Endless Encores: A Brief Excerpt on Products

EE CoverWith the September 22, 2015 publication of my second book, Endless Encores, I wanted to share a few excerpts to catch your interest. Published by The Story Plant, this is a business parable about People, Products, Profits—in that order. This excerpt is from the chapter about Products.

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Paul’s phone dinged. It was the text alarm. He was afraid to look, but he knew the Band-Aid had to be ripped off in one pull. He turned over the handset so they could both see it at the same time. The text read: “We’ll talk when you get back.”

“I’m not off the hook,” grumbled Paul. “Not even a little.”

“Did you expect you would be with a simple text?” asked Daphne. “He’s your boss, not your father. How much did your company invest in the sequel?”

“Millions. We’re not going to lose all of it. We may not lose any of it. We just aren’t going to make the kind of money we made on the original. Sequels in my business are supposed to do better than the originals as the brand and market expand. Everything we do can’t be a winner.”

“Would you let Randy or Helen off the hot seat for mediocre performance with just a text?”

“No, of course not,” said Paul. “I would remind them that there is no growth without risk, that we have to be willing to try things and fail, but when we fail we have to learn. It’s not failure if it’s learning, but there has to be learning. You have to capture that learning and harness it.”

“I suppose he’ll say something to the same effect,” said Daphne. “Of course, I’ve never met him, so you never know. He could mop the floor with you to make him feel better.”

“Thanks, I feel so much more chipper,” grimaced Paul.

“You should,” said Daphne. “Think about the opposite spectrum. Suppose you weren’t willing to risk failure and learn. Suppose you devoted all your energy to protecting the status quo. Think of a company that isn’t around anymore that tried that trick.”

“Kodak comes to mind,” said Paul. “I read somewhere that they developed the first digital camera in 1975, but kept it off the market because they were afraid of what it might do to their traditional film processing business.”

“Polaroid missed the shift to digital as well,” replied Daphne. “They didn’t have to stick with mechanical, self-developing prints. That was a choice.”

“It’s amazing how bad the blunders can be,” continued Paul. “Borders Books, Circuit City, Tower Records—they’re gone forever. With all the customers they had, the vast resources, all that talent and cash in the bank, these days they’re just names, empty shells. Businesses become nostalgia.”

“Tombstones, actually, all in the Dead Brand Graveyard,” said Daphne. “No Endless Encores there. The list goes on and on: Palm, Zenith, Blockbuster, CompUSA, Wang Laboratories—all once beloved brands, all now decaying tales of yesteryear. Now think of the once great brands about to fail, the ones you know will soon evaporate. What is their idea of risk?”

“Way too conservative,” answered Paul. “They’re afraid to take risks because they’re afraid of failing, when in fact they’re already failing by refusing to dance a little closer to the edge.”

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Endless Encores: Repeating Success Through People, Products, and Profits by Ken Goldstein is available in hardcover and as an e-book from Amazon, Barnes and Noble, iBooks, Kobo, IndieBound, Indigo, and at independent bookstores near you.

The Real Lesson of Kodak

KodakIt is hard not to feel at least somewhat sentimental watching Kodak exit the world’s business stage in such a sad state after such a storied run. You have to feel sorry for the employees, especially those likely to lose retirement benefits after long careers of loyal service. It is also hard to feel sorry for the company, particularly its management. Kodak had the solution to its own ills and chose to submarine it. The lesson: if you don’t cannibalize your own business, count on a competitor to do it for you.

A timeline of “Kodak’s Key Moments” recently appeared in the Wall Street Journal, and what is too easily forgotten is that Kodak developed the first digital camera as early as 1975, but chose not to bring it to market for fear of cannibalizing its hugely popular film business. That’s an easy enough Monday morning quarterback call, but how many companies right now know they are on a path to their own obsolescence, have a pretty good idea what the long-term answer to their ills may be, but are ceding alternative paths to their competitors for fear of short-term pain or possibly looking stupid? The answer: more than you think.

In a subsequent article entitled Avoiding Innovation’s Terrible Toll, the Journal further noted that in a study of more than six million firms, only a tiny fraction made it to the ripe old age of 40. The authors of that report, Charles I. Stubbart and Michael B. Knight, reflect that “…despite their size, their vast financial and human resources, average large firms do not ‘live’ as long as ordinary Americans.” We have just seen this of late with the beloved Borders Books, and now we are watching Barnes and Noble try to pull off a comeback around its initiatives with Nook. Other companies like Apple, Johnson & Johnson, IBM, and General Electric have steered their ships across longer journeys. It is possible to go the distance, but it requires an openness to change that is so uncommon in business, you almost have to shake people physically to get them to see how to save themselves. Generally speaking, corporate people don’t like to be shaken, even if it’s good for them.

Creative destruction as most commonly defined by Joseph Schumpeter is real and unavoidable. It is also reasonably easy to argue that despite the pain it causes in transition, it is a positive force of social evolution that drives us forward and replaces inefficient procedures with new technology, updated methodology, and even new financial opportunities for investment and return. My dear friend Kermet Apio, a wonderfully successful standup comedian, captures the essence of Creative Destruction in a 90 second bit where he compares the joy and simplicity today of clicking on a song you might want to hear versus trying to find it on a cassette tape, which might take you so long you’d almost certainly abandon the task unfinished, or worse, try using your pinkie on the internal reels to queue up the precise starting spot. There’s a touch of nostalgia here, and we do find ourselves laughing very hard at what was our norm not so long ago. Click on the link above to see how Kermet tells the tale, the chuckle makes the point.

But no one is laughing at Kodak’s headquarters in Rochester, and no one should be. Kodak had the first digital camera in 1975, and while admittedly neither they nor anyone else knew what to make of this at the time, they had a much more important mandate on their mind: Protect Film. Kodachrome was not only iconic, it was hugely profitable. So was motion picture film processing. So were all their other traditional film developing technologies, not to mention the sale of retail supplies, equipment repairs, and patent licensing. Kodak was a beloved company and a global brand that made the same wrong decision so many other short-life companies make—they worried too much about cannibalism, and not enough about what happens if they don’t cannibalize their own markets.

It doesn’t get any easier to understand than this—if you don’t cannibalize your own markets, someone will do it for you. The choice is that simple: do it to yourself for your own good, or be the victim of outside attack. No form of technology is forever, and any trend you’re surfing is going to break flat on the beach. In Kermet’s bit, he talks about the Sony Walkman. Everyone had one. It was great. Then came the CD, Sony had a piece of that technology, so far so good. Then came Apple with the iPod, not the inventor of portable digital music playback, but the “perfector.” By the time Sony responded, they were on defense instead of offense. Too late. The cannibal is here, it came from elsewhere and did what you feared it would. You knew it would happen, you couldn’t stop it, but you could have been it. That’s the choice. Not will it come, but from where will it come.

That is the real lesson of Kodak: no one can stop the march of innovation because it is inconvenient or upsetting. No company can duck cannibalism by refusing to acknowledge that current markets have to be sacrificed for new markets to be built. If you’re young and just getting into business, get used to this, and get used to your bosses telling you all the reasons why they have to protect what you have today, that the hit to earnings to attack your own hugely successful lines of business with nascent replacement ventures is just too painful. If you’ve been doing this a few decades, remember back on all those long and awful bureaucratic meetings where you wished someone would have pounded the table and screamed, “To Hell with cannibalism, we’re doing this—keep the cannibal in the family!” There were meetings where that happened. Those are the companies with the 100 year brands.

If you are at CES this week wandering the endless aisles of new stuff and you see something that could eat your lunch, ask yourself, why didn’t we think of that? And if we did, would we have had the courage to launch it? Let’s hope this lesson gets easier to recite so we don’t see loyal employees lose their benefits because political correctness forced a gag order or management failed to act when time was on their side. Manage the product life cycle, but don’t be afraid to leave a little money on the table. Get the new products out there before someone does it for you. The real money is in longevity, which means innovation, which means playing offense against yourself.