Category Archives: Startups

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Staying Alive

This will be the third post in an unintended trilogy following my last two on why companies that might appear to be “built to last” may suddenly evaporate before your eyes. In response to those stories (Gone So Soon and 8 Warnings That Your Company Is Toast), I received several inquiries wondering if there were ways to spot an imminent mudslide while there’s time to escape.

Executive turnover is something to watch closely, especially the C-suite. Either too little or too much turnstile rotation can be a warning sign. With no leadership change over long periods of time, a company might become entrenched in its plodding, convinced it knows how to do things so well no seismic shift in the landscape requires reinvention of the company’s ways. When executives are repeatedly jumping ship in under a year, the lack of stability in teamwork, embrace of new ideas, or core strategy might be signaling a torpedo crater in the ship’s hull that can’t immediately be seen underwater. Certain presidential administrations come to mind.

An escalating executive dump of equity holdings will usually light up an analyst’s eyes, but what about yours? If top management is seeking liquidity while proclaiming they are simply reducing concentration and balancing their holdings, ask yourself why now. It’s good to be loyal when there’s a reason to be loyal. Ignoring the siren to go down with the ship will never seem as noble when your colleagues have departed in first class and you are left treading ice water. Much of the dot-com bubble unraveled this way, with most of the stock prices dropping swiftly to zero.

Ever sit in a meeting, listen to a colleague or team of co-workers present an innovative, visionary solution to a core concern the company has long identified as critical to its survival, only to see the framers of the big idea summarily dismissed without adequate explanation? Sure you have, most of us have. Perhaps those framers then quit, go across town and put their concept to work for a competitor, of course without violating their nondisclosure or trade secret agreements, modifying their ideas to a variation on the theme. If you believe they are as smart as they think you are, consider following them. That’s how companies like Intel started.

Do you observe evidence that your company understands its core competency, protects it through a culture of learning, and openly admits its weaknesses as opportunities for improvement? When you go to an offsite, is the point of that retreat an honest evaluation of the company’s strengths and threats, or is the current leadership pontificating on how unlikely it is that your competitors can take your market share? Sears has been dying for decades. I wonder when in each of the past years they thought they were winning.

Are you building a project or a company? A lot of people aren’t sure. Most startups begin with a product offering, but if the company building that product defines itself too narrowly, it may soon cease to be a company when it is folded into a larger company with a lot of “synergies” found in the combination. If the word “synergies” doesn’t ring a bell for you in the world of mergers and acquisitions, it usually means overlapping functions that are removed as redundant costs, possibly you. Look at the string of product builders that companies like Microsoft and Google synergized throughout their history. How many of them can you still name?

Are analytics, diagnostic evaluation, empirical assessment, and primary research core to your company’s self-evaluation? Are key decisions made on gut instinct or debated with facts? Ask yourself if that’s what the top leaders in your company say they want to do or if it’s what they really do. That which gets measured gets done. That which gets quantified gets fixed. If you’re in the room where people are swapping stories rather than interpreting data, you’re probably better off gambling in a casino where the odds are at least known.

Another way to think about this is whether you believe top management in a company is truly focused on staying alive, and whether you can help overcome the challenges to a company you love or want to love. If the decision-makers around you are people you trust who are committed to vetting solutions, perhaps you can be as well. Too often when the axe falls, we acknowledge in hindsight what we should have applied in advance thinking. There are artifacts of knowledge all around you—both positive and negative—if you choose to pay close attention to the reality of your situation.

You can always be pleasantly surprised or devastatingly rocked by good or back luck on the job. Predicting the likelihood of an outcome is a learned task that is likely more tangible than you think.

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But We’ve Always…

It’s December. For those of us who make our living in any form of consumer business, that usually means two things:

  • We have made it through Black Friday and Cyber Monday, with our projections now being evaluated against actuals.
  • In less than a month it will be a new year, where we can either make the same mistakes again or invent new ones.

That leads to two takeaways I would like you to consider before the year ends:

  • Customer behavior tells us almost everything we need to know to be successful in business, particularly when we study data and benchmark assumptions against metrics.
  • We ignore the realities of customer behavior at our own peril, but darn it all if we don’t come up with really good reasons to flagrantly repeat our mistakes with passion and conviction.

How does our eye come off the ball precisely when it is crossing the plate and our bat is in swinging position?

It all begins with three wretched words:

BUT WE’VE ALWAYS.

Perhaps you’ve heard a few of these pronouncements before:

I know our customers complain when we send them too many emails, but we’ve always sent them at least four offers on Thanksgiving Day.

I know our customers don’t trust our pricing, but we’ve always jacked up our regular prices in the weeks before Christmas so we can mark them “50% off.”

I know it’s irrational to cover the cost of free expedited shipping and lose money on every sale, but we’ve always managed to convince our boss that losing money is the only way we can compete with Amazon.

I know our brand promise is what matters most to our company, but we’ve always managed to slip in a few low-quality products with our best inventory to even out our margins.

I know we believe our customers are loyal and have a lifetime value, but we’ve always cut our customer service costs to force our bottom line into compliance with our budget.

Yep, we know what we are doing is wrong, but we’ve always found a way to justify our shortcomings, weak logic, or poor decision-making because we’re out of time, out of patience, or out of energy to argue for doing what’s right.

Earlier this year I attended the third-annual ShopTalk conference in Las Vegas. It had grown 50% over 2017 with more than 8400 attendees. Ecommerce remains an escalating magic buzz word. There were two types of presentations:

  • “People may think our proud, established, vastly well capitalized legacy brand can’t adapt to new technology, but we’ve always been a customer favorite and there’s no reason anyone should bet against us.”
  • “We’re a new brand and will lose our jobs if we don’t succeed, but our investors are betting that if we brainstorm new experiments and focus on customer behavior, the results will tell us what works and what doesn’t.”

Which bet would you place with your own money?

Let me restate the choice:

  • “We’ve been around more than fifty years, we know exactly what we’re doing having coined a business model for hard-won success, we’re a household name, and we’ll still be a household name fifty years from now.”
  • “We have no idea if we’re going to be around in two years, but we’ll take whatever runway we have to figure out how to do what’s never worked successfully before.”

Don’t bother answering—it’s a trick question. The truth is you need some of both to win the long game, some of the newbies and some of the dinosaurs. Yet too many people convince themselves there’s little downside to a buy-and-hold strategy with “forever” companies like GE or GM. They won’t invest in a risky start-up with a funny name and an unproven business model like Amazon or Apple until it’s a fully valued blue chip.

No one knows what companies are going to win in the future, whether cemented or emerging. They all have unpredictable choices to make. It’s supposed to be that way. It’s how new companies are born and old companies die, or old companies are reborn through reinvention. It’s called creative destruction.

My point has nothing to do with improving your stock portfolio. My point has everything to do with recognizing the death knell of an established brand and bringing life or invigoration to a challenger brand.

It can be a fair fight. An established brand can be a challenger brand when it acts like an underdog—when it stomps out the status quo and humbly looks to customers for confirmation or rejection of any working thesis.

I am willing to bet few employees at Amazon or Apple wander the halls uttering the words “but we’ve always” as a response to why they aren’t trying something new. Who knows, maybe I’m wrong, maybe they are becoming slow, cynical, and comfortable that they know what they are doing. I doubt it, but if they are, an opportunity for a challenger brand is out there for the taking.

I’ll bet they said “but we’ve always” a lot at Sears.

I’ll bet they said “but we’ve always” a lot at Toys ‘R’ Us.

When was the last time you said it? Still feeling good about that?

This year’s holiday shopping strategy is already behind us. There’s nothing we can do with history except study and learn from it.

The new year awaits all big ideas, particularly those focused on truly delighting customers with a sustainable business model and a resonating brand promise.

My advice going forward in whatever you are doing?

Eliminate the phrase BUT WE’VE ALWAYS from your company’s vocabulary before it eliminates you.

Erase those three words entirely from all conversation.

BUT WE’VE ALWAYS is defensive, uninspiring, and telling.

Try something instead that hasn’t worked, something that you think might work because you have reason to believe in a thesis. Measure the results. If there’s promise, hone it with precision. If it starts to work, stay humble. Stay inquisitive. Question the potential interpretation of every collected data point. Remember that every successful idea has a life cycle, and a bad idea yesterday might be reformed under changing market forces as a good idea tomorrow.

When an idea works dependably and someone questions it in a future review, just don’t say BUT WE’VE ALWAYS done it that way. You haven’t always done it that way. It had a beginning. It can have an end. What can’t end is innovation.

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Image: Pixabay

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More Fallout from the Zuckerberg Files

Should the unintended consequences that emerge in the course of a company’s evolution be a primary concern of management?

Is the exponential creation of shareholder value still the overriding force when a wildly successful company grows even faster than its own outsized vision?

Are the naive philosophical aspirations of under-experienced entrepreneurs a get-out-of-jail-free card from the ramifications of otherwise noble intentions?

In answering these and similar questions, is Facebook somehow a different animal?

These are some of the issues examined by a new Frontline documentary recently aired on PBS that frames a deeply damning critique of Facebook and its leadership team. While purposefully steering past the warm-and-fuzzy aspects of Facebook’s innocent exchanges of family photos and recipes, The Facebook Dilemma dives into Facebook’s structural roots.

The critique presented is strident but not unfair: Why didn’t Facebook as an enterprise heed the many early warnings of the pervasiveness of its influence and more strongly consider mitigation strategies, and now that the political chaos has been unleashed, is there any possibility of getting the bad genie back in its bottle?

When Facebook launched, founder Mark Zuckerberg braved a bold and curious global community manifesto:

“Our mission is to make the world more open and connected.”

That sounds good on the surface, and it sounded so good to so many of Facebook’s early employees that they rallied around the life-affirming purpose. They believed they were building a platform toward the betterment of humanity.

Simultaneously, the size of the audience embracing the platform created a media opportunity unlike any other in history. No company has ever thought about achieving monetization of a billion (heck, now two billion) individuals. To make sure no money was left on the table, Zuckerberg hired Sheryl Sandberg from Google to build that side of the equation.

The inherent conflicts soon became apparent. Facebook claimed to be a technology company, not a media company, even though its business model was selling advertising, which is what a media company does. To be the most valuable media company it could be, it needed two things: the world’s most in-depth data warehouse, and a rule set of utilizing that data with the fewest possible restrictions.

As a business, this all made sense. As you can see every day in the public company’s enterprise value, it worked beyond all expectations. The problem remains, it was initially fueled by another slogan:

“Move fast and break things.”

This ethos is not unique to Facebook. One of the tenets of Silicon Valley is to drive value from what is called an MVP, a minimum viable product. The point is to get a functional offering in the market quickly, find where it is successful, worry little about its failings, and start to iterate while building cash flow. Success is defined first by penetration (audience reach) and second by monetization (lifetime customer value). When things go sour, startups try to fix them, but because success is winner take all, most teams unapologetically expect there will be a lot of sourness to sweeten.

The question Facebook has encountered is unsettling: Is its very business model antithetical to fixing the byproducts of its success?

The Frontline documentary illustrates many of the ways Facebook has gone sour. Arab Spring. Fake news penetration in the 2016 U.S. presidential election. Russian intervention in media buying in the same election and outrageous exploitation of privacy by Cambridge Analytica. Violence in Myanmar.

Even Roger McNamee, a celebrated early investor in Facebook, took it upon himself to act counter to his own financial interests and ask Facebook management to step back and rethink the implications of its mindset. They did not heed his warnings. They were either too optimistic, too idealistic, too hooked on winning, too greedy, too ambitious, too arrogant, too busy to see the light of day, or a combination of all of those.

Facebook management has been reactive on all these fronts and done what it can to play whack-a-mole as crises emerge. Executives and managers there admit repeatedly they have been “too slow” to address the ramifications of their global viral adoption. The “too slow” apology parrots Zuckerberg’s appearance before Congress. It was a well-played chess move. It reveals no ethos of a fundamental commitment to a proactive playbook of innovative solutions. It’s a cost center, not a profit center.

Traditional media companies work under the direction of a qualified, responsible editor. When a journalist makes a mistake, the media brand runs a retraction. Facebook doesn’t want to be a media company, and it doesn’t want to be an editor, but any way you slice it, the algorithm that sits under News Feed is a robotic editor more likely to show you what it thinks you want to see than what is true or real. Then a perfectly targeted ad is inserted. That is how the game has been won at Facebook. It’s a winning formula. Any risk to changing that is far riskier to the company’s stock price than a few incidents of political unrest.

The real question remains: If Facebook’s mission requires that the company remove most obstacles to the free flow of information, the result of which is to facilitate unfiltered speech, the result of which is chaos, can it both stay true to its values and smooth over the chaos? And if the company is selling some of the most valuable ads in the world because the vast archive of privacy data is what makes those ads click, how can it impose limits on the interests of its ownership?

It’s a greater good question, one that capitalism believes is best left to the free market to solve, but in this case, it’s almost impossible to see how that gap is bridged.

Zuckerberg likes to say that Facebook is an “idealistic and optimistic” company. He said it when we was hauled before Congress to address the breach of privacy trust. When he was a younger man, it was a quaint proclamation I could have believed were it not for the true origin of Facebook as a college hook-up site. When he says it today, it sounds cynical. People who work for him might still be drinking the Kool-Aid. He’s selling advertising, justifying it, and trying to dodge regulation. To wit, he’s doing his day job as CEO.

Part of the problem might be social media itself. Its greatest strength is its greatest weakness. While pure democracy of publishing without a filter is liberating, audiences can easily be misled and mislead each other in chaotic exchanges of raw opinion. Add in bad actors buying access for covert agendas and the danger can become uncontainable.

Shortly before Zuckerberg testified earlier this year, I wrote a post entitled Is Facebook the Next AOL? At that time I wasn’t sure. Now I am. The byproducts of Facebook are so pernicious and likely unresolvable, I do think at some point the vast audience will abandon the platform. The cost of trading one’s privacy for family photos and recipes is too high. I don’t know when that will happen, and Facebook has a ton of cash so it can last a long time, but I expect the devoted masses will eventually exit their loyal addiction in self-defense. I don’t think this invention can adequately address the inherent conflict of interest it has created to thrive. Creative destruction will replace it with a better, more respectful product.

A brand is a promise. When trust is eroded, a brand dies.

I remain active on Facebook, but the broad notion that the world would be better as an open and connected place has always troubled me. Maybe it’s because I grew up as a kid learning of Nixon’s enemies list. Privacy to me always seemed to matter. Today’s political climate almost makes the Nixon era seem welcoming.

I’ve long subscribed to the notion that technology is advancing much faster than our ability to understand its implications. I saw that in my early career with the addictive nature of computer games. We see it all around us with people’s attention glued to mobile screens as they bump into each other and fall into fountains. We don’t really know what this stuff is doing to us. We buy it and use it and another tech company goes public.

Silicon Valley moves fast and breaks things because it’s good for business. Collateral damage is expected and as long as a company survives and grows few real tears are shed. Expecting it will change is unrealistic. It’s a form of realpolitik. Expediency wins over ideology because of the vast money at stake.

Since you’re probably staying on the social media playing field indefinitely, protect yourself. No one else will.

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This article originally appeared on The Good Men Project.

Image: Pixabay

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The Many Lessons of Andy Grove

Time 1997We lost a great business leader earlier this year. His name was Andrew S. Grove, known to many as Andy Grove.

He survived Nazi-occupied Hungary as a child, then Soviet-controlled Hungary, immigrating to the United States at the age of 20 in 1956.

He received a Ph.D. in chemical engineering from U.C. Berkeley and became a star engineer at Fairchild Semiconductor.

He left the stability of Fairchild Semiconductor with Silicon Valley legends Robert Noyce and Gordon Moore when they co-founded Intel. Together they later entirely reinvented Intel from a manufacturer of memory chips to the dominant producer of microprocessors.

He was Intel’s CEO from 1987 to 1998, the famous “Intel Inside” years when personal computing exploded from the hobby to the consumer market.

He wrote the legendary book Only the Paranoid Survive, published in 1996 and still a must-read for anyone who wants to understand innovation and the power of creative destruction.

For many years he co-taught a course in strategy with my dear friend Robert Burgelman at the Stanford Graduate School of Business.

If you think everyday people always had the internet, email, streaming video, and smart phones, you have a loose grasp on current events, let alone history. Andy’s leadership at Intel took us from the 8086 to the Pentium chip, from monochrome to color displays, from floppy to CD disks, from no hard drive to software that could be installed.  If you didn’t live through the transformation of the universe from analog to digital, from buying hardware and software at Computerland and Electronics Boutique to Best Buy and Costco, it’s hard to explain the magnitude of this growth cycle. Andy is one of those guys who really changed the world.

Okay, you get the point, about 0.001% of mortal beings have a resume close to his. You can read his full bio on Wikipedia. I want to share something more personal about him, the key takeaways from the few times I met him in person during roadmap briefings at Intel in the 1990s. Among the many lessons I learned from Andy Grove, here are five that continue to guide me daily:

  1. Creative Destruction Is Real – Whatever product you ship today is already obsolete, no matter how well it is selling. If you are not working on the replacement for it, someone else is. That is why you have to be paranoid. You will always be correct if you presume you are about to be outperformed in the marketplace of goods and service. Never get comfortable, never rest on your laurels, or you will be gone in a heartbeat, wiped off the map while you are collecting your awards for last year’s success. I learned from Andy that almost every startup that presumes it is built to last is almost certainly on a crash course with obsolescence, that the vast majority of even robust corporations today last about half as long as a human life. Companies don’t reinvent themselves, they are reinvented by courageous, visionary people.
  2. Beware the Strategic Inflection Point – By the time a market has fully morphed at scale, it’s way too late to react. You can’t see a strategic inflection point coming, you can only acknowledge it in hindsight while confessing your memoirs. Sorry, Monsieur Business Plan, the landscape changes in real time! Because you have learned to be paranoid, you are going to figure out one dreary morning that something you are doing in your company is hugely wrong. Some product you are readying for release is going to tank no matter how much you spend on marketing. Remember when Bill Gates discovered the internet? Remember when Mark Zuckerberg discovered mobile? Those were Intel-inspired moments. They turned their companies on a dime the same way Andy helped turn Intel on a dime when they realized the market for memory chips had commoditized and microprocessors were the way forward. I learned from Andy to always remain nimble, that sunk cost is always sunk cost, eat it and move on. Achieving competitive advantage before others see it coming is where your investments must be all the time.
  3. Science Is Inescapable – No matter what your market cap might be, you can’t fake math. Pithy slogans don’t make better computers, engineers do. For Moore’s Law to work (roughly twice the computing power will be available every 12 to 24 months for the same cost) staggering volumes of calculations have to take place on a tiny silicon chip without the transistors melting down. If you want to win at the engineering game, it takes the boldest and brightest team of advanced engineers you can assemble. They need the time to do the math, which is why Intel was already designing the 486 chip while shipping the 286. You can’t predict when the equations will be solved, you can only form a thesis and test your working models until they clear quality assurance. I learned from Andy that there are no sustainable shortcuts in quantifiable outcomes, the minimum viable product be damned! If you try to cheap your way through a poorly constructed algorithm, science will have its way with you and the result won’t be a proud moment.
  4. Constructive Confrontation Works – A lot of people who didn’t grow up in the Intel culture found it an impossible place to survive. Intel was a place where undisciplined, random conversation was never the norm. Almost anything anyone said could be challenged directly and aggressively by anyone in the hierarchy. Even when you were visiting Intel as a channel partner, anything you said could get shoved down your throat as instantly as you said it. Was this nice? It wasn’t meant to be nice. It was meant to improve products, driving ceaselessly toward unattainable perfection. That was how Intel maintained design and manufacturing leadership for a generation, by always challenging assumptions, never accepting compromise or forging an unholy consensus simply to move on. It isn’t the right culture for everyone, but at Intel, you bought into it or got your walking papers. I learned from Andy that in constructive confrontation, it’s always the idea that gets attacked and never the person. You might feel that you are being attacked, but you aren’t. Your ideas are being made better or mercifully eviscerated.
  5. Resilience Is a Mandate – Imagine a guy who made it from the Holocaust to the highest level of American thought leadership—all the obstacles, all the challenges, all the knock-downs, all the reinvention. To embrace the example of Andy Grove is to embrace the notion of resilience as the single greatest motivator available to anyone at any stage of emergence. You don’t give up, you don’t give in, you don’t quit. You always expect more from yourself. You learn from your mistakes, you study your failures, you learn from your adversaries. Want to survive? Want to triumph? Want to leave a legacy? There is no other way. I learned from Andy that you stay in the game, you look forward at opportunity, and you try again—only harder. Resilience isn’t a nice-to-have. Resilience is fuel for the soul.

Andy was a living example of realizing possibility through discipline. It is extremely rare to find an innovator with startup DNA who can personally evolve into the CEO of a multinational corporation. It is equally rare to find a top-notch engineer who embraces consumer marketing as a key strategic initiative. Andy championed the “Intel Inside” campaign as a branding mechanism that made an otherwise invisible component a necessity for personal computer manufactures to tout. When the consumer press seized upon an obscure failing in a sample of Intel microprocessors, Andy accepted the criticism as a byproduct of his brand promise. He insisted his team correct the deficiency with renewed quality assurance rather than defend the company’s position with arguments the consumer would never understand. He was book smart, business smart, and street smart all at the same time. He gave back way more than he ever took off the table in every way imaginable.

If you ever worked on one of my teams, I probably bought you a copy of Only the Paranoid Survive and quizzed you on it a week later. Andy’s words, thoughts, and ideas remain that important to me. He was an industry icon and a human being impossible for me to forget. I hope none of us ever forgets Andy. He remains a truly one-of-a-kind inspiration.

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This article originally appeared on The Good Men Project.

Photo: Time Inc.