Read The Mobile MBA: 112 Skills to Take You Further, Faster (Richard Stout's Library) Online
Authors: Jo Owen
All firms and clients say they like innovation. They lie. They like the results of successful innovation, which may lead to a source of unfair competitive advantage. But they hate the process of innovation. Next time you are asked to innovate, ask in return if your managers enjoy risk, ambiguity, uncertainty, expense, and failure. Then you will find out how much firms really want innovation. Innovation is fine as long as it is tried, tested and bound to succeed.
Fortunately, you do not have to discover the successor to the wheel to innovate. Nor do you have to endure sessions with your “creatives.” Here is how you can find an innovative idea:
1. Copy an idea, especially from abroad.
The low-cost carrier model was developed by SouthWest Airlines in the USA and its success was obvious. It took 10 years before Ryanair and easyJet copied the model into Europe with devastating results.
2. Find a solution for a customer problem.
3. Listen to your customers.
The useful ones are either the heavy users, or the awkward squad who are always complaining. They are the ones who will have the ideas and insights about what the market really needs. See if you can deliver it profitably.
4. Spend a day in the life of your customer.
See what they world looks like from their end as they try to use your product or service. It can be a humbling experience, but profitable. Take it further and co-create the new service with your client.
5. Find a market failure and do something about it.
As a middle market company, I found banks overcharging me on prices, being inefficient, and selling awful products. That was great news: I set up a bank which was slightly less bad and it took off. Don’t get mad, get even.
Finding the idea is perhaps 10% of the battle. The real battle is internal: making sure that you have the support and commitment of the organization to make the idea happen.
Some managers love to throw around strategic words to make themselves and their ideas sound impressive. In practice, when a manager says something is “strategic” they mean it is important, but perhaps only to themselves. Here are some of the most common concepts, what they mean and how you can use them.
STRATEGIC INTENT
Normally used as a way of making a goal sound impressive. As used in practice by the late C.K. Prahalad (who came up with the term) it was a way of stretching the organization and daring managers to achieve things which would force business
not
as usual. The intellectual integrity of the idea is weak, but the stories used to illustrate the idea are inspirational.
CORE COMPETENCE
This is generally used to refer to anything we think we might be good at doing. This also came from C.K. Prahalad, and is more inspirational than practical.
CO-CREATION
This is a Venkat Ramaswamy concept and gets very complicated very fast. At its simplest, it means we want to work with our customers a bit more, especially by involving them in product development. Many great ideas come from users, so it makes sense to listen to them and work with them.
It is much more than “giving customers control,” which is a euphemism for cutting out your help desk and giving your customers a web link instead.
BLUE OCEAN, RED OCEAN
Brought to us courtesy of Chan Kim. The basic arguments are simple: try to compete in uncompeted territory (easier for start-ups than for legacy businesses). Second, draw a value curve of what customers really want, and then re-engineer your product to focus on that and nothing else. This often leads to the birdie strategy (birds go cheep cheep and this strategy often leads to going cheap cheap).
REENGINEERING
More of an operational play than a true strategy. Originally it meant working out what the customer really wanted and then reorganizing the processes of the organization to deliver that well. It was a revolution because it made people look at a horizontal view of the organization (processes) not the old vertical view (functional silos). It has now become a short-hand for cost cutting which ignores the customer completely.
VALUE PROPOSITION
At its simplest, this means giving customers what they want at a price they want. This leads to value curves: map the value customers want versus what you give and what competitors give. Analyze the value curve to do some value engineering: cut out what customers do not want and reduce your costs, while focusing on what customers most want.
PORTFOLIO STRATEGY AND MANAGEMENT
Work out which businesses or products you want to exit, stay in, build, and grow. Ultimately, the portfolio strategy should enable the firm to achieve a balance of cash producing and cash consuming (but growing) businesses. In practice, very few managers ever do a portfolio strategy and when they do, they get bogged down in definitions of the market, relative growth, and relative share.
your competitive advantage should be thoroughly unfair
COMPETITIVE ADVANTAGE, DIFFERENTIATION
Listen carefully when people talk about this. Often they refer to very weak advantages (“we are a penny cheaper; our packaging is nicer...”). These are weak advantages because they are easy to copy. To be relevant, your competitive advantage should be thoroughly unfair, that means it has to be:
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Sustainable
: price cuts are often not sustainable.
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Hard to copy
: copying a financial product takes minutes; copying a patent or a copyright leads straight to court. Copying Microsoft’s near monopoly on desktop operating systems is not easy.
GO TO MARKET STRATEGY
This means more or less what people want it to mean. It can refer to your firm’s:
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Overall strategy
: how will we deploy our assets and capabilities to achieve our goals?
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Marketing strategy
: which customers will we target, through which channels, at what price, and how will we position our product relative to competition?
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Channel strategy
: we know our product and our target customer, but how will we reach them in terms of sales, advertising, and the route to market (which channels of distribution will we use)?
You need to decide if running a business is for you. Here is what to expect.
Before you start, people will tell you it won’t work. When you start, they will tell you it isn’t a real business. Finally, when you are in your private jet and they are negotiating their 10% pay raise, they will tell you that you were lucky and that they were absolutely central to your success. As you build the business you will find about 50 people who believe that they each deserve 10% of the equity for their help, for their advice, and for the introductions they made for you. And then they wonder why entrepreneurs can be arrogant.
Moving from salaried security to insecure start-up is a one-way leap: you can never go back. Once you have tasted the joys and hell of freedom you cannot return to the gilded cage of employment. You may work longer and for less money, but psychologically you will find it impossible to work for someone else. At least on your own, your triumphs and disasters are all your own.
The leap is huge. You are not just changing employment: you are changing your identity. You no longer get the kudos from saying, “I am the big chief at MegaCorp.” You are your business: failure is not just a business failure, it is failure of your dreams and identity. This is hard in a way that business school can never prepare you for. You discover that if your computer goes down, it is a disaster and no one is there to save the day for you. Cash flow is not a few lines on the monthly report: it is the difference between paying the bills and going bankrupt. Weekends and holidays are a luxury that salaried colleagues enjoy and you do not. But, if this is what you want, then go for it. The ride is exciting, exhilarating, and exhausting. And you will never turn back.
Second, you need to know how to go about it. Again, business schools are too sophisticated in their approach. In practice, I have followed a simple model with each business I have started: IPM. IPM stands for ideas, people, money. You
need them in that order: ideas first, then people, and finally money. It tends to go wrong when people start with the money (“I want $10 million in five years”) and work back from that. Everyone starts to argue over a pot of money which does not exist, instead of building the business. Here is IPM in more detail:
I: IDEA
You need a great idea which you believe in 100%. It can be as simple as “there is no hairstylist in this town (and I like styling hair)” through to the most ambitious of global start-ups. Be very clear about why your idea will:
• Attract and retain many customers
• Be sustainably competitive
• Make money: the economics should be robust
Don’t be afraid to discuss your “secret” idea with other people. In practice, no one else is likely to have the energy and motivation to take the leap you propose, and they will not understand the full scope of your idea anyway. As you discuss the idea, they will raise many objections. Good ideas simply get stronger as a result of overcoming each objection. As you share your idea, you will also find some people who could be very good partners for you. You are doing soft recruiting for your new venture.
Be ambitious with your idea. The more ambitious it is, the more likely you are to attract great talent. Which leads to the well worn motto: “Think big, start small, scale fast.” When you start, you may start as a small business, but be clear about how you will realize its full potential and become a big business.
At this stage, it makes sense to develop your idea from the safety of your current employer. Regular income is a wonderful thing to have.
P: PEOPLE
A sole trader business is a lifestyle business. It is often hard to sustain for long. To succeed, you need to have a great team around you. Pick people who complement your skills: they should be different from you in terms of both skills and styles. Not everyone wants to do accounting, or sales, or IT: find those skills. And if you only hire extroverts, your office will have all the order of a chimpanzees’ tea party. If you hire only introverts, your office will be like a library echoing to the sound of silence.
Recognize that you will probably have to turn your team over as the business grows. People who enjoy start-ups enjoy the buzz, freedom, and creativity that goes with them. These are not people who like the order, structure, systems, and discipline of a larger organization.
M: MONEY
A good idea beats the dull weight of money every time. And if you have a great idea and great people, you will find the money. If you lack the idea or the people, then you will never get the money. The idea and the people always have to come first.
a good idea beats the dull weight of money every time
Fortunately, there are many sources of funding for you to tap: venture capitalists, banks, exorbitant credit cards, your own piggy bank, angel investors (who can turn into devils), unsuspecting relatives, and of course customers and suppliers if you manage your cash flow properly. If you have great people, you will work the money out. And you will probably have a few financial near-death experiences along the way. In years to come, they will be the war stories you fondly remember.
Finally, remember that equity is everything. Everyone will want a slice of your action. Don’t give it. It’s your business, so keep it that way.
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How to be an advertising expert
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Competitive and market intelligence
30
Marketing and sales follow naturally from strategy because most good strategies are based on a deep understanding of the market and the customer.
Marketing and sales people tend to be protective of their territory. Sales people rightly have pride in being the people that bring in all the money, and do not have much respect for those who do not. If you have been in a selling role yourself, you will be an honorary member of the club; otherwise do not try to get clever with the sales force and do not try telling them how they can improve their performance.
Marketing has evolved greatly over the years, and marketers have a habit of trying to bamboozle other executives with sophisticated sounding ideas. But despite all the changes, the fundamental principles of marketing have stayed the same and are remarkably simple. Genius does not come from making things complicated, it comes from making things simple. So if you can focus on the few simple principles below, you will not go too far wrong in marketing.
At business school they teach the four Ps and three Cs of marketing. The four Ps were developed by Philip Kotler:
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Product
: what will we sell and what benefit will it offer?
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Price
: how much will we sell it for?
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Promotion
: how will we advertise to customers and promote our product?
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Place
: what channels will we use to go to market?
Non-marketers observe that there is one P missing: profit. Marketing should be about making profits, not just about gaining market share and growing sales. The alternative version of this is the three Cs, which Kotler also developed: