Are you a gatekeeper or competition enabler?

If I were hiring a business manager, I would ask candidates to explain whether they view their role more as a gatekeeper for the organization or an enabler of competition?

Gatekeepers decide what the organization does and doesn’t do. They view themselves as the judge of the competition and their ideas usually win, at least in terms of what the organization does, not necessarily in the marketplace.

Competition enablers are open to let good ideas come from anywhere. They create systems that try more ideas and let the best ideas earn their way in our out.

They understand that customers are the best judge of this competition.

Leaders of highly innovative companies like Google, Amazon and even McDonald’s have tended to be competition enablers.

Mature businesses that struggle to stay relevant, tend to have gatekeepers in charge.

Think of Blockbuster as Netflix offered to partner with them. Blockbuster leaders could have easily said, you know this doesn’t seem like something customers would want, but let’s try it and see, because we could be wrong.

Instead, they acted as gatekeeper and said no, customers don’t want to wait for their movie to arrive in the mail. They want to be able to come in on Friday night and pick one out.

By the time they realized they were wrong enough, it was too late.

A common comeback to that is, but that Netflix deal was probably one of dozens of decisions Blockbuster faced and the rest didn’t work out. How would they be able to predict that this one would?

That’s the beauty of being a competition enabler. You don’t have to say no and worry about picking right or wrong.

You just have to ask, how can we try this so we can find out? Can we do it in a small test?

It’s a lot like picking stocks. You can do a lot of analysis and invest all your money in 2-3 stocks and hope for the best. But most folks learn that strategy banks more on luck than skill, because no amount of analysis can turn up information that simply isn’t known, yet.

A better strategy is to spread the bets out more, knowing you can always be wrong.

And, for every example that you can give of someone who did well picking 2-3 stocks, I can give you 10 more who did not.

I’ve worked for several mature businesses that struggle to stay relevant. The Board never realizes the root cause is that they keep hiring gatekeepers instead of competition enablers.

Another thought on the 1-in-10 chance of success

On Naked & Afraid, participants who take a lot of pride in their experience at fishing or hunting think they can beat the 1-in-10 odds of getting food. They might believe their experience and know-how improves their odds to the 1-in-3, for example.

In the business world, managers think they can similarly improve their chances of succeeding with their smarts and/or experience.

Neither are good at assessing odds.

Both are correct that their know-how does increase their odds, but it improves it to 1-in-10.

Someone without the same know-how might have even lower odds of succeeding, maybe 1-in-20 or worse.

1-in-10 vs linear innovation mindset

I’ve worked with a few companies that have the same problem that constrains growth: management overestimates the odds of innovations succeeding.

They tend to see innovation as a linear, strategically planned process that relies heavily on their, or a small group’s, expertise and keen eye for innovating the ‘right stuff.’

This vision constrains the efforts of their organization to about a tenth what it needs for sustainable growth, because innovation has a 1-in-10 of succeeding, no matter how smart or keen the innovators are.

1-in-10 is not exact. It might be 1-in-50 or 1-in-5, but the idea is understanding the order of magnitude of the odds you’re dealing with.

Some with the linear innovation mindset pay lip service to the 1-in-10 chances, but think they can improve on those odds. They might think good innovation is as simple as following the data or they simply forget their failures well and overestimate their chances.

In this post, I likened the 1-in-10 innovation mindset with the chances of obtaining food during the TV show Naked & Afraid’s primitive survival challenge.

Participants who understand their chances of getting food is 1-in-10 appear to do better than those who fall into the same traps as managers with the linear innovation mindset when it comes to getting food.

They might think their fishing skills, for example, will help them beat the odds. “I know the right places to fish.”

While they cast one hook at a time in the ‘right spot,’ the 1-in-10’ers set 10 hooks and check them each day.

Others lend support to this idea.

In the article, Navigating the Route to Innovation, Bain & Co says companies with a variety of innovation approaches grow more than companies that rely on fewer approaches.

In other words, the more ways a company opens itself to innovating, the better the chance of finding their 1-in-10’s.

Scott Adams, the Dilbert Guy, wrote in his book, How to Fail at Almost Everything and Still Win Big, that we live in a reality where the odds of something new succeeding are 1-in-10. He uses his life as an example, writing about the many failures and a few successes that made his career.

I found it interesting that Scott’s “1-in-10” term is the same used by used by the successful Naked & Afraid participants about getting food, “I have to keep trying to get my 1-in-10!”

If I’m hiring a business manager, I’d look for someone with the 1-in-10 mindset.

In the next post I’ll use another one of Scott’s concepts, Systems vs. Goals, to illustrate how someone with the 1-in-10 innovation mindset can achieve sustainable growth.

Why do they hire people who do the same things as the people they just fired?

Honest question: Why do the folks who hire managers for mature companies hire people who do the same darned things as the people they just fired?

Does the hiring committee ask them what they plan to do?

If so, when the candidates answers, does anyone point out that the five predecessors did the same thing? Does the committee think they will do it better?

I think it may be because many on the the hiring committee know how to play politics, but don’t understand how business works.

Common business manager mistake

They think it’s their job to ‘sell ice to Eskimos,’ as the old saying goes, rather than figure out what kind of ice Eskimos might value.

It is assumed that Eskimos don’t need ice since they are surrounded by it.

Many folks in the lower 48 are surrounded by trees, yet they still buy wood in many different forms like lumber that frames their home, furniture, cabinets and decks.

And, they didn’t need a slick-talking salesperson to persuade them not to cut down the trees in their backyard and fashion their own wood products from them.

It’s like pork rinds and potato chips

Newbie managers and sales people often want to lower prices to increase sales. “It’s simple,” they say, “if we lower prices, we will sell more units and make more money.”

The first part of that is typically true. More units will be sold at a lower price.

The second part is the problem. Not enough extra units will be sold to increase revenue.

The math behind this is difficult for many people to grasp. How can we sell more units and bring in less money?

They don’t consider that we will bring in less money on the units we would have sold at the higher price if we had not lowered the price.

One day, I was having trouble explaining how this worked to a group of sales managers. One of them helped out with a simple story that went something like this.

It’s like pork rinds and potato chips. Some people love pork rinds. Some love potato chips.

What you’re saying is lowering the price of potato chips won’t get enough pork rind lovers to switch to potato chips to cover the money you lose by selling chips at a discount to chip lovers, people who would have bought the chips at the higher price.

Yes!

Further, rather than trying to sell pork rind lovers something they don’t want at a discount, try selling them something they do want (pork rinds) and see what happens.

 

 

The value prop of opt-out vs opt-in

The world has been transitioning from opt-in to opt-out for awhile. Have you noticed?

What does that mean?

In the old days, if you wanted to buy clothes you had to opt-in to the whole process. You opted-in to shopping, finding and then buying. You did a lot of the work.

Stitch Fix changed clothes buying to an opt-out value proposition. Many people attracted to Stitch Fix for low cost styling, but stay for the convenience of the opt-out process.

Of course, styling and fit are key value components. If Stitch Fix missed on those marks, few would stay.

But, as a customer, I’ve found more value than I expected because I can now avoid a good deal of the opt-in clothes shopping process while keeping my wardrobe up-to-date.

Of course, Stitch Fix did not invent this approach. After all, fruit-of-the-month clubs have been around for awhile.

But, they did tweak it with some technology so customers get more of what they want by  doing less. I imagine the business does less, too. It seems having one or two locations that you ship orders from should be more cost effective than stocking and running a network of retail stores.

And, by more of what I want, I mean that on several dimensions. I get styles I like, clothes that fit and keep my wardrobe up-to-date. I also get to try new brands and to try slightly experimental styles (a risk profile you can set) that I might not pick out myself.

By doing less, I mean I don’t have to drive to multiple retail stores, rifle through their racks, try on things, compare, winnow down, stand in line, buy and then drive home.

Managers who haven’t thought how they can deliver their products or services with an opt-out model in valuable ways for their customers should be.

Why many companies don’t innovate well

While discussing this post about innovation with a friend, it occurred to me why so many managers “don’t put enough hooks in the water” with their innovation efforts.

That post likened primitive survival fishing to business innovation.

A good primitive survival fishing strategy is to put 10 or more hooks in the water. This recognizes that any one hook has a 10% chance of catching a fish each day. If you want to catch a fish every day, you need to put 10 hooks in the water.

This is also a good business innovation strategy. Each innovation experiment has a low chance of success (even the ones that sound like sure winners), so best to get as many hooks in the water as possible, to improve your chances of finding a few that work.

Many primitive survivalists don’t consider those odds or think they can beat them by knowing the best spots to fish. This is like managers who think they know how to pick winning innovations.

These types of managers tend to view the ‘putting more hooks in the water’ strategy as a sign of weakness, an admission that they don’t have the answer to lead the organization forward. And, they believe their job is to have that answer.

Sometimes they are lucky and catch a fish. They then mistakenly view that as a success of knowing where to fish instead of chance.

Over the course of their career they are likely to hit a one or two successes, which is enough for them to believe it was their skill, instead of luck. The failures, though, they write off as bad luck.

When they fail, they move on to their next employment and hope for the best.

The core problem is with who hires them. They hire people who exude confidence in knowing where to fish and, like the less successful primitive survivalists, don’t find putting more hooks in the water as desirable.

I can envision how these interviews go.

“What are your ideas for moving the company forward?”

“I don’t know. I like to try a lot of stuff and see what works.”

If your mindset is in the ‘knowing where to fish’ camp, this does not sound acceptable. You might think, ‘Well, if it was as simple as that, we could do that without you. Why do we need you?”

More on how I would answer that in a future post.

Co-ops and employee-ownership

These two forms of business organization are interesting since they align two of the three main stakeholders of organizations.

REI Co-op is a retail co-op that sells outdoor recreation equipment. I am a co-op “member”. I paid a $20 one time fee for the honor.

I receive my dividend each year in the form of product discounts that add up to 10% on what I spent the previous year.

The co-op aligns the interests of the customer and owner, because they are the same people. Customers want good quality products and services and good prices.

As owners, though, we also want the co-op to stay in business so we can keep buying good stuff, so we don’t want prices to be too cheap, or else the quality we desire as a customer may be sacrificed.

Because of this co-op customers may more aware that reasonable prices (rather than rock-bottom prices) serve their interests than customers of other types of organizations.

Credit unions are similar. They are essentially banks owned by the bank’s customers.

One of my parents worked for an employee-owned company.

Employee ownership aligns the interests of the employees and owners, because they are the same people.

The employees want to be paid well and also want the product quality and prices to be reasonable so the business will continue to do well.

Employee-owners may be a bit more aware of where their paychecks come from than employees of other types of organizations.

I wonder why these types of business organizations aren’t more common.

What if the union bought GM? Instead of having to bargain with management about compensation, they could pay themselves what they want.

Or, how about a streaming service owned by it’s members? What would that look like? Could that compete with Netflix?

Second order effects in retailing

As I shop for the holidays, I have encountered more than just by random chance items where the website claims “Hurry, Only 1 Left in Stock!”

I’m sure a randomized control trial somewhere showed that this message creates a sense of urgency and increases the conversion rate for those viewing the item.

However, I also find myself thinking that I don’t really care to frequent retailers that have such thin inventory where every purchase feels like a bidding war to get that last item, especially when we’re talking about relatively mundane, everyday items.

I prefer retailers that carry deep inventory in such items so that I can feel confident that the effort I put into visiting their website or store will give be rewarded with actually being able to obtain the item.

I predict that a second order consequence of this inventory messaging may decrease returning shoppers.