One day, for instance, I was in the car stopped at a light, and a scooter pulled up alongside me that was ridden by a young man wearing a denim jacket covered in badges. I liked it; I could see that this was a new, genuine, trendy. I called my design chief from the car and told him what I was looking at. In 2 weeks, the jackets were in the shops and selling like hot cakes. That sort of thing happens to me a lot.
But in business, companies make their money by creating an artificial scarcity in ideas through intellectual property law. That’s what patents, copyright, and trade secrets are: efforts to hold back the natural flow of ideas into the population at large long enough to make a profit.
Monopolies don’t have to take their profits in only monetary form, however. “The best of all monopoly profits is a quiet life.” With no competitors, you can relax a bit. In a perfectly competitive market, you can’t relax for a minute. At their worst, monopolies have a choice between lazy inefficiency and the ability to suck consumers dry through higher prices.
The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.
Tolstoy opens Anna Karenina by observing: “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.
But these techniques for polishing the surface don’t work without a strong underlying substance. Apple has a complex suite of proprietary technologies, both in hardware (like superior touchscreen materials) and software (like touchscreen interfaces purpose-designed for specific materials). It manufactures products at a scale large enough to dominate pricing for the materials it buys. And it enjoys strong network effects from its content ecosystem. These other monopolistic advantages are less obvious than Apple’s sparkling brand, but they are the fundamentals that let the branding effectively reinforce Apple’s monopoly.
More important than those obvious offerings is your answer to this question: Why should the 20th employee join your company?
Talented people don’t need to work for you; they have plenty of options. You should ask yourself a more pointed version of the question: Why would someone join your company as its 20th engineer when she could go to work at Google for more money and more prestige?
The only good answers are specific to your company, so you won’t find them in this book. But there are two general kinds of good answers: answers about your mission and answers about your team.
No matter the size, all firms share some basic and often urgent financial problems: how to meet the payroll; how to get and maintain working credit for other day-to-day operations; and how to raise the occasional large sums necessary to develop new products and build new facilities. These problems are relentless, and companies need a constant inflow of reliable financial information in order to manage them. In addition to financial data for their own businesses, managers need measurements of activity in the economy as a whole, such as rates of inflation, interest rates, unemployment rates, business investment, and consumer spending.
Increasingly, starting in the 1950s, franchising had tremendous appeal to Americans who wanted to start their own businesses but either lacked the start-up capital or wished to avoid some of the risks of founding a business on their own.
In response to rising global competition, many American firms pursued a new strategy that they hoped would allow them to regain a competitive advantage. They became conglomerates, bringing varied businesses in different industries together into a single group. The 1960s was dubbed “the age of the conglomerate,” with more than 6K M&As in 1969 alone. Despite the rush to merge, however, the strategy was seldom successful.
Still, automobile dealers, some of whom work on credit margins as slim as those of Miami hotel operators, occasionally go broke with even the most popular cars.
I wanted an entrepreneurial experience. I found a great appeal in the idea of taking a small and quite crippled company and trying to make something of it. Building. That kind of building, I thought, is the central thing in American free enterprise, and something I’d missed in all my government work. I wanted to try my hand at it. Now, about how it felt. Well, it felt pretty exciting. It was full of intellectual stimulation, and a lot of my old ideas changed. I conceived a great new respect for financiers. There’s a correctness about them, a certain sense of honor, that I’d never had any conception of. I found that business life is full of creative, original minds — along with the number of second-guessers, of course. Furthermore, I found it seductive. In fact, I was in danger of becoming a slave. Business has its man-eating side, and part of the man-eating side is that it’s so absorbing. I found that the things you read — for instance, that acquiring money for its own sake can become an addiction if you’re not careful — are literally true.
Entrepreneurship is about survival, which nurtures creative thinking. Business is not financial science, it’s about trading — buying and selling.
Business, more than any other occupation, is a continual dealing with the future; it is a continual calculation, an instinctive exercise in foresight.
Most businesses start small, and remain small. Few entrepreneurs are willing or know how to take the second step of employing people who are neither family nor previously known friends. This is the start of a move from entrepreneur to leader, and it requires a new set of skills, as new demands are placed on the business founders. Where once energy, ideas, and passion were enough, evolving businesses require the development of formal systems, procedures, and processes. In short, they require management. Founders must develop delegation, communication, and coordination skills, or they must employ people who have them.
When you have to prove the value of your ideas by persuading other people to pay for them, it clears out an awful lot of woolly thinking.
Sustaining a business is a hell of a lot of hard work, and staying hungry is half the battle.
Although competition is a fact of life, it makes business difficult, contributing to an ever-downward pressure on prices, ever-rising costs (such as the funding of new product development and marketing), and an incessant need to outmaneuver and outsmart rivals. In contrast, the benefits of finding a market gap — a small niche segment of a market that is unfettered by competition — are obvious: greater control over prices, lower costs, and improved profits.
Weihrich develops the TOWS matrix which uses the threats to a company as the starting point for formulating strategy.
Senior managers may have a full view of the company, but their perspective needs to be informed by alternative views from all levels of the organization.
As with all business tools, the factor that governs the success of SWOT analysis is whether or not it leads to action. Even the most comprehensive analysis is useless unless its findings are translated into well-conceived plans, new processes, and better performance.
By definition, not all products can be unique. Differentiation is costly, time consuming, and difficult to achieve, and functional differences are quickly copied — “me-too” strategies are commonplace. Differentiation often does not remain a point of difference for long.
P&G prefers only to enter those markets in which it can establish a strong number one or two position over the longterm — rarely is this achieved in a blind rush to be first.
At its heart, risk is a strategic issue. Business owners must carefully weigh the operational risk of start-up, or the risks of a new product or new project, against potential profits or losses — in other words, the strategic consequences of action vs inaction. Risk must be quantified and managed; and it poses a constant strategic challenge.
The role of the CEO is to enable people to excel.
As a business grows, its demands change. Entrepreneurship is needed to spark a business to life, but management discipline is required to support that growth and leadership skills are required to maintain long-term growth. Founders must adjust from being the sole decision-makers to delegating and make the transition from entrepreneur to leader.
Enterprise capabilities stem from senior management, and include culture, tight governance mechanisms, and strategic vision. Enablers, however, are the task of middle management. They include design, infrastructure, process, protocol, responsibilities, and performance management. The enablers turn vision into reality.
The true science of management is the conversion of experience into repeatable and reliable process — today’s problems become tomorrow’s processes and next year’s capabilities.
At this point a startup faces perhaps the biggest crisis of all: a crisis of control. The founders or senior management may find it hard to give up responsibility for decision making, even to trusted boards. When this happens, the founder may decide to remain small — in essence, to limit growth to the extent of their own control.
Higher pay might encourage an individual to take a new job, it might encourage people to move a little faster or to work a little harder, but people soon forget about the money and start to focus on other things — such as job satisfaction, challenge, and respect from managers.
The universe rewards action, not thought.
In this case, business leaders worry that if they do not buy a rival, someone else will and perhaps create a bigger, more difficult competitor. At such times, there is much talk of synergies (the sum being worth more than the parts) but little mention of long-standing research, which suggests that 60% of all takeovers destroy shareholder values for the winning company. In other words, most takeover bids prove to be a disappointment.
For new businesses, fast-growing companies, and in times of recession, cash is king. In other words, profits take a back seat, while cash flow becomes the critical factor. In accounting, profit is an abstract concept based on matching costs to the revenues generated within a period of trading. This sounds fine, but in practice it can lead to a huge cash shortfall.
In times of economic stability companies focus on profit; credit is cheap and readily available. Companies with weak cash flow operated by using supplier credit and overdrafts. But in times of recession, relying on credit is dangerous. Cash is king.
It’s not the consumers’ job to know what they want.
But consumers are not concerned with reality; they make purchases based on perception. “Being first in the mind is everything in marketing. Being first into the marketplace is important only to the extent that it allows you to get into the mind first.”
If a company only thinks short-term about immediate issues with customers, wages, suppliers, and staff… it becomes outdated and creates no new opportunities for growth.
If a company only thinks long-term about new products, new markets, innovation and growth… it runs out of capital to fund investment.
Successful companies have to balance short-term and long-term thinking.
You can’t grow long-term if you can’t eat short-term. Anybody can manage short. Anybody can manage long. Balancing those two things is what management is.
It is human nature to relax when things are going well, but history shows this is the very moment to be wary. Success breeds complacency. Complacency breeds failure. Only the paranoid survive.
Don’t find customers for your products, find products for your customers.
The marketing environment is the world beyond the confines of the organization — the world that its customers live in — and includes the sate of the economy, government regulations, social attitudes, current issues, competing companies, distribution infrastructure and partnerships, and technological changes.
Marketing is not the art of finding clever ways to dispose of what you make. It is the art of creating genuine customer value.
- Bonding: This is definitely my kind of brand.
- Advantage: I can see how this brand fits me better than others.
- Performance: How well does it compare with other brands?
- Relevance: Does this brand fit my needs and budget?
- Presence: I have noticed the brand.
Waste is anything that adds to a company’s cost which is not valued by the customer, including:
- overproduction
- inventory
- movement
- waiting
- transportation
- overprocessing
- defects
Lean producers try to eliminate these wastes to boost profits.
Yếu tố quan trọng khác được đúc kết qua 1 câu nói của ông Tú: “Không được thọc gậy xuống nước.” Hàm ý của chuyên gia quan trị vốn nổi tiếng về marketing và bán hàng này là: không được điều hành kiểu quan liêu, theo phong cách chỉ tay 5 ngón, mà phải “lội hẳn xuống dưới xem nó nóng lạnh thế nào, thực tế ra sao thì mới biết vận hành kiểu gì.”
Only 4% of firms generate 50% of job generation by the firms over a decade. The majority of new firms are born to die young as most cease to trade within 3 years of inception. Most firms that survive are born small and stay small. Many small firms are more interested in maintaining their current level of profit than in expansion. One reason for firms wishing to stay small is that the ownership and management reside in the same person or persons; so future firm goals are determined not only by commercial considerations but by personal lifestyles and family factors relating to the individuals or teams of individuals who own and manage them. Firm development can be restricted by entrepreneurs who want to maintain ownership and control of their firms, and who many only grow their ventures to an internal management comfort zone, which allows owners to maintain control and ownership. But it seems that the proportion of small businesses that want to grow is greater than the numbers that actually grow.
Although business plans are widely used by entrepreneurs, their usefulness is debatable. One potential problem is that they are static documents, which may have severe shortcomings for early-stage firms, where neither the product nor the market is well defined. The assumptions on which the business plan is based can be seriously misleading when the entrepreneur comes into contact with the reality of the marketplace.
Entrepreneurs use heuristics more extensively than non-entrepreneurs. Heuristics are rule-of-thumb shortcuts to simplify the contexts for discovering or creating opportunities, which are often complex, highly uncertain, and lacking in information about the size and profitability of the market for a product that may not yet exist.
They had become billionaires by analyzing successful US companies, rapidly creating copycats in Europe, and, in many cases, selling those “cloned” companies to their original American inspirations.
Only 2.2% of profits that arise when firms are able to appropriate the returns from innovative activity went to the disrupters. Most of the benefit of technological change are passed on to consumers rather than captured by producers.
The classic approach to business strategy involves gathering information and making decisions when you can be reasonably confident of the results. Take risk, conventional wisdom says, but take calculated ones that you can both measure and afford. Implicitly, this technique prioritizes correctness and efficiency over speed.
Unfortunately, this cautious and measured approach falls apart when new technologies enable a new market or scramble an existing one.
When a market is up for grabs, the risk isn’t inefficiency — the risk is playing too safe. If you win, efficiency isn’t that important; if you lose, efficiency is completely irrelevant.
We believe that the mechanism behind the power of blitzscaling is “first-scaler advantage.” Once a scale-up occupies the high ground in its ecosystem, the networks around it recognize its leadership, and both talent and capital flood in.
If technological innovation alone were enough, federal research labs would produce $100B companies on a regular basis.
Walmart should have dominated online retail, yet Amazon emerged and practically wrote the bible for e-commerce, including consumer reviews, shopping carts, and free shipping.
The cold and unromantic fact is that a good product with great distribution will almost always beat a great product with poor distribution.
Google had a gross margin of 61%. Facebook’s gross margin was 86%. Amazon’s is 35%. Yet even Amazon’s gross margins are greater than those of a “high margin” traditional company like GE (27%).
As Jeff Bezos is fond of saying, “Your margin is my opportunity.” Xiaomi explicitly targets a net margin of 1-3%, a practice it credits Costco for inspiring.
Another, less obvious benefit to this model is that once a subscription business achieves scale, the predictability of its revenue streams allows it to be more aggressive with long-term investments, since it isn’t obliged to maintain large cash balances to weather short-term variations in the business. This financial firepower can represent a major competitive advantage. For example, Netflix, which announced plans to invest $6B in original content for its streaming service in 2017, has exploited its direct subscription model to outspend classic TV networks, which have to rely on less robust revenue streams like payments from cable providers and advertising sales.
The Village-stage transition can be difficult for you as a founder, because it is at this phase that it becomes harder to see the immediate impact of your work. While you might know and interact with frontline employees, you’re not likely to be their direct manager anymore. Now you need to take a big-picture view and focus on designing the organization.
Coordinating the efforts of 10s or 100s of individuals — and ensuring alignment with the goals of the entire organization as a whole - requires planning and formal processes, often to the chagrin of an idealistic founder more interested in long-term vision than the minutiae of day-to-day management.
I started out 28 years ago with a total disdain for organizational matters. I just thought everyone who comes to this should be mission-driven, and we’re not going to have any hierarchy, and we’re going to pay everyone the same thing. About 5 years into this, I realized if I didn’t become obsessed with the very mundane matter of how to manage effectively, we’d never get there.
Managers are frontline leaders who worry about day-to-day tactics: they create, implement, and execute detailed plans that allow the organization to either do new things or do existing things more efficiently.
By contrast, the role of the executive is to lead managers. For the most part, executive don’t manage individual contributors. Instead, they focus on vision and strategy. Yet they are still connected to the frontline employees because they are also responsible for the “fighting spirit” of their organizations; they need to be role models who help people persist through inevitable adversity.
For a company like Google that’s doing a 100 different things, there’s a very long breadline to get the next good engineer. And if you’re project number 35, which is about where Google Drive was on their list, it’s going to take a long time before that team gets fed with any amazing people. When you consider the 11 players you put on the field versus your counterpart at a big company, you can actually have a massive talent advantage. Not because Google doesn’t have great engineers; they probably have better engineers than you. But the leader of the project is a midlevel product manager for whom it’s just the next rung on the ladder. As a founder, you’re just so much more committed, and your team is so much more committed.
Another famous Steve story involves an Apple strategy off-site where Apple’s top 100 people worked for a day to reduce Apple’s strategy to 10 key priorities, at which point Steve crossed off the bottom 7 items and said, “We can only do 3.”
Finally, you may order your naval task forces to launch diversionary attacks that yield little tactical advantage but that help the overall strategic situation. For example, Microsoft needs to field a search engine to compete with Google, even though it is unlikely to capture much market share, because Google is fielding productivity apps against Microsoft. At this phase, you should try to make your opponents defend every bit of their territories, because, if you succeed, they will be stretched too thin to ward off the attacks you actually consider important.
I think a lot of entrepreneurs start with a lot of insecurity about what they don’t know. What you want is not to be paralyzed by it, but to harness it — to use that nervous energy to learn and make yourself better. You’ve got to keep your personal learning curve ahead of the company’s growth curve.
Other might prefer early stages because they enjoy the direct and tangible impact of being a key individual contributor or an important team leader over tackling the very different and more abstract work of being a full-time manager or executive.
Speed is the foundation of Zara’s “fast fashion” business strategy, which, for decades, can be summarized in a single sentence: “Give customers what they want and get it to them faster than anyone else.”
While the labor costs might be higher than in China, and thus less “efficient,” they payoff is incredible responsiveness and speed.
Zara’s logistics model continues this preference for responsiveness over efficiency. Zara products are distributed in small batches, which requires more frequent shipments. The logistics costs are higher, but this allows Zara to get clothes to its stores in less than 24 hours for Europe, the Middle East, and America, and in less than 48 hours for Asia and Latin America.
In three years every product my company makes will be out of date. The only question is whether we will replace them or someone else will. In the next ten years, if Microsoft remains a leader, we’ll have to cop with at least three major crises. That’s why we’ve always got to do better. I insist that we keep up with events, as well as pursue longer-term projects, and that we use “bad news” to drive us to put new features into our products. One day, somebody will catch us asleep. One day, a new firm will put Microsoft out of business. I just hope it’s fifty years from now, not two or five.
In school the instructor will accept whatever you do and grade you accordingly. In business the job is either accepted or it is not. The client is not going to grade your efforts.
The way to survive and flourish is to make the best damn product you can. And if you can’t survive and flourish on that, then you shouldn’t. If you can’t make a good car, then you deserve to go down like the rock that was the US auto industry in the 1970s. Success is about quality and giving folks what they want.
It’s not about trying to control people.
The trouble is, people and companies are too often motivated by pure greed. And that always causes them to lose in the long run. Greed leads to decisions governed by paranoia and a need for total control. Those are bad, short-sighted decisions that end up in disaster, or near disaster.
Up to that point, budgeting was a one-way exercise: Accountants added up all of a firm’s expenses and then tossed in a sales projection almost as an afterthought. In McKinsey’s view, companies should start by developing their business plan, figure out how to achieve it, and then estimate the costs of doing so. In this new context, budgeting wasn’t just a ledger activity; it could also be used to identify excellence in performance, to spot weaknesses, and to take corrective action.
Using the GSO, consultants started every engagement by thinking of the outlook for the industry of their client, the place of the client in the industry, the effectiveness of management, the state of its finances, and favorable or unfavorable factors that might affect the future of the firm. No details was too small to take note of, whether it was a study of all firm policies — including sales, production, purchasing, financial, and personnel — or an analysis of whether the layout of equipment in a company’s plant provided for the most effective flow of the production operations. By the time the young consultant had completed the survey for his client, he knew the company and its business cold.
Usually, I find that the executive who says he does not believe in an organization chart does not want to prepare one because he does not wish other people to know that he had not yet thought through his organization properly. For the same reason many men are opposed to budgets. They are unwilling for anyone to see how little they have thought about what they are going to do in future periods.
First and foremost: Everything was sacrificed at the altar of the client. The client, the client, the client. Bower saw himself as little more than a servant to client interests. In building a firm of like-minded individuals, he also build a paradox or remarkable proportions: Marvin Bower and his colleagues were going to become the most successful and influential servants in history.
At McKinsey (as at other consultancies), one is generally promoted from associate to principal on the basis of one’s ability to analyze and present data. But thereafter, one is promoted almost solely on the basis of one’s ability to sell the firm’s services. It’s the only job I can think of where you start in general management, and then, if you’re successful, you end up in sales.
Henderson’s insight was to package product portfolio management in an easy-to-consume form. His now legendary “growth-share matrix” suggested that executives look at the products as one of four types: a cash cow, a rising star that needed that same cash to grow, a dog that needed to be put down, and a question mark that needed further study. By reducing a complicated corporation to a simple, one-page chart, Henderson had out-McKinseyed McKinsey. Major decisions could be made with clarity and confidence.
Far too many managers have lost sight of the basics — service to customers, low-cost manufacturing, productivity improvement, innovation, and risk-taking. In many cases, they have been seduced by the availability of MBAs, armed with the ‘latest’ in strategic planning techniques. MBAs who specialize in strategy are bright, but they often cannot implement their ideas, and their companies wind up losing the capacity to act.
Rethinking the way one does business is a hallmark of the American success story. Despite the brutal implications at the individual level, one of the primary differentiators between American companies and their foreign competition is the ability to lay people off with relative impunity.
Roughly 99.9% of all companies that were created went out of business.
If you think that’s a big failure, we’re working on much bigger failures right now. I am not kidding. Some of them are going to make the Fire Phone look like a tiny little blip.
Corporations were few and far between, requiring a Royal Charter, Act of Congress, or Act of Parliament. Corporation law evolved slowly and hesitantly in the 19th century, with the US taking the lead. The first general corporations law is credited to the State of NY in 1823, although that law was applicable only to manufacturing corporations.
This doesn’t mean that your new work sucks, just that people are usually in the middle of something that’s more important to them than a change to your product. They’re already invested in what they have to do and they’re already familiar with how they’re going to do it. And then you toss a change at them that immediately makes their life a little more complicated. Now they have a new thing to learn right in the middle of having an old thing to do.
It’s taken us a long time and a number of missteps to learn this core truth about selling: Sell new customers on the new thing and let old customers keep whatever they already have. This is the way to keep the peace and maintain the calm.
When I was 17, the design director at Nino Cerrutti, who was my first mentor, taught me that to be too much ahead is to be behind. The most important thing is to be right on time.
He argued that the main reason why a company exists (as opposed to individual buyers and sellers making ad hoc deals at every stage of production) is because it minimizes the transaction costs of coordinating a particular economic activity. Bring all the people in-house, and you reduce the costs of “negotiating and concluding a separate contract for each exchange transact.”
But the gains from reducing transaction costs that companies deliver have to be balanced against “hierarchy costs” — the cost of central managers ignoring dispersed information.
The company opened a $5M mail-order plant in Chicago, the largest business building in the world. To deal with the growing problem of fulfilling orders, Rosenwald develop a mechanical scheduling system, a sort of assembly line for customer orders. “Miles of railroad tracks run lengthwise through and around this building for the receiving, moving and forwarding of merchandise. Elevators, mechanical conveyors, endless chains, moving sidewalks, gravity chutes, apparatus and conveyors, pneumatic tubes and every known mechanical appliance for reducing labor, for the working out of the economy and dispatch is to be utilized here in our great Works.”
Ford’s success was not just about building cars more swiftly, but also about bringing both mass production and mass distribution under the roof of a single organization. An “integrated” industrial firm could find economies of scale in everything from purchasing to advertising — and thus pump an endless supply of cigarettes, matches, breakfast cereals, film, cameras, canned milk, and soup around the country. The key was to own as much of the process as possible. Ford even owned the land on which grazed the sheep that produced the wool that went into his seat covers.
Duke, who had a tobacco business in Durham, decided to get into the cigarette business — at the time regarded as something of a dead end. But Duke found a secret weapon — the Bonsack cigarette machine, which could turn out 125K cigarettes a day, at a time when the fastest worker could produce no more than 3K. Duke’s machines were soon producing far more cigarettes than the then-undeveloped market could absorb, so he created a huge marketing organization to pump up demand.
Yet, if Sloanism was built on decentralization, it was controlled decentralization. The divisions were marshaled together to use their joint-buying clout to secure cheaper prices for everything from steel to stationery. And Sloan and Du Point created a powerful general office, packed full of numbers men, to oversee this elaborate structure, making sure, for example, that the divisions treated franchised salesmen correctly. Divisional managers looked after market share; the general executives monitored their performance, allocating more resources to the highest achievers. At the top, a 10-man executive committee, headed by Du Poet and Sloan, set a centralized corporate strategy.
The beauty of Sloanism was that the structure of a company could be expanded easily: if research came up with a new product, a new division could be set up. “I do not regard size as a barrier,” Sloan wrote. “To me it is only a problem of management.” Above all, the multidivisional firm was designed “as an objective organization, as distinguished from the type that get lost in the subjectivity of personalities.” In other words, it was not Henry Ford.
Toyota treated all the different parts of the production system — development, purchasing, manufacturing — as a seamless process, rather than a series of separate departments. It brought together several important ideas, such as total quality management (putting every worker in charge of the quality of the products), continuous improvement (getting those workers to suggest improvements), and JIT manufacturing (making sure that parts get to factories only when they are needed). Workers were put in to self-governing teams, and there was far more contact with suppliers.
These achievements are real, but drawing up long lists of when companies have acted responsibly (and when they have not) risks missing the biggest point. Henry Ford’s $5 wage was a force for good; but his cheap cars helped change the lives of the poor in ways that socialists could only dream about. Boeing has spent millions of dollars financing good works in Seattle, but the real boost to the region has been the jobs that it has provided. The central good of the joint-stock company is that it is the key to productivity growth in the private: the best and easiest structure for individuals to pool capital, to refine skills, and to pass them on. We are all richer as a result.
Apparently sprinters reach their highest speed right out of the blocks, and spend the rest of the race slowing down. The winners slow down the least. It’s that way with most startups too. The earliest phase is usually the most productive. That’s when they have the really big ideas.
The striking thing about this phase is that it’s completely different from most people’s idea of what business is like. If you looked into people’s heads for images representing “business,” you’d get images of people dressed up in suits, groups sitting around conference tables looking serious, Powerpoint presentations, people producing thick reports for one another to read. Early stage startups are the exact opposite of this. And yet they’re probably the most productive part of the whole economy.
And yet conventional ideas of “professionalism” have such an iron grip on our minds that even startup founders are affected by them. In our startup, when outsiders came to visit we tried hard to seem “professional.”
For example, it may take an investment of $20 million to build a robot that can pick cherries with 80% accuracy, but the required investment could balloon to $200 million if you need 90% accuracy. Getting to 95% accuracy might take $1 billion. Not only is that a ton of upfront investment to get adequate levels of accuracy without relying too much on humans (otherwise, what is the point?), but it also results in diminishing marginal returns on capital invested. In addition to the sheer amount of dollars that may be required to hit and maintain the desired level of accuracy, the escalating cost of progress can serve as an anti-moat for leaders—they burn cash on R&D while fast-followers build on their learnings and close the gap for a fraction of the cost.
After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired an ability to clear seven-footers.
Talented storytellers had found a way to make viewers care, and the evolution of this storyline made it abundantly clear to me: If you give a good idea to a mediocre team, they will screw it up. If you give a mediocre idea to a brilliant team, they will either fix it or throw it away and come up with something better.
The takeaway here is worth repeating: Getting the team right is the necessary precursor to getting the ideas right. It is easy to say you want talented people, and you do, but the way those people interact with one another is the real key. Even the smartest people can form an ineffective team if they are mismatched. That means it is better to focus on how a team is performing, not on the talents of the individuals within it. A good team is made up of people who complement each other. There is an important principle here that may seem obvious, yet - in my experience - is not obvious at all. Getting the right people and the right chemistry is more important than getting the right idea.
Ariely notes that Mark Twain illustrated this with Tom Sawyer, who somehow got the other boys to be so envious of the fence-painting exercise that they not only took over his job but paid him for the privilege.
There are no shortcuts around quality, and quality starts with people. Maybe shortcuts exist, but I’m not smart enough to have ever found any.
I spend 20% of my time recruiting.
We’re having to make guesses 4 or 5, 6 months in advance, about what the customer wants.
We’re not smart enough to do that. I don’t think Einstein’s smart enough to do that. So what we’re going to do is get really simple and start taking inventory out of those pipelines so we can let the customer tell us what they want, and we can respond to it super fast.
Recruiting is the most important thing that you do. Finding the right people — that’s half the battle.
Why are so many winners ending up like Detroit? Each case is different, but underlying causes tend to include the hubris that comes from success, the failure to recognize and match competition, an unwillingness to exploit opportunities that contain risk, and an inability to adapt to relentless change.
It’s often said that entrepreneurs are dreamers. True. But good entrepreneurs are also firmly grounded in what’s available and possible right now. Specifically, entrepreneurs spend vast amounts of energy trying to figure out what customers will pay for.
Apple hired me into their UX group, but shortly after starting on the job I learned that product / market fit — the focus of product management — mattered more than UX or design.
We think of this [the store] as our largest product.
This is unfortunate because high retention is generally the deciding factor in achieving strong profitability, for any kind of company. A 5% increase in customer retention rates increases profits by anywhere from 25 to 95%. The flip side is that losing customers comes at great cost. One reason is that, it takes so much money to acquire a new customer.
The harsh reality in the business world is that companies have to make a profit. Businesses must balance profitability, customer or client satisfaction, and quality products or service.
This slow rate of progress, or lack of progress, was due to 2 reasons — to the remarkable absence of important technical improvements and to the failure of capital to accumulate.