April 19, 2011
I wasn’t sure how to start this off. For nearly the last 5 months, I have taken up blogging about business strategy. I was spending some quality time one Saturday morning with Instapaper when I realized that my Obsession times Voice is about how companies operate and what makes them successful. As I threw together that little Tumblr blog, I had no idea I’d come to learn more than I ever thought about business in this short time.
The following is a manifesto of what I’ve come to believe it takes to build an amazing, long lasting company that can change the world. It’s not easy, and it’s not a spoonfed answer. This is a framework of how to approach problems. Business is a design problem, and any great designer knows that amazing work is born of constraints. These are my constraints of business design.
Making Money is not your Goal
This is quite a realization. Let it simmer for a bit. If you are in business, your goal is not to make money. As someone with a degree in Finance, that’s baffling! No profit, no company. Right?
Wrong. Your goal is to build a customer through an amazing product.
Peter Drucker, who I would argue is the father of modern management thought wrote in Management: Tasks, Responsibilities, Practices:
Profit […] is the result of doing things right rather than the purpose of business activity. It is, above all, determined by what is necessary to attain company objectives. Profitability is a measurement of how well the business discharges its functions in serving market and customer.
Think about it: profit is not a means to an end. It is the end of doing many other things right.
The thing is, most business people are taught to start with a business plan where you make some guesses to project the potential opportunity. Once enough people sign off that it’s viable, you get down to building something that will fulfill the profit promise.
Don’t get me wrong – the planning is important to make sure you’re not chasing empty goals. The business plan forces you to consider how you’ll make money, which is a necessary requirement for a viable business. But shouldn’t part of that initial thought process be what’s awesome about the product? What sets it apart? What is going to be incredible about what you’re doing?
Howard Schultz recently stated in an interview about Starbucks’ rapid growth:
When you look at growth as a strategy, it becomes somewhat seductive, addictive. But growth should not be—and is not—a strategy; it’s a tactic. The primary lesson I’ve learned over the years is that growth and success can cover up a lot of mistakes. We’re going to make more mistakes. But we’ve learned a great lesson. And as we return the company to growth, it’ll be disciplined, profitable growth for the right reasons—a different kind of growth.”
The question you should be asking yourself isn’t “How do I make more money?”, it’s “What are the right reasons for growth?”
The implications of this are beyond huge in the world of business.
Build an Amazing Product (or service!)
The reason for growth should be this: you build an amazing product. If #1 is true, in that the goal of a business is to build a customer, then the easiest way to do that is to make people insatiably crazy about what you do. That’s what the successful companies do today: Zappos, Google, Amazon, and others.
The old, failing business model was lock people in. Think about Microsoft or RIM. Their goal was to build something that kept you stuck. Not many people love Windows or their Blackberry.
How do you do that? Horace Dediu, an analyst at asymco writes about Apple’s top priority:
At Apple the top priority is the product.
Sounds trivial, but very few companies place product first. Those who do tend to be producing creative works (e.g. movie or advertising studios, companies built around a creative process). Most companies place either production or distribution first.
Placing product first forces the bizarre behavior that Apple is well known for: being innovative and quixotic. It makes them foolish and hungry. Sometimes it even makes them catastrophically destructive to competitors.
This quickly becomes a constraint. When an organization grows, it’s easy to let people from different verticals (operations, support, finance, etc.) take control. If only I could count how many great companies have been destroyed by CFOs only focused on the bottom line.
Companies have to focus to be successful. Chasing revenue or cost savings over the product will hurt you in the long run.
Will Shipley presents the relentless product focus in a different way. It’s about changing the world in Farmers versus Miners:
The people who really change the world are farmers. Steve Jobs works constantly on his products, every waking minute of every day. He lives and sleeps and breathes them. He’s obsessive and crazy and kind of scary — but he’s trying to build something. He didn’t just say, “Here’s my idea: smart phone! BAM! Go make it happen. Ima jump in the sauna.” That simply doesn’t work. God is in the details. In the implementation.
Ideas are Cheap, Real Artists Ship
Speaking of implementation – in a creator culture, the people who ship, win. It’s simple.
The Social Network presents us a real-life example. Ask yourself who was right – Mark Zuckerburg or the Winklevoss twins? Sure, the twins had the idea for what became Facebook. I wouldn’t doubt that, but they saw the implementation as secondary. They are still fighting it in court!
Shipping is hard. Really hard. There will be lulls and tough times that you have to push through. It’s much easier to simply crash into a meeting and vomit out 10 ways to do something better. It’s useless though, everyone has 10 ways to do something better or new. If you’re an idea person (like me), your unrelentless focus should be on shipping.
That’s why concept products are useless. Kontra, on his wonderful Counter Notions blog writes about concept products
Concept products are like essays, musings in 3D. They are incomplete promises. Shipping products, by contrast, are brutally honest deliveries. You get what’s delivered. They live and die by their own design constraints. To the extent they are successful, they do advance the art and science of design and manufacturing by exposing the balance between fantasy and capability.
The Role of a Manager
There’s a popular trend today that professional managers are a dying and useless breed. I would beg to differ.
The role of a manager isn’t to directly create, instead it’s to build a team of amazing creators and put the incentives in place to do great work and ship an amazing product. It’s their job to create a culture of success. The manager who gets in the weeds of the work is doing it wrong. The manager who drops by your desk to tell you how to change your page design is doing it wrong. If you have to manage the details, you have the wrong people on the bus.
Another popular trend, especially in startups, is that you should just pull a lot of smart people together and have them work together to see what comes. Justin Kan of Justin.tv begs to differ:
A lot of startup talk seems to say that you should simply get a lot of smart people together and let them do whatever they want until something sticks, and that is a recipe for success in everything (product, team happiness). This is wrong. So wrong.
Creativity comes from constraints and direction. For us, the hard part of this was to actually define the problems / goals we were attacking and then ruthlessly refuse projects that didn’t address these. Instead, we found it so much easier to simply say “yes” whenever someone suggested something, but then let it die later through neglect or lack of interest – on purpose, or otherwise. This is a horrible idea, because it not only communicates an utter lack of focus but it is completely and utterly opposite of honest communication, and leads to people feeling betrayed, and rightly so.
Instead, you should provide a problem and framework, then let employee X figure out the solution.
Someone has to do this. That is the manager. It sometimes works out well when technology people get involved. I usually fails miserably when professional managers get involved. Just remember – if you are not a creator by trade, they are the most important. Your ideas may be wonderful, but the creators are the ones that make it happen.
Your job is to find awesome creators, set a problem and framework, and let them solve it.
Don’t Hire for Experience
The “standard” hiring process at any company goes something like this: there’s a job opening. Company X posts the job and gets a flood of resumes. The manager finds someone (usually internally) that has tons of experience in that field, brings them in and lets them do their thing.
That works and all, but it can also be a problem. Some industries develop a problem where everyone is self-serving and drinks from the proverbial Kool-Aid. Sometimes, applying old solutions to new problems isn’t the way to go.
John Maxwell recently shared a study on his blog:
Business professors Gary Hamel and C. K. Prahalad wrote about an experiment conducted with a group of monkeys. Four monkeys were placed in a room that had a tall pole in the center. Suspended from the top of that pole was a bunch of bananas.
One of the hungry monkeys started climbing the pole to get something to eat, but just as he reached out to grab a banana, he was doused with a torrent of cold water. Squealing, he scampered down the pole and abandoned his attempt to feed himself. Each monkey made a similar attempt, and each one was drenched with cold water. After making several attempts, they finally gave up.
Then researchers removed one of the monkeys from the room and replaced him with a new monkey. As the newcomer began to climb the pole, the other three grabbed him and pulled him down to the ground. After trying to climb the pole several times and being dragged down by the others, he finally gave up and never attempted to climb the pole again.
The researchers replaced the original monkeys, one by one, with new ones, and each time a new monkey was brought in, he would be dragged down by the others before he could reach the bananas. In time, only monkeys who had never received a cold shower were in the room, but none of them would climb the pole. They prevented one another from climbing, but none of them knew why.
Steve Blank also wrote about it in Older Means You Know Too Much:
Knowing that “it can’t be done” because you can recount each of the failed attempts in the last 20 years to solve the problem can be a boat anchor on insight and imagination. This not only effects individuals, but happens to companies as they age.
So what does this mean? Don’t hire for experience – hire for personality and interest. You want someone who is passionate about building something great. You want someone that is curious and inquisitive, who enjoys learning and asking questions.
Companies today are sitting on a hotbed of opportunity. Very smart kids graduating from college simply can’t find jobs because there’s an abundance of “experienced workers” out there. Take a step back, be willing to bring in some young talent and train them, but give them space to leave an impact on the company at the same time.
Someone once told me, that anecdotally, the half life of a successful company is 50-75 years. Remember that and stay humble. What made a company successful in the “last generation” may not be what keeps it successful today.
Make Your Customers Insanely Happy
This one is easy if you’ve followed the framework up to here.
You’ve built an amazing team. They’ve built an amazing product. Now, it’s time to serve your customers.
Jadkowski made a face and put the call on hold to do some sleuthing into the bargain hunter’s account history. The woman had bought $12,531.32 of merchandise from Zappos since 2005, of which she’d returned about two-thirds. There was an alert indicating that this wasn’t the first time she’d requested a price adjustment. “I think I’m not going to give it to her,” Jadkowski said briskly. “But let’s upgrade her!” She ran the decision by a supervisor and returned to the caller, who seemed sanguine. Indeed, she’d already put the Clergerie mule into her “shopping cart” and placed the order.
What Zappos does, is create something that makes the customer feel special, even though they didn’t get what they wanted. The psychological effects behind this are powerful! It helps to deflate the situation with most angry customers.
Again – if you’re primary focus is to build a customer, you’re not necessarily going to cut costs to serve them. You’re going to do the best damn job you can.
Don’t Chase Revenue at the Expense of What Makes You Successful
Companies love to chase revenue. They’ll grow big and fat with dozens of new groups chasing new revenue streams. That’s ok, but don’t do it at the expense of what makes you successful.
One particular example that many people have been writing about recently is Apple building a TV set. It makes sense, right? Annoying industry that no one likes that ripe to be broken open.
John Gruber nails it:
I don’t think Apple is going to get into the TV set business. “There’s money to be made” just isn’t reason enough.
The fundamental question Apple always wants an answer for before entering a new market is “Why would someone buy this instead of what’s already out there?” I don’t think there’s a good answer for that if an Apple-branded HDTV is just a big screen with built-in Apple TV functionality.
You may even have a compelling answer to “Why would someone buy this over what’s out there?” Usually most self-serving product inventors do. That’s when you need to be honest with yourself. Just because you can do it, is it the right thing? Is it the best thing?
Not chasing obvious revenue streams forces you to think deeper, find an even better way of doing things. It becomes a constraint of business, which, just like design, is a good a thing. Most people will chase the first obvious solution that comes to their minds.
In Apple’s case, they’d prefer to launch a $99 box that serves up content. They’re not serving up cable TV, they’re inventing an entirely new distribution method for TV. They could have just made a new TV, but now they’re tackling the cable companies head on.
Slaughter Your Golden Gooses
You shouldn’t just be thinking about how you can improve your current products—how you can make your horse-and-carriage a little lighter, a little cheaper, a little better. You must be thinking about whether your assumptions about the business you’re in are the same as they were yesterday. You should be thinking about what will make the horse-and-carriage irrelevant, and how you can be the one to do it.
To be successful in the long-term, you need to be willing to slaughter your own golden gooses.
It’s risky. You could guess wrong and release a new product that has no chance of succeeding. But sticking to what’s worked, because it worked for a while, has no risk: you will fail.
If there’s one message I would like to broadcast to the business community, it’s this. To be successful in the long-term, you have to actively think about how to kill off your existing business. That’s how others are thinking. And I don’t just mean in the obvious steal market share kind of way, I mean what’s the computer to your typewriter that demolish your entire industry with a new one.
It’s so easy and comfortable for a company to stick where they are. It’s easy to do what you know.
It’s not that you should just take risks, jumping all over the place. That’s why that is the last point in this framework.
Hopefully, as a manager, you’ve defined enough constraints in your business that you have an unrelentless focus on making your work better. You’re not going to be jumping into unrelated industries. Instead, you will be the one that discovers the thing that will kill your own business.
The companies that do this are the ones that will succeed for generations. These are the companies that will change the world more than once.