Tag Archives: creative destruction

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Embrace Turbulence

How many really bad things can go wrong in business in a single day? One or two? Five? Dozens? Dozens of dozens?

A key employee leaves because a spouse is offered a job a thousand miles away.

A key partner botches a supply chain handoff and your warehouse is empty ahead of an annual sale.

You discover a critical hidden formula error in one of your financial spreadsheets that even your auditors missed.

Your customer service lines light up for a problem with your competitor’s product being confused for your own.

Sound like a normal enough day?

Then why do we think of turbulence as extraordinary?

Maybe a better question is how many things can go right in a day. Sometimes if you achieve one modest success you count your blessings and call that an outstanding day! A win is the welcomed exception. Problems are the norm.

Just remember one of the key maxims in career longevity: If you’re a manager, problems are job security. If there weren’t problems in business, we wouldn’t need management. Lucky for us, huh?

I was recently talking with a colleague about his desire to offer calm to his staff after a rough few weeks. He wanted to give a talk where his message and tone signaled that the bad stuff was behind them.

I advised against it. How could he possibly know what fate might bring even later that afternoon. You never want to make a liar out of yourself with stuff you can’t control. Besides, the very notion of calm to me signals surrender.

What is the stuff you can control? Attitude, anticipation, and readiness.

It’s a question of urgency over fear. Fear in the form of debilitating anxiety may not be your friend, but urgency in the form of nimble responsiveness is always your friend. There is so little in our future that we can control, pretending it is otherwise is advancing the clock on the certainty of smack down.

Complacency lets down your guard. Predictive, proactive realism keeps you sharp at all times.

How many times have I heard hardworking but tired employees utter the phrase: “If only we can get through this [fill in the blank], we’ll be fine.”

Remember this instead: The reward for getting over a hill is the opportunity to climb another hill. There is always another this to get through. Beyond each valley is always another hill, often steeper and higher than the one behind you. That is the nature of economic cycles. That is the nature of problem-solving. Whatever you solve today may create an opportunity, but the market response to that opportunity will likely create the next problem on your plate.

It’s no different for capital and equity markets, where despite our hope for smooth sailing, volatility is the norm. That’s why for so many stock picking is a loser’s game. You’re in for all the good and bad days or you’re out.

What to do then?

Embrace turbulence before it becomes turmoil.

Make turbulence your constant companion. Celebrate small wins, but never be fooled by a quiet few hours. Once you are comfortable with the inevitability of unpredictability, your confidence level will rise. You will learn to address change because you accept the inarguable market force that change is constant.

A good sales quarter is always exciting, but as every prospectus states, past performance is no guarantee of future results. You know that like you know your boss’s ugliest shirt. Why pretend otherwise?

Did AOL fall on hard times or fail to respond to turbulence?

Did Yahoo suffer an explainable devastating blow or wander aimlessly amid turbulence?

Did Kodak get ambushed by new technology or fail to play its strongest hand in a climate of turbulence?

Each of those companies allowed turbulence to become turmoil. When turmoil escalates to the unbound, creative destruction has usually made its decision.

Think about what those implosions mean to you.

Did the last project that didn’t go your way take you down or prepare you to outperform it?

Did your last failed product launch demoralize you or teach you how to make a better product?

Are you looking for comfort in the quiet ordinary or comfort in outrageous curiosity?

Big Company Syndrome is believing your paycheck will always show up. Smart Company Syndrome is knowing you have to earn your keep every day. Doing work and adding value are not the same things.

Turbulence in business is the norm, not the exception. Companies that win do so because they surf over, around and through turbulence. They might purposefully avoid an obvious storm they can’t navigate, but they expect storms, they don’t anticipate their magical elimination.

In daily business dealings, if you know that bombs are regularly going to drop, you won’t be surprised when they do, no matter from where. If you’re a CEO or close to one, you know it’s the job of leadership to address crises, not to hope they will slink away.

Make peace with turbulence. Pace yourself for a ceaselessly bumpy endurance contest. Expect an unruly rollercoaster ride and be mildly pleased the days it doesn’t throw you from the train.

When you have one of those good days—and you will—you will appreciate it even more. Your definition of a good day may also begin to change. Mine certainly has. Stay tuned to this channel for how.

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Image: Pixabay

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8 Warnings That Your Company is Toast

Last month I reminded you that no big-brand company lasts forever, and few of today’s technology phenoms last long at all. One of my readers emailed to ask if I might dare to note some of the warning signs that suggest company extinction might be zeroing in on your own workplace.

Of course if I knew the full answer to that, I would spend the rest of my career shorting all those imminent losers traded in the public markets. Creative destruction is difficult to see in its earliest phases because it often begins simmering silently in the background when your company is riding a wave of enormous good fortune. Funny how that infecting vulnerability sneaks its nose under the tent precisely when a business seems to be at its healthiest peak.

While the corrosion can be deceptively invisible at first, there are usually festering symptoms we can observe, watching the makings of a crash in slow motion long before opposing forces collide. Here are eight thumbnail questions to help diagnose the severity of your company’s illness and whether it’s likely to be terminal.

What is the company’s R&D budget as a percentage of sales?

If research-and-development spending is declining as your company matures, it’s possible that company is being harvested by its owners as a cash cow. While strong cash flow is an indicator of company health, take notice of how much of your business is being driven by recent successes vs. legacy brands. If new products aren’t breaking, sniff around and see how much of that cash is being invested in next-generation ideas. If increasingly more cash is going to ownership and less to building your company’s future, you may have reason to worry.

Is your CEO surrounded by people who hold the same views of the company’s excellence?

Without gadflies who question everything, you’re likely to keep doing the same things. That could make you a cash cow, a one-hit wonder, or any number of limited-thinking results. Great senior leadership in a company encourages constructive conflict, because no single viewpoint in management can possibly see around every corner or predict a competitive threat. If lots of ideas are flowing, you have a much better chance to reinvent yourselves. Where dialogue is limited and funneling to a singular point of view, trouble is coming.

Does senior management actually use the product or service you produce?

This is the old argument for eating your own dog food. If the people who make and sell something only talk about why it’s great rather than obsess over what will make it even better, it’s likely to stay the same. If there is cynicism around your success and products become passionless widgets, customers will see that soon enough. Your customers can’t reinvent your products, just reject them. If you’re not a fan of what you’re doing, why should they be?

Does senior management regularly sample, investigate, and dissect competitive products?

If you think what you’ve got is the best and don’t even bother to see what could soon be eating your lunch, your lunch will soon be eaten. Be paranoid, be aware of everything competitive, commission and dissect research, never be comfortable that your moat is impenetrable. It’s okay not to use your competitor’s products day-to-day. It’s not okay to ignore them. If you happen to like them better than your own, wake up, the nightmare is about to become real.

In your company’s last earnings crunch, was marketing expense an early and severe casualty?

Marketing is an investment spend. If the money you are spending on marketing doesn’t add value to profitable sales, it should be cut now. If it’s driving profitable sales, it’s downright irresponsible to cut it. Marketing should be seen as a profit center, not a cost center. If there is no measurable return on your marketing spend, you’re already killing the company from within. If the return can be quantified, cutting it in bad times is senseless and irresponsible.

Is great marketing intended to help a mediocre product perform better than it deserves?

Said another way: outstanding marketing helps a bad product fail faster. If the product is garbage, all marketing can do is get it in the hands of early adopters. Once these market influencers trash the product, all is lost. If the product needs refinement before you invest to take it to market, take the extra time to get it right. If the product stinks and can’t be saved, kill it without a dollar of marketing spend.

Does your company culture resist rather than embrace change?

Also earlier this year I suggested that you keep your ears open for the phrase “But we’ve always…” whether it’s uttered in the break room or a key milestone review meeting. If your colleagues have unending excuses as to why you should stick with tried-and-true ways to fail because your company has always utilized a set of urban legends in your planning, you’re going to find it hard to carve a new path into the future. Doing what you’ve always done simply because you’ve always done it that way is a great way to succeed in any business that isn’t dynamic. Go make a list of businesses today that aren’t dynamic and tell me you should remain set in your ways.

Are you patching your platform or re-envisioning a new one?

Never confuse maintenance with progress. Think about just how fast industries are moving. I recently had the pleasure of watching the movie First Man. One of my favorites lines reminded me that it was a mere 66 years from the Wright Brothers first motorized biplane flight at Kitty Hawk (1903) to Neil Armstrong walking on the moon (1969). If you’re anywhere in the vicinity of 60 years old, that doesn’t seem like much time at all. If you’re fixing your biplane while your competitor is building a Saturn V rocket, it doesn’t matter that you’ve happened upon some world-class glue. When the rocket launches, you’re toast.

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Image: Pixabay

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Gone So Soon

Recently I gave an interview about one of my favorite career projects, Carmen Sandiego. It was being researched by an archivist! I hadn’t been asked in years about the mysterious thief in the red trench coat and fedora. As big as she was in my life and on the national stage, save for a new motion picture in development, few people remember dear Carmen as much more than nostalgia. For that matter, who remembers the massive multimedia magic of CD-ROM computer games with all of 700mb of storage?

There she is. There she isn’t. Nothing lasts forever. Very little lasts long at all. That is the stuff of our culture. That is the stuff of our careers. Hold on too tightly to anything and you find yourself grasping ancient pixel dust.

Creative destruction is increasingly real and accelerating faster than ever. A new company comes, an old company goes. Brands emerge and evaporate before our eyes. In the start-up world, the notion of permanence is almost impossible to envision. Look forward with alacrity or don’t bother looking up from abandonment.

Contemporary taste is fickle. Technology trends are more fickle. Customer loyalty is most fickle.

Earlier this year I watched the National Geographic Channel limited series Valley of the Boom. I couldn’t tell if it was a dark walk down memory lane or an idealist’s time capsule of lost promise. Netscape—the big bang of the internet age—went from conception to extinction in all of about four years. The Globe—the biggest IPO of its time—was practically eviscerated at birth. Pixelon—a scam extraordinaire foiled by its own iBash—today doesn’t even make a decent trivia question on a game show.

Those were just three emblematic stories, real-world cautionary tales of boom and bust. You might remember the history of other exploded rockets, from Pets.com to Webvan. Maybe you don’t want to remember. Of the big consumer-facing internet companies that emerged from dotcom v1.0, it seems Amazon, Priceline, and eBay are the only lauded brands continuing to operate at large scale.

Google emerged in the second wave of the internet, capitalizing on all the failed portals’ inability to understand the essential nature of search, most notably the excruciating death spiral of Yahoo. Can you think of another important round-one bubble survivor? Which will be the next to vaporize? Jeff Bezos has already said Amazon won’t last forever. He knows inescapably it will be replaced by something fast moving and better.

Today there are reportedly 300 or so companies affectionately refered to as “unicorns.” These are start-ups largely in the technology sector with a valuation of more than one billion dollars regardless of revenue or earnings to justify the bragging rights. You are undoubtedly familiar with many of their quirky names: Uber, Lyft, WeWork, Airbnb, DoorDash, Slack, Pinterest, Instacart… these are widely regarded as some of the good ones.

How many of these brands will today’s schoolchildren recognize when they become adult consumers? You know they won’t all still be around. History assures us of that—unless of course this time is different (and when someone tells you this time is different, keep your hands on your wallet).

Early last year I wrote an article titled Is Facebook the Next AOL? At the time I wasn’t sure. Later in the year I wrote about it again. By then Mark Zuckerberg had testified before Congress and I had become sure. Facebook is going to fall hard. The level of cynicism over there is no different from the hubris of America Online. Today cash is pouring in and it has no serious competitors, so hey, it must be invincible, a forever brand!

Facebook only has one major problem corroding its innards: customers don’t trust the people running it. No product or service can last long that way. It’s hard to be a forever brand when your promise is held in contempt. You can pay lip service to addressing the failings in your business model, but if the core concept is fundamentally conflicted, you can’t beat the reaper.

Even General Electric has fallen from grace. GE, the one original Dow Jones industrial average company dating back a century, is no longer in the Dow 30 index. How can that be? Yes, it is still an enormous enterprise, too big to fail, one might say. Does that mean the brand matters a fraction as much as it did a decade or two ago?

Nothing lasts. Creative destruction is consistent that way.

Google will last a long time because it has built a mighty moat, but it won’t last forever.

Apple? Depends on how it deploys its seismic war chest of cash.

Netflix? Hard to imagine, but it seems like a transitional platform. It could be bumped off.

Microsoft is evolving again, truly embracing the cloud, so maybe it will be the new GE. It has lots of runway to continue reinventing itself, but like GE, no runway is infinite.

What’s the point? Think about your own Carmen Sandiego, that gig you love that will be gone someday, and plan your career accordingly. Are you ready to lose the inevitable and discover what comes next? The ship you are on may appear to be built out of steel, but steel eventually rusts. Are you looking beyond the bow?

Creative destruction wins every single time, but don’t despair. Where old jobs become obsolete with antiquated value propositions, new jobs emerge requiring fresh ways of looking at the world. I doubt that will change. While so many companies have come and gone in the last quarter century, the planet has lifted two billion people out of abject poverty. There are new pockets of middle-class workers emerging all over the world in an increasingly shared global economy. That seems like a decent enough tradeoff for a few trampled unicorns.

Maybe someone will even capture Carmen Sandiego. You never know what can happen when you let go of everything you don’t need anymore.

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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