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Here’s the program.
Hey everyone, it’s Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. Today I’ve got with me Geoffrey Moore. He is a venture capital partner with Moore David X1:47 Ventures. He’s a consultant with TCG Advisors, and an author. His book, Crossing the Chasm, which was published in 1991 is still considered the bible of entrepreneurial marketing. His recent book, Dealing with Darwin, shows how great companies innovate at every phase of their evolution.
I inviting him to Mixergy to talk specifically about innovation. Welcome, Geoffrey.
Interviewee: Nice to be here. Thanks a lot.
Andrew: Thanks for coming here. What’s the big challenge of innovation?
Interviewee: Well, I think it’s different depending on whether you’re a small company or a large company. The fundamental idea with innovation is start at the level of the problem not at your desire to innovate. And the classic way to succeed at innovating in an entrepreneurial way is to find a really, really tough problem and just grab on to it and not let go.
That’s obviously gotta be a problem you think you have a particular insight you know how to crack. That’s the game.
Then the key thing there is just the unwillingness, the relentless tenacity which is holding onto the problem, and insisting to getting the customer all the way through to the solution. Entrepreneurs who lose their way somewhere along the line start to become self indulgent and they do the parts of the innovation that they enjoy, but they’re not really owning up to the economic need.
In a large company it’s a different problem. In a large company there’s often quite good innovation, but getting it through the pipeline and into the market, and making it material to the company’s success is a big challenge in crossing the chasm inside a large corporation. Because the chasm-crossing resources are also responsible for keeping the day-to-day current business going. And there’s a conflict there and most organizations don’t confront it squarely. And as a result they end up sooner or later betraying the innovation in order to make the quarter. And so there’s this very kind of, sadly performing innovation in many large corporations.
Andrew: I’d like to understand this problem by giving you an example from two interviews that I did recently. One is with the general manager of ebyte, this is the biggest online invitation website. He told me that they were just kicking off profits, millions of dollars and millions of more since he helped grow the business. But what he wasn’t able to do is add the basic features that you see on other websites, social networking, design to the site was tucked [? 4:17] to adjust.
Meanwhile on the other hand, I see the founder of Eventbrite. He’s funding the business from his own pocket. He’s coming up with small innovations in the industry and reshaping online invitations, and taking on Ticketmaster as an underdog.
What I’d like to understand is, why don’t we start with if we’re the small guy going up a big company like ebyte in this example, what are some of the challenges that they face that give us opportunity to out-innovate them?
Interviewee: So let’s just say, ebyte in this example is the challenger or the incumbent?
Andrew: They’re the incumbent. They’re a division of a publicly traded company. They used to be innovators, today they just are locked. Why would a big company, why would an incumbent be locked?
Interviewee: It’s not that they stop innovating.
minute 5 to minute 10
Interviewee: It’s not that they stopped innovating, it’s that the focus of their innovation changed from being disruptive to being incremental, and both forms of innovation have economic rewards. Once you are acquired by a larger company, it’s an enormous incentive to become incremental rather than disruptive. I don’t think people should assume that that’s a mistake. It’s just part of evolution, it’s part of essentially maturing.
Andrew: So, is it right for them to stay where they are and not continue to make disruptive innovations or to look for them?
Interviewee: I would say so. One of the things we’ve discovered about large corporations is they’re not very good at hosting disruptive innovations because they’re the incumbents. So, what they are good at is watching disruptive innovations, and after they crossed the chasm and become successful, acquiring them and assimilating them into the larger structure. What the acquired company gets is more reach and what the acquiring company gets is next generation innovation. So, I think it’s a pretty good trade-off. The sad thing happens is when the company acquires the next generation innovation but then has an organ rejection and essentially doesn’t support it, and that’s painful for everybody.
Andrew: So, is it possible for a big, entrenched competitor to innovate or do they have to go out and buy another company and acquire their innovation?
Interviewee: What I try to do in Dealing with Darwin is I actually said that there were like 12 or 14 different types of innovation. The reason why I want to do that is one of them is disruptive innovation. So, if I rephrase your question specifically, is it possible for an incumbent to launch a disruptive innovation. Well, it’s theoretically possible and it has happened, it’s very unlikely. But for is it possible for them to do any of the other 13 forms of innovation, the answer is absolutely yes.
Andrew: Yes, and you specifically break down the 14 different types of innovations based on who they’re aimed at, the ones that aimed at high tech growth companies are different than the ones that are aimed at mature markets and declining markets. So can you talk about an option for a competitor in a mature market?
Interviewee: So, in mature markets, classically, what has happened in a mature market, is the product category, the offer category, is sufficiently mature that good enough has become good enough. Think about automobiles, automobile engines or something like that. So you say, “Okay, well, now, I either want to have it cheaper” – so the cheaper, faster, better” operational excellence innovations – “or I want it more like me, more my way, the more customer innovations.” So, in a mature market, you see a lot of strategies that either have unique customer intimacy and you go, “Wow! How in the world did Amazon know I wanted that book?” Or, you say, it’s unique operational excellence, you say, “Wow! How in the world can Priceline offer me that hotel at that price?” In evolving markets, like we’d say tablet computing, right now, it’s like, “No, no. I don’t care about what it costs, I just want an iPad.” Right? It’s because it’s redefining the category and their product innovation is still the leader.
Andrew: Can you talk about resource for cycling and how a company can use that to keep innovating?
Interviewee: This is really important, and because, in the old model, what people would do is they would fund the innovators, the innovators would have to build the company. A lot of times, the innovators weren’t the people who’d take it public, so you’d kind of fire one group of people or hire the next group of people, they might get it public or get it sold. Then those people are growing at never get new mature market and say, “These people aren’t good leaders,” you fire those people, you hire the people that are good at mature markets. And then when the company kind of was declining, you’d say, “Well, let’s just give rid of all those idiots and we’ll start again.” It’s really bad for people, it’s bad for the culture, it’s very disruptive and everything.
So, when you look at that problem and you say, “What’s going on?” And we developed the model, we said, “Look, there are people who are inventors.” I mean, people can be all kinds of things, but there’s a class of people who are particularly good at being inventors, another one is deployers, which is competitor type of people, and one are good optimizers. Instead of saying you brought a person to the innovation and they have to sort of try to survive for the entire life of trajectory of the offering or the company or whatever, you say, “No.” Let inventors invent, and when they’re ready to get deployed, have them stay in the game long enough to make sure they really does get into the market and is successfully deployable and scalable and then let them go back and invent something else. The deployers should deploy it until it gets to from a high growth to a low growth, then when it’s a low growth market, you kind of wasting deployer energy by fighting over low growth market shares. Let the optimizers take that over and the deployers, you come back and pick up the next inventions.
Interviewee: by fighting over low growth market shares. Let the optimizers take that over and the deployers, you come back and pick up the next inventions. And in this model, deployers cycle through an optimizer cycle/inventor cycle. And innovation is sort of like a conveyer belt. It’s sort of a continually moving conveyer belt being sort of driven by these three wheels.
And in that model many, many people can have long term, successful careers in companies as opposed to a model where sometimes you see a whole generation of workers essentially being like the [Newmie] plant in California. They’re just all invited to go on unemployment.
Andrew: I understand ideas better when they’re attached to an example. Can you give an example of a mature business and maybe one of a newer, faster growth business that hand off an idea from the inventors to the deployers to the optimizers?
Interviewee: Yeah. Let’s take one, well a little bit like the high end of what we’re doing here. So Cisco has an offer called Teleprscence, okay. So they introduced that offer three or four years ago and it was a technology innovation. And the entrepreneurial group, it’s in the emerging technology group at Cisco which is specifically designed to allow Cisco to play with disruptive innovations. They scaled it to about a hundred to somewhere between a hundred and two hundred million dollars -I’m not quite sure what the numbers are here.
But at some point quite recently they’ve said, ‘You know what? This is now ready to go into our mainstream organization.’ So now the mainstream sales force, the mainstream engineering teams inherit this product as part of a larger technology package, a larger offer sweep. Prior to that it was isolated. Prior to that it got it’s own sort of startup attention.
And then at the other end of the system, if you look at sort of some of the more mature products in routing and switching, you see a lot of those things getting cost optimized to either go down market or to go into developing markets. And that’s a very different kind of engineering than the engineering in Teleprescence.
Andrew: I see. Okay. How about a younger or faster growing company?
Interviewee: Okay. So let’s take the other folks you were talking about, not eVite but the -what were they?
Andrew: Event Bright.
Interviewee: Event Bright. Okay. So if you’re going to be a disrupter, then the key thing again -to go back to the issue about the problem- the most important thing a disruptive innovation can do is to pick a problem that’s worth solving. When we spend time at Adventure Community with entrepreneurs we see lots of great technologies. But you don’t want to fund a great technology unless you think you have some reason to believe the world wants it because in general the world is not really willing to embrace new things very gracefully.
So in order for something new to break through the sort of general resistance to anything new, it has to be able to have somebody on the other side pulling for it. And so, where is that pull going to come from? So, my first question for Event Bright would be, ‘What’s the problem you’re trying to solve?’
Andrew: Easy ticketing for smaller events than big rock concerts.
Interviewee: Okay. So you say, well, okay. I’m thinking about that. So Ticket Master has the big rock concerts, I presume, and I’m going to do the second tier rock concerts. Now my question might be, ‘Wow! I wonder how much money there is in that?’ I mean, it’s a problem. One of the things you’d like to have is a problem that has a rich owner, right, who is really willing to part with some of their riches in order to solve the problem.
So Event Bright might participate in a very different phenomenon which is more like social networking which says, ‘There’s another way to play this game which I ought to put on the table.’ Crossing the chasm was always written on the idea that for an offer to become mainstream, people had to buy it. And that is what’s creating the chasm. Am I going to part with my money to buy this thing or not?
In social networking and in a lot of the [inaudible] stuff, people don’t have to buy anything. You just have to log on. And so, all of a sudden you see this massive amount of adoption. There’s no chasms anywhere. Now it has to be a highly viral experience. But if it is viral like Facebook or YouTube or Twitter or any of these things, it’ll go through the roof.
But then there’s the monetization chasm you still have to cross. And Google finally crossed it but not till two or three years afterwards. Facebook appears to be crossing it, although we’re watching their privacy challenges which are clearly being driven by monetization motives. And their audiences are beginning to renegotiate or at least reexamine the social contract involved in participating in Facebook.
And so, the question would be with Event Bright is to say, ‘Look. If you just can make getting tickets a delightful experience and, you know, maybe you don’t make all your money initially
Interviewee: The consumer you don’t, you just have them come to a store or you have them come to a website. But there’s that intermediate group that need an advisory or a consultant of sale, but you can’t really afford to put people on cars or airplanes and send them to the client. So you gotta do it on the web.
So they invented an entire marketing and sales console that allows people to do email marketing and you know, find out when you’re on your website, detect a chat, and do sales calls, and all kinds of things. And so part of the issue there was to say okay, where are we gonna take that capability?
And we’re having dialogue right now saying look, you know we’ve been taking it to the small companies and doing very well. Could we take it to the large companies like Cisco, or HP, or those guys have a problem? And the answer is they do have a problem. So then the question is well, are we well setup to serve in that situation or not? So we have these dialogues around okay, what kind of sales capability would I have to have in order to close Cisco as a client or as a customer? So that’s the kind of stuff we go through.
Andrew: Do you have another example?
Interviewee: Sure. So Virtuoz [? 21:06] is another company, came out of France. They have a virtual client. Now, this is an example of customer service where you say again, I can send people to my website, but they need more help than that. Or like frequently asked questions, but that’s not enough, but I really don’t want them all calling my 800 number because that’s too much.
So these virtual clients are little avatars that talk and they’re very intelligent. And so the issue then becomes how do you set expectations so that people can benefit from what the virtual client can do without at some point getting some expectation that this thing is not good enough or I thought this was a person…and oh my God, it’s not a person so I’m frustrated. So setting that right capability.
But again, what they did was they worked with eBay and American Express and companies like that. And what they’re doing is they’re finding these classes of problems where they can sort of predict statistically what the problem probably is and pose that question in a very forthright manner.
So the technology gives you a lot of capabilities, but the customer is actually telling you no, that’s not the right was to say it, try it this way. And together — and this is what I think they’re really good at — is by kind of bolting yourself onto the customer’s problem and actually living in there environment, co-locating with them even, then using this agile programming to run all these experiment like Google has shown us all, I think that’s been a big trend in our online software companies.
Andrew: Okay, so go back to what we talked about earlier around resource recycling. With that example, these are the innovators who are trying to figure out what the product is. They then would hand it off to deployers who would go find uses and customers to sign up for this problem and the solution, and then sign it on to optimizers who just keep maintaining and improving it slightly, while the innovators and deployers move onto other innovations.
Interviewee: That’s fair, except I would argue it’s a much longer time scale than maybe we just implied. So my guess is that innovators still run the key leaders in companies until they get to be 10, 20, 30, even 40 million dollars. But at some point they get material enough that the people who really count their you know, want to build large things, say I want to turn this into something big. When you hear people talk about making it really scalable or going global, or you know, going horizontal with something that was just vertical, that’s when the deployers start coming in.
They’re a little bit less oriented in terms of all the wonders of the capability, they’re more like saying no, I just want to go get more customers, more customers, more customers. And the deployers are kind of the famous, they’re the ones that often become CEOs of public corporations because they’re the kind of we do it no matter what kind of people, which is both good and bad like everything else in life.
And then the optimizers tend to be in the more mature industries. That’s often in the second decade of a category like where you say look, it’s gonna be ERP systems are gonna be around for another 20-30 years. But nobody thinks that they’re brand new and nobody is saying can you give me a brand new ERP system? It’s more like could you just make the ERP system I have run a little bit better?
Andrew: So within a startup it makes sense for the innovators to launch these companies, to get them as far as they can, and then to move onto another business instead of bringing innovation to the same company doesn’t it?
Interviewee: I think to some…that’s a great question. And it’s interesting for example to watch Google. So you know Google is not of that mind.
20 to minute 25
Interviewee: The consumer you don’t…you just haven’t come to a store or you haven’t come to a website but there is an intermediate group that needed advisory or consultative sale but you cannot really afford to put people on cars or airplanes and send them to the client. So you got to do it on the web and so they invented an entire marketing and sales console that allows people to do email marketing and you know find out when you are on your website detect and chat and do sales calls and all kinds of things. So part of the issue there was to say “okay where are we going to take that capability?” We are having dialogue right now. They are saying “look we have been taking it to small companies and doing very well…could we take it to the large companies to Cisco or HP or Oracle or those guys have a problem” and the answer is they do have a problem. So then the question well are we well set up to serve in that situation or not and so we have these dialogues around okay what kind of sales capability would I have to have in order to close CISCO as a client or as a customer. So that is the kind of stuff that we go through.
Andrew: Do you have another example?
Interviewee: Sure. So Virtua is another company which came out of France and they have a virtual client. So this is an example of customer service where you say again “I can send people to my website but they need more help than that or like frequently asked questions yes thanks but that is not enough but I really don’t want all of them calling my 800 number because that is too much.” So these virtual clients are little Avatars that they sit and talk and are very intelligent and so the issue then becomes how do you set expectations so that people can benefit from what the virtual client can do without at some point getting expectations that this thing is not good enough or “I thought it was a person and oh my god it is not a person so I am frustrated”. So setting that right capability but again what they did is they worked with eBay, American Express, and companies like that and what they are doing is that they are finding these classes of problems where they can serve and predict statistically what the problem probably is and pose that question in a very forthright manner. So the technology gives you a lot of capabilities but the customers actually telling you “no that is not the right way to say it…try it this way” and together and I think this is what [xx] is really good at is by kind of building yourself on to the customers problem and actually living in their environment collocating with them even and then using the agile programming [xx] and of course on the web you can run all these experiments. I think Google has shown us all. I think that has been a big trend in particularly in our online software companies.
Andrew: Okay to go back to what we talked about earlier around resource recycling with that example these are the innovators who are trying to figure out what the product is and they then would hand it out to deployers who would go and find uses and customers to sign up for this solution and then they will pass it on to optimizers who just keep maintaining it and improving it slightly while the innovators and deployers move on to other innovations.
Interviewee: That is fair except that I would argue much longer time scale than maybe we just implied. So my guess is that innovators still run the key leaders in the company until they get to be 10-20 or even 30-40 million dollars but at some point they get material enough that the people who really count their you know want to build large things say I want to turn this into something big but you hear about people making it really scalable or [xx] going global or you know going horizontal with something which was just vertical that is when the deployers start coming in. They are little bit less oriented in terms of all the wonders and the capabilities. They are more like saying “no I just want to get more customers, more customers, and more customers”. The deployers are kind of the famous…they are the ones that often becomes CEOs of public corporations because they are kind of “we do it no matter what” kind of people which is both good and bad like anything else. The optimizers tend to be more mature industries and that is often in the second decade of the categories like when you say look there is going to be ERP system around for another 30 or 40 or I don’t know how many years but nobody thinks it has brand new and nobody is saying can you give me a brand new ERP system. It is more like can you make the ERP system that I have run a little bit better.
Andrew: So within a start-up it makes sense for the innovators to launch these companies, to get them as far as they can and then to move on to another businesses instead of bringing new innovations to the same company doesn’t it?
Interviewee: I think it is a great question and it is interesting for example to watch Google. So Google is clearly not of that mind. Google is saying look we innovated like crazy…
Interviewee: Google is clearly not of that mind. Google is saying, ‘Look. We innovated like crazy here. We’re going to innovate everywhere.’ And their philosophy is, you know, Darwin will select for the innovations that will succeed and will end up being in lot’s of different businesses, and we’ll see where it goes. That is a very challenging agenda and history is not on the side of that winning. But I wouldn’t want to bet against those guys currently now in any case.
A simpler way to win more modestly -and of course, modesty is not the adjective or the noun one would apply to Google right now- but a way to win a little bit more conventionally and modestly is to say, ‘I’m going to take an innovation, if I get it across the chasm I’m going to take it forward from there. I’ll innovate, but I’ll innovate in ways that build upon where we’ve come from. And I will not go back to the other side of the chasm and try to do it again.’ If I want to do that, I think you’re better off starting another company.
Andrew: Speaking of Google, the company that has Google Search, Google Docks, Google Wave, Google Android, maybe we can talk a little bit about innovation waste. What does it mean and how does it apply to a company that’s just tossing out lots of ideas?
Interviewee: What you discover about innovation particularly in an established market is, if you can innovate enough to be genuinely different from your competitors, to a point where the customer looks at it and goes, ‘Well, I can’t get what you offer from anybody else. And I may put up with something less because you’re too expensive but I can’t play you off against another guy for price.’ This is kind of how Apple’s products are right now. You can’t really say, ‘Well, I have a cheaper iPad.’ You can get something different, but you can’t really get a cheaper iPad right now. So that’s highly differentiated. That’s innovation that’s paid off big time.
The other thing you can do is say, ‘Well, I’m HP or I’m HTC or somebody. I need an iPad-like device. I know it’s not an iPad, but it’ll be good enough.’ We’re seeing this with the iPhone and all the things that are responding to the iPhone. And so, you put some money into that but the idea here is, ‘I’m never going to out apple Apple. I just want to get back into the game so I can win on some other feature or some other aspect of the offer.’ That pays off.
Anything in between being good enough and being beyond good is actually waste because you spend money getting closer and closer and closer to ‘best in class’ but the customer at the end of the day goes, ‘Yeah, but you know what? I can get almost that from somebody else. I’m not going to pay you for all that work that you just did.’
And we see this in a couple places. We see this in the automobile industry where General Motors and Ford and Chrysler spend a ton of money on R and D but at the end of the day nobody felt like they had the kind of bargaining power that other companies had. And so, whether it was a BMW or a Mercedes or even a Lexus had more bargaining power frankly, than a GM or a Ford or whatever, with the exception of the Corvette and maybe the Cadillac CTS -whatever that thing is called. So the issue of innovation is, either spend enough to get beyond comparison or just spend just enough to be good enough and be careful about everything in between.
Andrew: See, who does that well? Does Dell do that well on a regular basis?
Interviewee: Well I think, Dell historically did it brilliantly. Dell basically said, ‘You know what? There isn’t such a thing as beyond good in PCs. There’s only good enough.’ And HP and IBM and Compaq and all these guys are trying to be…they’re putting all this money into R and D and nobody can frankly tell the difference between their products that much. I won’t. I’ll be maybe a half a generation back from those guys because the industry build all of those computers and I will innovate elsewhere. I’ll innovate on my supply chain and I’ll innovate on my Dell Direct go to market model.
And so, he innovated like mad. I mean, Harvard Business Review wrote articles about this. But it wasn’t about his products. It was about his processes. And if you think about it, Toyota did a lot of innovation in their processes. And Federal Express arguably is a process innovation. So you don’t always have to think about the product as the only source of innovation. And in fact, what happens in engineering lit cultures is when good enough becomes good enough -this is what Clay Christenson wrote about in The Innovators Dilemma- when good enough is good enough, spending money on engineering is a waste. And yet, if you’re an engineering driven culture you feel kind of compelled to do it because it itches and you like to scratch it.
Andrew: You go from world to world to world in business. Most people who I interview either focus on startups or they focus on mature companies or they find some niche in between.
Andrew: Focus on mature companies or they find some niche in between. You are one of the few people I know and the only person who I have interviewed who goes throughout the whole…talks, helps, and advises the companies all across the spectrum. How do you do that?
Interviewee: Well I think what has been at the core of the practice whether it is [xx] Advisors have been a set of models which started with the technology adoption life cycle which was in the beginning model and crossing mechanism and it has expanded to more and more models. The models are all about what is the market trying to do irrespective of what any particular company is trying to do or why is the market reacting the way it is. So when you build these models and I guess the word people would use more currently is ecosystem model. What is going on in the ecosystem? The more you get a sense of the ecosystem, everybody in that ecosystem would like to get a perspective because…and it is not that you know stuff that you don’t know. It is more like you have time to reflect on forces that they don’t have time to reflect on. The single scarcest ingredient in Silicon Valley is time to reflect and so having some time to reflect you can kind of step back and say here is what we think is going on. Here is why we think these companies are doing this and this company is going here and this is what we think the impact is of India and China or whatever and it is not doing a lot of research as much it is sort of just listening to the [xx] guys. People talk about this all the time. So then the large companies are interested in that from the point of view of making big dollar bets and the small companies are making life bets. I mean this is like I am jumping off a tall building and I have to have a parachute before I hit the ground. So they are both…and the other thing which is nice is the small companies periodically want introductions to the large companies as customers and partners and the large companies are always trying to find out what the small companies are up to so that they can keep the innovation window open. So there is a good sort of synergy there.
Andrew: I see and you are able to bridge the gap.
Interviewee: But only inside. The only way it is possible…I mean I am not sure about how good a job I am doing but if you really want to do a good job at this, I think you really have to be in particular sector so we really work inside technology sector.
Andrew: [xx] in the audience pulled out that quote that you just said that single scarcest resource in Silicon Valley is time to reflect. How do you do that?
Interviewee: Well I don’t have a payroll to make, I don’t have a quarter to make and also I do spend a fair amount of time in airplanes and thank god we haven’t got these things on to the airplanes yet. So that gives me some time. I think I don’t have a meeting…when I look at my calendar those are all meetings that I set up and not meetings that my admin set up for me saying well the CEO needs you in the 10 to 12 meeting and then you have a staff meeting from 2 to 4, then you have to do reviews from 4 to 5, then the [xx] would like to spend 5 minutes with her…it is like that is not my agenda.
Andrew: How do you get to a place where you don’t have to have agenda. I mean even when we shouldn’t have to have agendas we end up piling things into our calendars?
Interviewee: Well that is true. I think that is an important one. We have a model that we apply to companies but I think it applies to people too. We call it core versus context and the idea behind this is core is what makes you different or differentiated and it is the thing that people really value in you. Context is all the other stuff that you do that if you didn’t do people would say well you are not being responsible but when you do it they don’t go “wow that is amazing. You drove your kids to school today who knew”…but it is something that you do. so the tendency and this is Stephen Kavi also talking about the urgent and the important and how we often pile the urgent on top of ourselves and never give us time for the important. Well it is little bit the same thing. Context tends to prod out core. You have so many context things that you have to do that you end up saying I didn’t spend time on the things that really matter. So all that time management stuff around saying look you take some time every…I would argue that personal time management begins with the week. I don’t think you can manage a day but you can manage a week. So actually CISCO has a management system based on weekly commits, monthly reviews, and quarterly milestones and you can kind of do that personally. Okay well what are my quarterly milestones and what are my weekly commits to get there or whatever. In looking that for us, people in our firm, we have some pretty long term kind of ideas around…
Interviewee: long term kind of ideas around understanding the world and modeling the world. And so, we do. We carve out time for that specifically and protect that pretty jealously. So, I don’t know. That’s just part of it at least.
But the fact is and I’m not in a large organization. I think if I worked for, even if I worked for a McKinsey or somebody that does exactly the same kind of work that we do, I think that what I would be doing is spending most of my time either selling new business or reviewing people or doing things, other than…not spending time with clients which is where all…and all the action happens at the moment that you’re spending time with a client in consulting.
Andrew: So in your business, if core is everything that leads to differentiation and context is everything else, in your business what’s core and what’s context?
Interviewee: So, I think what’s core for us are these models that essentially attempt to describe the dynamics of marketplaces and the dynamics of very specific markets that our clients are involved in and helping them create a vocabulary so that these chasms and tornados and bowling alleys and, you know, all these metaphors we’re using are an attempt to get people’s vocabulary to pattern recognize, ‘Where am I in a situation so that I can apply the right actions.’ And so, it’s that strategy to execution transition that’s based on confident pattern recognition.
And so, the more we’re spending time either working with a client in the middle of -and often, by the way, these pattern things they’re discovered after the fact- so a lot of our life is like getting in the middle of the forest with the client saying, ‘I don’t know what’s going on either, but let’s see if we can figure it out.’ And that’s all core too, so.
And then the context stuff would be all of the kind of…well, it’s all of the administration which we outsource. It’s all of the…except for our admin team which is just fabulous. But they’re our chief context officers. They run our calendars. They run our entire business. We outsource all of our financial stuff. You know, that’s not it. So it’s mostly just spending time in dialogue or inventing models. Those are probably the two things.
Andrew: Inventing models, that’s the core.
Interviewee: I think so. Inventing models, yeah. Inventing models that speak directly to the challenges that the tech community is dealing with right now. And again, the higher the priority of the challenge, the more demand there is for you.
Andrew: [Jordy] in the audience is asking about a case where you weren’t able to help. Where you tried. Where the ideas, where the models just didn’t come through.
Interviewee: Yeah. So what happens in those cases -I won’t name companies but there have been more than one, let’s put it that way- in the start up part of the problem could just be look, wrong time or at the key moment they just didn’t have the courage of their convictions or a frequent one is the CEO is too loyal to the wrong person for too long. And, you know, loyalty is a very understandable emotion but in a startup when you have the wrong person in the wrong role you have to be very, very aggressive about moving them out and moving the right person in.
In the large corporation, it’s just all the classic things that Dilbert makes fun of. You know, large corporations do have a lot of inertia. They do have a lot of beaurocracy. They can become inauthentic. And so, an inauthentic corporation often brings you in but more for corporate entertainment than to actually change themselves. We call it…
At one point, I can actually remember I was still working back at [Regis] back in the ’80s, we were talking about a consensual hallucination where you reinforce their hallucination that you’re helping and they reinforce your hallucination that you’re valuable, but the truth is, it’s a complete charade. And, you know, you’re just kind of going through the motions. And a lot of money is changing hands, but it’s not authentic.
So, yeah, authenticity. And so as a result as you get older and you get kind of a little bit more choices, I think one of the most important things is to pick your clients and to commit to the clients that are authentic and find ways to decommit and extract yourself from the clients that aren’t.
Andrew: How can you tell who’s authentic.
Interviewee: Well, you can’t at the beginning. Well, I guess some people can, but I think it’s just behavioral. I mean, at some point you realize, ‘Oh, wow!’ You start getting signals that your bringing up topics that are too painful or, you know, ‘The boss won’t like that,’ or ‘Could you put that in a report.’ And pretty soon you get, ‘Oh, I see. Okay. I misunderstood my role here.’ And by the way there’s a bunch of people that are willing to do that for a living. But it’s not my colleagues and it’s not me.
Andrew: How about an example of a home run, of one you’re especially proud of.
minute 40 to minute 45
Andrew: How about an example of a homerun, of one that you’re especially proud of?
Interviewee: There’s one that happened last week that we’re really proud of – Sybase Software. So Sybase, back in the day, back in the ‘80s, was the hot relational database and it and Oracle went head-to-head and Sybase got clobbered. It wouldn’t support SAP and Oracle would and that was kind of the end of the game. So, we start work with Sybase about three or four years ago and people said, “Sybase? Are they still around? Who are these people?” It turned out that they’d actually not only were they around, they’d actually kept themselves and actually create quite a viable business although it wasn’t visible.
So, we’ve been working with them for the past three years getting them kind of resolidified in their traditional businesses, and then in the last year and a half, more aggressively going after their mobility middleware business. Last week, they were bought by SAP for $5.8 billion, and it was just like, “Wow!” Everybody there, it’s kind of bittersweet because whenever your company gets bought, it’s like I have to give up my t-shirts, my Sybase pendant. But on the other hand, it was a total validation of all the work that they’ve been doing. Of course, most of that work is a consultant you’d like to take credit for a lot of things. The truth is you’re just a catalyst, you’re just trying to help things. But, I think we did help catalyze it, and it just made us very, very proud.
Andrew: Can you give us an example of how you helped catalyze?
Interviewee: So, it’s was fast. The reason we are brought in, initially, was Sybase said, “Look, we can do engineering great, we served our companies, we can’t market for whatever. We are very, very bad at marketing.” So, the first thing we did is we just installed a pretty straightforward marketing playbook and we took them back to their roots on Wall Street. It turned out the financial meltdown was clearly in play, but Lehman hadn’t fallen yet, it was the year leading up to that. But Sybase had been on Wall Street forever but as a legacy system, nobody was buying new Sybase, they were just maintaining existing stuff. But they had this new analytic product and we said, “You know what? If you apply just the risk catalytics, this could maybe head off a bunch of these problems.” So, they did, and they followed our marketing playbook and they just knocked the cover off the ball. In a year in which the Street was imploding, they grew and doubled their revenue from the financial services sector at the time when everybody was going down the tube. So that gave them their first sense of confidence.
And then the second piece was relative to the mobility assets, because they’ve been living hand-to-mouth for so many years, they were monetizing them very atomically. We said, “There’s a much bigger story here around enterprise mobility and kind of helping the mobile client become part of the enterprise IT infrastructure. You, guys, have a much bigger opportunity here.” Three or four years ago, I don’t think they would have had the confidence to, I mean, they talked about that idea, but in reality, their behavior showed that they didn’t really have the confidence to embrace that idea. Well, they did now, and they did a particularly powerful project with SAP, which is how SAP got to know them. SAP said, “You know what? This is a big enough idea and we’re looking for our growth back to the innovative right. We’d been a little bit long in the tooth in our core markets, we need to get out in some new areas,” and so that’s where it came from.
Andrew: You said you helped them with marketing and you referred to the Marketing Playbook that you helped put in place, what was that? What kind of help do they need? What did you do?
Interviewee: So, it’s interesting. For technology-based marketing, we have kind of a 9-point checklist playbook that we’ve installed in dozens and dozens of clients. It was actually for “Crossing the Chasm,” although, obviously, it’s developed, but it starts with what is the problem you’re trying to solve and starts talking about marketing, “Oh, my goodness, that must be promotions.” It’s like, “No. Back to first base. Who’s the target customer and what is their compelling reason to buy?” It turns out those are profound questions, because people are usually start by, if they’re honest saying, “My target customer is anybody who will buy this. I don’t know if they have a compelling reason to buy, I have a compelling reason to sell.”
You say, “Yes, that’s the behavior we’re trying to correct.” So now let’s get back to who will be correct and the notion is if you can win a vocal minority of any market segment, that vocal minority will sell the rest of the segment on you and you will, actually – there’s this tipping point idea that Malcolm Gladwell is talking about, that segment will actually come to you. So, the marketing idea is market to a tipping point, over deliver into a concentrated group of people that talk to each other. After you win enough converts, you’ll win that segment, we call it “knocking over a balling pen.”
Interviewee: [45:00] You’ll win that segment. We call it, knocking over a bowling pin. Then you use that momentum to go to the next segment, and the next segment, and the next segment. And that was an idea that Sybase could get and embrace. And so it was good.
Andrew: [45:12] All right. I see that we’re almost coming up at the end of our time. Let me ask you this. When a client hires a consultant, they’re hiring them to help change the company. They’re hiring them because they want their eyes open. How do they? How do the? How can they work well with the consultant that they’ve hired? That they have all these expectations for?
Interviewee: [45:32] Well, it’s interesting. I think. I think there’s two classes of problems. Well, there’s lots of classes of problems that consultants get involved with. But let’s talk about this sort of strategy to execution and stuff that we’ve been talking about. One class of problems is, companies who are in established markets, who are have to make very big financial bets. And they hire what we would call a research-based consultant who will go in and build a fact base. And the idea is that we really, really, really look at the facts, the facts will kind of speak.
And we will. We will make better decisions. And that is not the consulting business in my firm is in. But many firms are in that business, McKenzie, BCG, Bane. Well, actually, BCG is closer to us. I think McKenzie, Bane, are more in that. They certainly have an anchor business there. The other business. And everybody competes for this business. But this is where we, where we are, focused solely, is, no. I’ve got a problem where I have no facts. We’re, we’re inventing the future here. We’re, you know, we don’t know where this technology is taking us.
But we need to make some bets. And we need to make them now. Because we’re afraid, by the time we know, it’ll be too late, so. So I nthat situation, you, what the. What the company’s got to do is bring the principles who are gonna make that bet to the table. And they all have to be at the table at the same time. And then bring in a consultant, whether it’s us or somebody else, who says, well. We have models that say, that predict how this situation will play out. So then the, the company’s got to figure out if they believe in those models or not. They, they, they kind of.
They try to. They do the kind of interviewing questions you’ve been asking me. Well, give me some examples. Show me kind of the same thing. And, at some point, they have to say, well. We got to bet on some model. So if we don’t like these guys’ models, throw them out and bring in somebody else. Eventually, they’ll find somebody who says, OK. This, this feels close enough to what we believe in. And then what they have to do is they have to use those models and. And they have to debate among each other until they can stack hand. And they will never know.
We call it, you’re making a high-risk, low-data decision. You can not know the answer. What you can do, however, is unite to make a bet. And the winners, the winning teams, you know? This is the most important behavior of a client. Will stack hand and commit to make that bet, even though some members of the team frankly think it’s probably the wrong bet. But they will say, well. Let’s make the bet. Because if we make the bet, either it will work, in which case I’ll be happy to be wrong. Or it won’t work. And we won’t have to second guess ourselves by saying, well.
If you tried. If you hadn’t sabotaged it, it might have worked. So you got to have everybody on this, rowing in the same direction. And then if that’s the wrong direction, you can course correct. And this issue where. We’re gonna do a new book coming out in. It’ll probably be out next year. We’re writing it this year. Around this notion of strategy models based on course correction. It’s a little bit like what agile programming was doing for software programming. You want to do the same thing for strategy, which is I need to make a lot of progress very quickly, but I. But I know that whatever I thought I was going, it’s not where I’m actually gonna go. And so how do I do that? And it, and of course, a venture back start up can do that very nimbly. Larger companies have much, a much bigger challenge there. But they still have to play a version of the same game.
Andrew: [48:44] How do you know if you’re changing because you’re losing conviction in the original idea? And it’s not giving you results fast enough? Or if you just need to make a, a proper course correction?
Interviewee: [48:55] It’s, it’s a great question. And it, it’s one of the many one where it’s at. It’s a tummy-tuck time, right? You just have to kind of. This is where I think authenticity matters. If you’re often. In general, if you can build your authenticity around being in service to other, to your customers, whether you’re Cisco, or G And G Advisors, or Moore David, or Andrew, whoever. Then I think when you, when you come up to these trying moments, where it’s not working. Yeah, you can ask yourself. Is my behavior in service to others? Or am I?
Maybe the reason it’s not working is because I’m, I’m being in service to myself but not to somebody else, and. And if, if you, you say, look. I am being in service to others. It’s not working. Well, then, OK. But then enlist the others in helping you find out where it’s not working. Because if you’re in service to them, they will be in service to you. It’s when we’re trying to be in service to ourselves that we, it gets dangerous. And we see this behavior in tech all the time. Companies who start off being in service to others get very successful. And, at some point, they become more in service to themselves. And they, their own economic interests …
Interviewee: …in their own economic interests, and their own shareholders, and their own whatever it is. And then all of the sudden the world says oh, I thought you were in service to us, but I guess that’s not true.
So they start saying well then I’m not sure I’m gonna support you at the margin as much as you wanted me too. And that’s the beginning of when kind of the maturity, you know, the fossilization begins to happen at that point.
Andrew: All right, well let’s leave it there. Thank you for doing this interview with me. I’m looking forward to the book, have you started it?
Interviewee: Yeah, it’s definitely started. We’re about halfway into it. We don’t have a title. I did get a title, but I’m not sure we have a title to this yet.
Andrew: Okay, I’m looking forward to it and I hope to get to talk to you after the book is published.
Interviewee: Thanks a lot, Andrew, take care.
Andrew: Thanks for being here. Thank you all for watching.
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