Tag Archives: The Innovator’s Dilemma

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The Difficult and the Daunting

You may have heard recently that Amazon is pulling back a bit on hiring and warehouse space. With all their vast resources in strategic planning, the executive team there overshot on leasing square feet their forecasts no longer support. I suspect they will manage through this just fine in the long run with little impact on earnings, but it is a powerful reminder of how difficult it is to predict future business both when you’re in an up-market and a down one.

We all get this wrong now and again. It’s normal and usually navigable. The problems come when balancing present challenges heavily compromises a company’s future, or betting only on the future sours a company’s current performance to the point where no one cares about the future.

I am often humbled by the nagging paradox of making tough business decisions every day at the relentless pace of 24x7x365. Running a company in response to everyday circumstances in the present will always be difficult, Running a company for an opaque future will always be daunting.

We have to do both well to accomplish our current goals and set the table for the next generation of growth prospects. Favor either the present or the future too heavily and the question becomes whether you want to lose now or later. While that’s not an option any leader wants to consider, if we don’t see the delicacy in how one affects the other, our intentions can be undermined by our outcomes.

We often hear about the pressures of being a public company, how corporate leaders make choices to focus on quarterly earnings from which they financially benefit immediately over building strong companies for the long haul. I do think this happens at some companies where short-term stock performance can dramatically impact executive compensation. Too often those companies fall prey to what Clayton Christensen famously has called The Innovator’s Dilemma and allow their long-established norms of success to be fully disrupted by more nimble competitors.

There’s a more ironic take on this notion, where equity markets sometimes forgive emerging companies for failing to produce earnings at all in the near term in the hope that someday they will have gained so much market share that they will prove invincible. This all-or-nothing strategy has paid off handsomely for companies like Amazon that didn’t produce earnings for years, reinvested heavily in their growth, and today reap the benefits of that bet. Sadly, this example has been exploited by too many newly public companies that don’t even consider near-term profitability a goal, allowing lazy business models to overshadow unfounded optimism that someday their customers will reward them with enviable positions.

A company that bets only on the future, never becomes economically successful, and runs out of cash can be train-wrecked just as decisively as a once successful company that fails to address The Innovator’s Dilemma. If the executives steering either of those failures happen to be selling shares along the way to a company’s demise, a feast of lawyers will follow.

Inflation and rising interest rates make the cost of doing business higher for everyone. We painstakingly decide how much of these costs we pass along to customers and how much we absorb. The benefit of preserving current operating margins is always tempting, but the rewards of long-term customer loyalty and lifetime value speak for themselves. How do we decipher the balance between current and future financial results? Data will often shine a light on the path, but there are no conclusive textbooks with clear answers to these calculations.

It truly is hard to run a company both for today and tomorrow. We have to consider the staff sizes we need, the leases we’ll require, the stability of our supply chains, price elasticity, and the promise of our brands. We also carefully must watch cash flow, our balance sheets, compensation, incentives, technology advancements, and investments in future product cycles. What works today may or may not work tomorrow. It is seldom that what works perfectly in one set of conditions works just as well in another.

There are no perfect answers, but the fluidity of making a decision now for its short and long-term impact usually weighs heavily on those who wrestle with the impossible crystal ball.

Covid-19 has been a good reminder of how difficult and daunting decisions can be. We were all blind during Covid and it was easy to misread fluctuating data. No leader had substantial experience with stay-at-home working conditions. No one knew how long the pandemic would last, how it would impact supply and demand, or how it would impact investor sentiment. If that wasn’t enough of a challenge, most of what we thought going into Covid proved to be wrong, and most of our assumptions about how employees, customers, and investors would behave post-Covid have been equally wrong.

If you want to be humbled, try making decisions that address the unknown with this level of frequency. You’ll likely realize you’re wrong more than you’re right, but the less tangible skill we develop is how to rethink and react quickly when we discover we are wrong. That’s why the rewards for creating a company that is “built to last” are immense, but the odds of lasting fifty years are long.

When it comes time to decide short or long, know you have to do both, and do your best you to keep dialogue and debate flowing among diverse opinions. The decisions we make have an impact we might be able to see today, but unless you know someone who has a gift the world has never seen, we are almost always speculating on the impact a year or more from today. Sometimes it’s decades before we find out if we were right or wrong.

We choose to sign up for the difficult and the daunting. The longer I do this, the more humbling it is.

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Photo: Pixabay

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Everyday Innovation

You don’t have to be an entrepreneur to be an innovator. Becoming a startup CEO may not be your thing, but changing the world is always within your reach.

There is a frenzy of late among those longing to lead business startups, and that is exciting. Entrepreneurs are a special breed, and while the successful ones are rare, no one really knows who is going to be successful in advance. Naysayers will tell you what you can’t do, and only you can prove them wrong.

When we talk about innovation, that undoubtedly points to entrepreneurs, but I’d like to think it not exclusive to them. Innovation is a process where creativity is harnessed, often galvanized through the building of momentum and the sharing of a vision. Often a new project or the reinvention of a product type begins with very few people involved, perhaps only one. The idea is refined and vetted, resources are added, more people get onboard, a consensus around a feature set emerges, and eventually it comes to be owned by a team. If you’ve ever been a part of this kind of team, you know how invigorating the process can be.

A subset of this process is the highly competitive world of funded startup companies, and that is a different beast entirely. In a quite insightful op-ed in the Wall Street Journal about the trials and tribulations of Uber, Andy Kessler recently noted the sometimes seething nature of a startup CEO who makes it through the hurdle of significant investment in their ambitions to excavate a gold mine:

Hubris becomes an asset. Startup CEOs are always saying the goal is to “suck the oxygen out of the room” of their competitors. Success requires a certain bravado. That should be encouraged, but most entrepreneurs have no idea when to turn it off.

There’s nothing wrong with being competitive, embracing ambition, and wanting to do the impossible. Does the goal of that have to be the annihilation of those who currently populate a market segment? Maybe because it’s the holidays, I wonder how that thinking aligns with Give Peace a Chance, but I think you can change the world without an ethos of leveling good chunks of it.

It is important to our economy and financial well-being that new companies are constantly born, that creative destruction replaces old opportunities with new ones. It is also limiting to evaluate innovation on this metric alone. If the only creativity that receives our highest praise is the moonshot IPO or breathtaking acquisition multiple, perhaps we send a difficult message to our colleagues and children that commercial success is the most important success. Do we really believe that it is somehow less noble to be part of reinvention that is not about clubbing a competitor over the head and walking away with his or her bounty?

Innovator's DilemmaMuch has been written around the concept of disruption, where traditional ways of doing things are derailed in almost unbelievably short periods of time. We saw it happen with music and video, where digital media disrupted the business model of selling and renting physical media. We’re seeing it happen with the news business, most recently evidenced at The New Republic, where the economics of professional journalism are colliding with the realities of recovering its cost. Disruptors are a very real force as author Clayton Christensen so clearly taught us in his landmark book The Innovator’s Dilemma, but is it an end unto itself? What if someone doesn’t want to be a war-declaring disruptor?

There are all kinds of ways to define admirable innovation. Truth be told, very few of us are going to draft a business plan and schlep from angel to venture to institutional investors with an all-or-nothing mentality. If that’s not you but you still feel a hunger to join the reinvention movement, here are seven concrete ways you can embrace innovation right now:

  1. Give Yourself a Stealth Performance Review: Secretly write down exactly how you think you are doing at work. Be as candid as possible. Conclude with a set of recommendations for improvement. Pick one. Do it.
  2. Ask Your Boss for a Problem: Walk in and say, “How can I take a burden off your back? Give me something on your to-do list that is important but you don’t have time to do. Let’s brainstorm it together.” Always remember that every problem is an opportunity.
  3. Clarify Your Brand Promise: If you don’t know what your company stands for, ask someone in senior management for some evangelism around your company’s brand. Then look at the work you are doing every day. Does it align with the brand promise? If not, what tweaks can you make to your daily tasks to bring you personally more in line with your company’s expressed mission?
  4. Help a Non-Profit: Find an organization near you whose values and mission you embrace. Contact someone there in a leadership capacity. Tell them you want to help and what skills you have to offer. Ask them what is on their plate that isn’t being addressed. Address it.
  5. Fix Your Personal Budget: Develop a formal income statement for yourself or your family. Write down all sources of revenue and expenses. Look for areas where money is leaking out that needn’t be. Plug the holes. Get your credit under control. If you have longer-term needs, create a formal plan for getting there.
  6. Get a Hobby: Right, you don’t have the time. Yet a hobby allows you to abstract so many of your daily thoughts and tie back that problem solving to your everyday responsibilities. Plant a garden, bake, follow a sports team, adopt a pet. Don’t think of it as a diversion, think of it as a commitment to lifelong learning and self-improvement. Push yourself to approach it slightly differently from those already doing it.
  7. Coach a Friend: Look around your circle of acquaintances for someone who might be struggling a little. Offer to be a coach or mentor for the next six to twelve months. Ask nothing in return. I promise you the ideas that will emerge from your discussions will be as valuable to your personal growth as they are to the friend. Ideas and energy compound when shared. You may forget who is coaching whom.

Startups can be cool, but all innovation does not require a startup environment. Creativity is a process that leads to all kinds of new stuff, and it also exhausts dead ends around stuff not worth doing or not ready to be done. Instead of making a hollow new year’s resolution, pick a path to one of the above suggestions or come up with your own idea for reinventing the world around you. Everyday Innovation is there for the taking. Go make change happen, and I’ll see you at the starting gate!