What if you kept the exact same product / service and the exact same target market, but pursued that market in other cities or countries? If your market were the whole of Africa / North America / Europe etc, would that make a difference? Is it feasible? What would have to happen for it to be feasible?
- What if you changed your business to a social business? Would partnerships with NGOs open new opportunities in the market?
- What about the impact you could have and the exposure this could bring to your business?
I highly recommend creating a “what if” business model canvas or pitch deck based on this alternate reality for each of the questions above. This could be a fun activity to do with the team on a weekend away over multiple cups of warm coffee. Good luck, and remember, there is no shame in adapting your business to provide people with what they really need.
An Innovative Culture Absolutely Requires This Unique Capability
What you need is a ‘chaos pilot’ on board at your company. If you don’t have one, think about adding one.
In my line of work, I have the privilege of mentoring and working with start-up entrepreneurs who often offer unique and remarkable ideas that, in my opinion, have the potential for significant commercial impact.
Unfortunately, many of these ideas end up in the dust heap of forgotten businesses that never get traction.
Why do so many great ideas fail? The reality is that many promising new ideas are derived from products or services or systems that have yet to be considered. They are disruptive in nature and typically exist only in the abstract.
Dealing with these ideas therefore demands a unique set of skills that differ from general management capabilities typically associated with running a company.
In a recent article at Harvard.com, Nathan Furr, assistant professor of strategy at INSEAD and coauthor of Leading Transformation: How to Take Charge of Your Company’s Future, explained that a critical, and often missing, element for innovative teams is the capacity to function in the abstract. Furr referred to this capacity as negative capability.
To understand the concept, consider what Robert French of the Bristol Business School has called “positive” capabilities. These skills, as they pertain to new ideas, have been connected with successful general managers, because they can:
- Understand the complexities of new ideas
- Understand and manage the process by which new ideas are executed
- Understand and manage the necessary roles within an organisation or team needed to execute on new ideas.
These characteristics are typically technical skills that involve structure and discipline. They are valuable for managing any company, especially one operating in a business environment requiring constant innovation. Such innovation is needed to iterate new and bold ideas, but these skills alone are not enough.
The reason is that, to stay ahead and execute on a regular basis, new ideas, especially disruptive ones, often take a team and the entire organisation into unchartered territory where there exists no precedent, historical structure or “road map” to guide them. In these cases, positive capabilities based on structure fall short of execution.
As French explained, this type of change “always arouses anxiety and uncertainty,” and teams that are unprepared tend to move toward avoidance tactics – defaulting to known structures, which then lead to the collapse of the new project.
For that reason, it is critical to have members on the team who can handle uncertainty and unknown outcomes and also have the fortitude to pivot when necessary. These types of leaders are what Furr calls “chaos pilots.” To be an effective chaos pilot yourself, you need more than technical management skills. Here are the three other skill sets he lists:
1. Divergent thinking
To think divergently, Furr explains, individuals need to be able to synthesise a multitude of information and “uniquely connect new information, ideas, and concepts that are usually held far apart.” This skill requires the ability to stay constantly focused on a mission while constantly processing new information.
Leaders who operate as divergent thinkers often surround themselves with talented individuals who can handle the day-to-day operations; that capability frees up the leadership team to collaborate and collect valuable data.
2. Convergent action
According to Furr, great chaos pilots do more than just take in new information. They “execute on new ideas in order to create something tangible.” In other words, they synthesise all the information and leverage it to effectively execute on new ideas.
Far too often, entrepreneurs fall short here, getting consumed by FOMO (fear of missing out) and failing to prioritise, or at least balance, output time with input time. Doing so creates an entrepreneur with a wealth of information, but ultimately provides very little value.
3. Influential communication
Finally, thinking divergently and being able to “connect the dots” are great skills, but if a chaos pilot is unable to communicate new ideas effectively and, as Furr states, “inspire other leaders and decision-makers to believe, support, and act on a novel idea or opportunity,” the idea will stop short of execution, no matter how well synthesised.
Over the years, I have been a part of innovative teams (at times leading them) whose sole priority was developing new ideas for clients. I recall a few times leading those teams through a comprehensive mind-mapping process meant to spark new ideas. In these situations, we inevitably would stumble on a truly remarkable idea or two, but like our team, those ideas weren’t rooted in a stable and established process; sometimes they weren’t comparable to what we were already doing.
Our ideas would also sometimes get lost in the insecurities and anxiousness of the group and never even be presented.
Great management skills are clearly needed to lead a company and execute ongoing operations effectively, but to consistently generate and see great new ideas through to execution, it is critical to have an effective change manager – or chaos pilot – on your team. And while these skills cannot be taught, they can be learned and nurtured through experience and an environment that encourages and supports risk taking and failure.
This article was originally posted here on Entrepreneur.com.
How I Built A Company The Lean Way – By Using The Scientific Method
Starting a company is one of the most irrational acts you can do as a human being. That’s why employing hypotheses and experimentation is crucial.
In the past five years, the cloud management company I founded has grown from a one-person business into a global employer of over 300 people. Recently, VMware, the most important provider of infrastructure and technology in our industry, purchased us – an exciting milestone as we look to the future and continue to execute on our vision.
In spite of all the twists and turns I’ve experienced, there’s been one thing I did right in the early phases of building this business: Committing to continuous experimentation.
When I left my previous company, I had an idea of where I could bring the most value in the market, based on my previous experiences in cloud computing. But I’d also been inspired by Stephen Blank’s The Four Steps to the Epiphany and indirectly by the Lean Startup movement. As a result, I knew I would start my business from the top down: By devoting myself to a market (cloud management) and to the scientific method for entrepreneurship – dispassionately testing all assumptions and hypotheses, and following where they led.
So, where did I begin? And where do you begin? Here are the steps.
Develop your initial hypotheses
The process of entrepreneurship starts with a set of hypotheses to identify the product or service you will bring to your customers. A good hypothesis is that it answers critical questions regarding your initial business concept that can be proven only through experimentation.
I started my own journey by putting a poster on the wall and using sticky notes to capture the critical hypotheses I needed to test. Every two weeks, I selected a set of hypotheses and designed experiments to prove or disprove them.
En route, I thought about the ecommerce company Zappos – a supporter of the Lean Startup movement – and its initial hypothesis that people would buy shoes online. For the file-sharing company Dropbox, the hypothesis was that users needed a radically simplified way to share files. For the coffee retailer Starbucks, it was that Americans would embrace the Italian coffee culture.
Design an experiment
Next, choose a set of hypotheses to test, and design an experiment to test them. A good experiment should eliminate all ambiguity from the hypothesis to the answer. It should also prove or disprove the hypotheses with the least possible investment.
I was inspired at this stage by stories from entrepreneurs like Dropbox’s Drew Houston, Zappos founder Nick Swinmurn and Starbucks’s Howard Schultz. To prove his hypothesis, Houston didn’t invest in building yet another file-sharing app; he instead created a video that demonstrated the ease of use of his idea for Dropbox and how it could be a differentiator.
Similarly, Swinmurn didn’t choose to buy inventory for his new online shoe store, instead, he took pictures of shoes. He posted them on a website and purchased the shoes from the store only after receiving a customer order.
Schultz, meanwhile, chose to cram his early concept for delivering Italian coffee culture to American consumers into 300 square feet, inside another retail store.
Experiment and observe
My experiments ranged far and wide – from driving an advertising campaign, to creating an A/B test website, to performing customer interviews with large financial institutions, to delivering professional services.
For example, one of my sticky notes asserted simply that, “Cloud cost management is a feature and not a market.” The experiment I designed to prove or disprove this statement was built around helping five local businesses optimise their cloud costs.
As an early-stage entrepreneur, you have to be willing to conduct these sorts of tests to determine what works, what doesn’t and how you can identify real and durable problems in a market. You need to to take risks, to be willing to fail and understand that you’re always learning.
Dropbox’s own critical video experiment resulted in its beta user requests growing from 5,000 to 75,000 users, validating critical hypotheses without investing in a single line of code. Starbucks’s first store attracted 1,000 visitors per day to a location that had previously never seen more than 200. Zappos’s website resulted in actual sales of shoes, which were fulfilled with purchases – at list price – from a local store.
Discuss results with advisors
Before starting the company, I created my own informal board of advisors, who included a venture investor, two technology CEOs, a business development executive and a technology founder. All were dedicated to my success, with no strings attached.
I met with them for coffee throughout the experimentation process, and always discussed with them what I was learning. Having talented colleagues to provide feedback and advice frequently produced new insights.
Rinse and repeat
Once you secure answers to your first hypotheses, it’s time for you to go back to the drawing board and create new hypotheses, design another experiment and test it. A hypothesis without an experiment does no good. You gain the most knowledge when you’re testing the ideas you propose.
Start the business
I equate the start of my company to an experiment I called “the sale.” After several months of developing hypotheses and running experiments, I had a good sense of where I could add strong and durable value for customers in the market. But what I hadn’t tested was price.
I hypothesised that a prospective customer would need to be willing to spend $50,000 annually – roughly the average price required to sustain the business model – on my product, to support the inside sales-driven model I was projecting. So, I designed an experiment around cold calling a handful of prospective customers and trying to convince them to purchase my minimum viable product for $50,000 per year.
In the process of being rejected, I hoped to learn about the additional features these companies needed to justify purchasing a product at that price point.
As part of the exercise, I first spoke with the CFO of a fast-growing technology company. While the CFO understood the problem I was addressing, he had almost no input on features, and no interest in paying for a solution. But then he surprised me by asking for another call the next day with his vice president of engineering and members of his team.
The assembled team not only had deep knowledge in the area in which I had built my MVP, but had already built many of my features themselves.
By the end of the call, the vice president of engineering made the surprising statement: “Sure, we’ll buy.” When faced with the potential for a sale, the first instinct of every good engineer is to do exactly what you shouldn’t: keep talking. Instead, I proceeded to explain how the CFO was hadn’t been convinced the previous day, and that maybe the engineering VP should talk to him before agreeing to a purchase.
“Our CFO is in the room right now,” the VP said. “We’ll buy. Just send us the contract.”
As I hung up, my excitement at having a first customer was tempered by the reality that I had no contract to send, nor a business entity under which to extend it. Since my experiment had been designed for failure, I hadn’t given much thought to what to do when confronted with success. Thus began my next challenge: Creating a business entity and onboarding a first customer – fast.
Reach a conclusion and communicate it with peers
Starting a company is one of the most irrational acts you can do as a human being. You are taking great personal and professional risk for an unknown outcome. While there is no foolproof way to manage this uncertainty, there is a way to minimise the risk: cContinuous experimentation in the presence of customers. My company exists as a direct result of a commitment to experimentation, a route you should seriously consider when you start down your own entrepreneurial path.
This article was originally posted here on Entrepreneur.com.