You Don't Work in a Startup and Other Last Words
As the adage goes, the only constant is change. Thus, embracing a Startup mindset is the only salvation for established organizations. For those of us that have made the leap from small companies to the corporate world, reminding us that we don’t work in a Startup anymore is a threat to the longevity of your organization.
Complacency Kills.
“Blockbuster didn’t go out of business because of bad customer service.” - Ariel Simpson
Hidden within the mindset that established organizations can and should operate differently than Startups are several deadly behaviors. These lead to organizations that plod along believing they are immune to the ever-changing landscape. Blockbuster had a loyal customer base and a dominant footprint but failed to act fast enough in the face of two upstart competitors — one with kiosks and the other using the postal service.
It’s All Just History Repeating.
Yes, another adage: history repeats itself. In other words, we’ve been down this road before, yet so many are doomed to repeat mistakes because somehow it’s different this time.
Kmart and Wal-Mart. When the competition between Kmart and Wal-Mart was at its peak — in the late 80s and early 90s — the CEO of Kmart, Joseph Antonini, reportedly referred to Wal-Mart executives as snake-oil salesmen. Likewise, many industry observers dismissed Wal-Mart — crediting its growth to its location in rural areas taking business from dying mom-and-pop stores.
Mr. Antonini’s approach to counter Wal-Mart’s incursion in to Kmart’s territory was to double-down on marketing and merchandising, ignoring — or not recognizing – that Wal-Mart had built a technological and logistical juggernaut that allowed it to offer ‘everyday low prices’. (Source)
Mr. Antonini assumed that what had worked in the past would work in the future. Sam Walton, on the other hand, focused on finding operational efficiencies that began as a need (read: constraint) as a franchisee of the Ben Franklin stores to lower costs to gain market share.
While both stores launched in 1962, Wal-Mart upset Kmart by playing the role of the Startup. They, Wal-Mart, had proven customers want low retail prices (compared with an ever changing sale price) and delivered these prices by operating (initially) within known and defined constraints.
Minimills and US Steel. Unlike Kmart’s demise, the downfall of the traditional, integrated US steel industry lacks charismatic central figures. But the decline is none-the-less spectacular.
Following WWII, the United States dominated steel production globally. An estimated 40% of all steel was made in the US at large, fully integrated steel mills — predominately located from Chicago to Pittsburgh. Unlike the mills in Japan, Germany, and most of Europe, the US mills survived the war unscathed. While this was a blessing to this region of the country for the generation that followed, the new mills built as part of the war recovery leveraged newer technology that were more efficient and less expensive.
Rather than adopt the new process, executives at firms such as U.S. Steel, Bethlehem Steel and Republic Steel stubbornly stuck with their outmoded methods. - Jon Talton, Seattle Times
In addition to the rise of foreign steel mills that were technologically superior, Minimills started springing up domestically. Initially, Minimills focused on producing low grade, low quality steel milled from scrap metal. This type of steel offered low profit margins and the legacy steel mills willingly surrendered this production to the minimills (who were well suited to this type of steel production).
By the 1980s, the majority of steel production was from scrap metal. And today, only U.S. Steel remains of the large WWII-era steel companies.
But the demise of the legacy steel producers wasn’t merely a shift in market preference towards lower quality steel. The Minimills did two things that, when combined with renewed international competition, spelled the end for the incumbant steel producers. The first was that they moved up market expanding into higher quality steel. The second was that they didn’t hire experienced steel workers, preferring to train new ones. This helped them find new and better methods by not being trapped by the status quo mindset (eg. “this is how we’ve always done it”). (Source)
All Your Friends Are Belong To Us. And with the pace of innovation, sometimes even the disruptors get disrupted. One of the first — if not the first — social networks to gain traction was Friendster. Within months, Friendster was replaced by MySpace (where we were all connected by some guy named Tom). And after a decent run, Tom lost all his friends to Mark and we are all stuck with Facebook (and Yahoo! got stuck with Tom).
Though, Facebook is now the one struggling to keep up. The demographic for their core platform is trending older and the primary source of innovation for the company comes from acquisitions. While Facebook doesn’t appear to be clinging to the status quo, I think it suffers from a lack of constraints — money isn’t an issue and that becomes a hindrance.
While the disruption for social platforms wasn’t long and drawn out (though, Facebook may be going through that now), both Friendster and MySpace diverged from Startup practices in two ways — they no longer identified and validated assumptions, and they no longer operated with known constraints (primarily financial).
Insulation by Regulation. So What.
Your choice of insurance (auto, home, health, and even life) used to be based on the company your friend repped. Trading stock used to require a broker. Surely, highly regulated industries are immune to disruption. Right? Consider this. The more the regulations the greater the opportunity for disruption.
Within my industry, the past decade has seen the rise of peer-to-peer lending; online mortgages; money trackers and budgeting apps; and web-based financial planning. Within the past year, Amazon launched a credit card for credit-challenged consumers; T-Mobile offers checking accounts; Apple is launching a credit card integrated into the iPhone experience; web-only banks, like Monzo, are moving from the more forward-looking market of Europe in to the United States.
The disruption facing retail banking looks very reminiscent of the steel industry just half a century ago. The survival of the current players – both too large to fail and your local community bank — depends on if their leadership is more like Joseph Antonini or Sam Walton.
How to Survive. The No Sacred Cows Plan.
To improve longterm survival prospects, organizations need to embrace Startup hallmarks: act with a sense of urgency, constantly identify and test assumptions, and embrace constraints.
Mindset #1: Today Matters. (The Power of Urgency.)
“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Nicholas Taleb
A runway is the amount of time an organization has before it runs out of money and, thus, out of business. All businesses have a runway. For Startups, the need to extend this runway in the near term creates a sense of urgency - to not put off until tomorrow that which can, and should, be done today.
The desire to move fast is a hallmark of Startup culture. Mantras like ‘fail fast’ don’t refer to fatal failures. Instead, they are focused on the small initiatives, the components that together make up the whole. For example, if a sales landing page doesn’t convert enough leads we want to know that as quickly and as cheaply as possible so that we can try a different version.
Established organizations tend to lose any sense of urgency. Maybe this is because moving fast is thought of as being risky, or unnecessary since the organization is now established and insulated by barriers to entry. Furthermore, bureaucracy kills urgency. Yet, once urgency is no longer part of the company culture, it is difficult to re-establish. This places the organization at an even greater risk of being unable to respond to disruption - a very precarious and risky position.
In short, you should have the same sense of urgency working in an established organization that you would in a Startup. Your runway may be longer, but the long-term health of your organization depends on it.
Mindset #2: How Do We Know We Are Right?
Established organizations didn’t become established by being entirely wrong about their offerings in the past. As a result, why should we then think we are going to be wrong in the future? However, just like the investment disclaimer, past performance is not an indicator of future success.
With past success comes the trappings of resources and a false confidence that we know what the market needs or wants. Our exposure to overconfidence bias or effect grows. This leads to organizations that rely on long product development cycles using only internal subject-matter experts to determine the product requirements. Developing products over long periods of time without customer involvement is a recipe for disaster.
Instead, identifying assumptions and seeking to validate them should be the same in an established organization as it is in a Startup. The aim is to build solutions that the market actually wants — which means that several someones somewhere are willing to pay money for your product or service.
The surest approach is to empower small teams focused on solving the most pressing issues to your organization. These teams need to have a high level of autonomy, and be tasked with delivering solutions incrementally in short iterations. Each iteration needs to be driven by user feedback.
Your products and services are assets. And developing them incrementally - with urgency - creates safe, sound ones.
Mindset #3: That Which Constrains Us Sets Us Free. (The Power of Constraints.)
As Orwellian as it may sound, constraining your teams provides freedom - freedom to move fast and deliver proven solutions. Constraints force creative solutions to problems.
Clearly define the constraints employees must work within — but ensure they have complete autonomy within those constraints. Give them a sandbox. These constraints will force non-traditional thinking to problem solving while also serving to protect the larger organization from risk — security, operational, reputational, and so forth.
In short, constraints force the issue of asking how might we do this differently. This mindset leads to innovation and gives organizations a fighting chance - being part of the disruption instead of being the disrupted.
tl;dr
In business, organizations are either growing or dying. Because of this, every business needs to behave with the mindset of a Startup. Failure to do so leads to complacency, malaise, and an inability to adapt to market changes - let alone drive those changes.