Courage is the new competitive advantage

A lot is currently written about challenges mature corporation face to innovate : various mavens and gurus exemplify Uber, Airbnb (add yours here) as models to follow, urging businesses to disrupt themselves and behave like startups.

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There a is indeed a wide broadcasting of this polarised view of old world vs new world, without much thought being given to the underlying laws of strategy and business at play nor long-term impact on wealth, labour, society, etc…

We are hammered with the transformation imperative, with an obsessive focus on technology and a total ignorance of the challenges of adoption inherent to human behaviour.

Big players create research lab, corporate accelerators, hackathons to look like startups:
it seems it is more important to appear innovative, then to actually do the hard work of rethinking the way you do business.
They spin off digital academies, digital or disruption days, visits to Silicon Valley, or dedicate a section of their executive training programmes to this thing called “digital”.
It’s like going to visit the gym – only once – to get an idea of what it could look like to be fit.

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Less than ten years ago, I remember a client of mine at Nokia stating that Nokia was now an ”internet company” (today, the equivalent is “everlasting startup”).
Makes me smile: You can mimic the looks of an internet company or a perpetual startup, but you ain’t one: you copy the artefact, not the underlying “reason why”.

As I’ve stated this previously:

  • mature organisations are good at executing a business model, but not good at innovation (mostly because they tend to only focus on one type of innovation: product)
  • Startups are good at creating products, but not good at operating at scale.

Both mature companies and startups both face a common challenge:
how to design an organisation for scale in a highly unpredictable environment,
when obviously organisations models inherited from previous ages do not work anymore.

Our current model of how a company works is inherited by previous industrial revolutions, and a “machine view”: a business is a well-oiled machine, with multiple parts, each assigned to a specific task. Inputs/Outputs.

“The mechanistic view of the world that evolved in France after the Renaissance maintains that the universe is a machine that works with a regularity dictated by its internal structure and the causal laws of nature. This worldview provided the basis not only for the Industrial Revolution but also for the development of the machine mode of organization (Gharajedaghi and Ackoff, 1984).”

Therefore you “just” need to optimise the parts to run at maximum efficiency.

But as the company grows, so does complexity, and the common solution is to increase processes and procedure to control chaos, by limiting the autonomy of each part.

And we roughly end-up with two types of control:
– monolithic and central: senior management reviews all tactics, lots of buy-in meetings, slowness increases with size.
– independent silos: everyone does their own thing, alienation and suspicion between departments.

Efficiency trumps flexibility. In a fast-paced and unpredictable environment: the company become irrelevant.

“The most stubborn habits, which resist change with the greatest tenacity, are those that worked well for a space of time and led to the practitioner being rewarded for those behaviors. If you suddenly tell such persons that their recipe for success is no longer viable, their personal experience belies your diagnosis. The road to convincing them is hard. It is the stuff of classic tragedy.” (Charles Hampden-Turner and Linda Arc)

Contemporary research in various fields indicates that this machine view is flawed: the interaction of the parts (ie. the dynamics of the system) matters more that the intrinsic performance of individual parts:
Proof is recent news about Google’s Aristotle Project, IMD’s or MIT’s research on collective intelligence cognitive diversity team performance

I also find Netflix’s culture deck very insightful in this matter:
“context, not control”: clear and articulated context allows autonomy and relevant, decentralised decision-making
“highly aligned, loosely coupled”: all parts are aligned to deliver on clear strategy and specific, broadly understood goals. Teams interact around strategy and goals, not tactics.

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To thrive in complexity, companies need to be purposeful systems and have a purposeful strategy: be able to produce the same outcome in different ways in the same environment and different outcomes in the same or a different environment.

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To achieve that leaders and managers need to become designers : learn how to use what they already know, learn how to realize what they do not know, and learn how to learn what they need to know.
Producing a design requires an awareness of how activities of one part of a system affect and are affected by other parts.
Unfortunately, the task is not just an academic discourse; it demands enormous emotional struggles and a huge cultural challenge. Engagement in this process, in addition to competence, requires courage.
I guess courage is the new competitive advantage.

(to be continued)

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What happens to startups when they grow up?

You’re not going to like the answer.

Truth is, most startups die.
– 9 out of 10 startups fail (according to Genome Project)
– 1 out of 200 become a scaleup (according to THNK & Deloitte Fast Ventures)
It’s the elephant in the room.

Everybody talks about startups, and celebrates entrepreneurship, and so we should.

But “getting our ecosystem to produce a greater number of scale-ups is more ambitious and challenging than producing a greater number of start-ups or celebrating entrepreneurs.”

“UK boasts a host of successful businesses and starts more companies per capita than the US. Yet, the main stumbling block to growing a global tech empire is the country’s current inability to “scale-up” these startups into larger companies”
(Sherry Coutu, ScaleUp Report)

 

This is the reason why I find most advice given to entrepreneurs useless:
– they are obvious (e.g. don’t hire bad developers. Thank you, I was planning to do that on purpose)
– they are contradictory and subjective (qualifiers as good/bad, slow/fast are only determined as such in retrospect)
– they form aspirational quotes that everybody repeats without truly understanding what they mean (move fast and break things, anyone?)

More importantly, they failed to address what successful scaling looks like,
and what it takes to grow in size and complexity in a sustainable way.

Scaling comes with predictable challenges:
Yes! Pretty predictable.
As companies of various sizes and industries grow, they face similar crisis at each stage of their evolution. Scaling successfully requires to recognise the early signs of each phase and proactively design the following one.

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a. the leadership crisis: “You’re gonna need a bigger boat”
Designing a product or a service and building a business require different skills.
– the creative, organic and informal ways of working are not effective anymore.
– the attention moves from people to processes, from product to customers.
– Founders are forced to pass the hat, create new functions to divide the tasks for greater efficiency.
– Culture is diluted as new people join the company. Early joiners find it difficult to articulate and institutionalise the “tribal knowledge”

b. the autonomy crisis: “Why so serious?”

As a functional organisation is put in place with clear and separate roles and responsibilities, hierarchy of titles and position builds, work standards and incentives are adopted.
Yet Founders and managers are disconnected from the coal-face while teams feel torn between following procedures and taking initiatives on their own.

c.the control crisis: “Ground control to major Tom”
As greater autonomy is given through a decentralised structure proves useful to gain expansion (e.g. market territories), a serious problem appears. The top executives are losing control over a highly diversified field operation. It becomes difficult to coordinate plans, money, technology.

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d.the red tape crisis: “Brazil”
As formal systems are put in place to achieve greater coordination (planning, reporting, procedures for allocation investments across groups), the proliferation of systems begins to exceed its utility.
Coordination is useful to achieve growth through a more efficient allocation of the company’s limited resources, but procedures take precedent over problem solving and innovation is dampened.

In order to scale successfully:

  • know where you are in the development cycle:
    you need to be aware of these stages and recognise when the time for change has come
  • be prepared to dismantle your current organisation
  • plan your next stage, and consciously design your new structure, it will not form automatically.
  • realise that each solution breeds new problems. predict future problems and coping strategies

My recommendation to scale up founders and executives, as they dismantle and design a better version of their business:

  • favour social control and self-discipline through cross-functional task groups and teams.
  • align individual and collective efforts around simple, unified and multi-purpose metrics and systems
  • invest in real-time information platforms and integrate them into daily decision-making
  • reward team performance rather than individual achievement
  • experiment and reward new practices
  • invest in education and training to develop the appropriate behavioural skills in your company

The only way to do that is to articulate and solidify the core components of your company: your purpose, your culture, your decision-making process and communications flow,
– and to define the appropriate people skills and processes to deliver the capabilities you need to win…. with built-in flexibility.

It’s hard to do it alone.
Have the courage to ask for help.

sources: Greiner highlighted these stages back in 1994 in his paper “Evolution and Revolution as organisations grow”. Oldie but goodie.
I have worked in companies of various sizes, across various industries, and am finding his analysis still very contemporary and relevant almost 20 years after.
Photo Credit: John Atherton – Kindergarten graduates, San Francisco, California 1945

Scaling startups: shoot for the stars, but build your rocket first.

“We must obey the forces we wish to command”  (F.Bacon)

In 1620, Francis Bacon publishes his philosophical work
Novum Organum Scientiarum (‘new instrument of science’ ).

He details a new system of logic he believes to be superior
to the old ways – against the Aristotelian approach to science
through logic and deductive reasoning alone.

He argues a different approach is needed given the weakness
of the human mind and it’s natural biases
(he lists the Idols of the Mind in his work; today we’d call them cognitive biases ).

According to Bacon, inductive reasoning will allow humanity to uncover the essence of things.
His method relies on systematic observation of cases,
engagement of the senses, and artificial experimentation
to provide additional observance of a phenomenon and it’s causes.

Continue reading Scaling startups: shoot for the stars, but build your rocket first.

[Update] Successful scaling: What startups can learn from Breaking Bad

Breaking Bad is a great opportunity to discuss the important topic of successful scaling.

  • it is the main reason startups fail
  • it is not talked about, and loosely defined

Successful scaling is about growing in size and complexity in a sustainable manner.

This means…

  • growing in size: larger or additional markets, larger customer base, additional customer segments, larger product/service portfolio… larger teams
  • growing in capacity: greater quantities and quality of product & services, increased customer care, …
  • growth in complexity: recruitment, procurement, distribution, partnerships, competition…
  • while maintaining a sustainable  business over time
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Breaking Bad is a great story of successful scaling, that more than one entrepreneur would find aspiring, in addition to the similarities it bears with the journey of building a startup:
  • a broke and sick high school science teacher (and a junkie high-school drop-out)
  • start with limited resources, but strong ambition and great business acumen
  • design a “killer product” Blue Crystal
  • pile millions from producing and selling large amounts of it
  • becomes a drug lord: successfully grows his “business” and navigates the increasingly hazardous environment of drug cartels, kills his competitors to create his drug empire.

 

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Let us take you through this journey, and illustrate 4 lessons to be learnt, understand who is the real unicorn, and more…

 

The opportunity awaits in your blind spot

Allegory of Vanity

I cannot count the number of times I’ve heard that phrase: “think like a startup, act like a startup”… I guess you stopped counting too.

But this imperative calls for a deeper question, why is it so hard for existing businesses to do so?
And aren’t we underestimating the harshness of being a startup?

You need to start with the definition of a startup: A startup is an organization formed to search for a scalable and repeatable business model (according to Steve Blank, in “The four steps to Epiphany”)
Read it again. The startup is formed to seach…
The establish organisations isn’t formed to search – it’s designed to execute.

Startup entrepreneurs undergo tremendous pain and agony through the growth process between idea and product/market fit and revenue generation.
They will have to go through  the hard questioning, doubting, hole-poking and criticism inside an accelerator to make the venture even stronger.  I haven’t met any manager or executive in established businesses willing to go through such pain… because they don’t have time to do so, and they have no incentivized to do so.

So maybe for established businesses to think and act like startups, they need to institutionalise some time to doubt, to assess wrongful assumptions, challenge their limiting beliefs, articulate their intuitions, raise questions (see leads of belief change in one of my previous posts).

Continue reading The opportunity awaits in your blind spot