“Innovation is the specific instrument of entrepreneurship, the act that endows resources with a new capacity to create wealth.” -Peter Drucker
“The only worse design than a pie chart is several of them.” -Edward Tufte
One of my favorite hobbies is oversimplifying the world, and I’ve decided to share my latest instance. Two very different kinds of thinkers exist; I call them Pie Charts and Venn Diagrams. How are they alike, how do they differ, and which one is your default thought process?
A Pie Chart is useful for gaining perspective on the distribution of a resource. It shows the relative percentage that each portion of a finite thing is allotted within the whole. While it can identify how large an opportunity is today relative to other parts, the universe could change tomorrow, e.g., the size of the pie may increase or diminish.
A Venn Diagram illustrates how two or more things are related. Are they separate? Do they overlap? If they overlap, then to what extent? The Diagram evolves as the size of each circle changes, as the degree to which they overlap grows or diminishes, or as a new circle is introduced.
How does using a Pie Chart versus a Venn Diagrams influence our imagination?
Pie Chart thinking constrains your vision to that which already exists. An everyday example is seen in political economics. Portraying the U.S. economy as a zero sum game (i.e. a pie chart) manipulates us into focusing on how someone is taking our piece of the scarce resources that constitute the pie. In business, the outcome of Pie Chart thinking is usually suboptimal. For example, when a company’s only growth option is “more of the same” or “sell harder,” a Pie Chart mindset is behind it.
Remember “think out of the box”? A Pie Chart is the box outside of which we need to think all the time, not just during brainstorming sessions at offsite retreats. Venn Diagram thinking enables you to break out of the box by forcing you to consider which of several circles you will include. The size of each circle is unbounded, and the overlap between them is dynamic. Venn Diagram thinking empowers us to envision how we can grow the pie, while Pie Chart thinking inhibits innovation by limiting our consideration of alternatives.
Understanding the difference between these two modes of thought elevates our vision. Consider the effect of Pie Chart thinking versus Venn Diagram thinking on what we choose to emphasize, on the perspective we bring, and on the outcome we experience:
Pie Charts emphasize how two things are different; Venn Diagrams encourage a search for synergy. Pie Charts constrain us to a finite perspective; Venn Diagrams encourage us to include more factors. Pie Charts divide the whole into its constituent parts; Venn Diagrams influence us to identify common interests and create unity.
How can we apply this heightened vision to lead our companies more effectively? Here are a few examples:
- Organizational Dynamics: Root out instances of narrow, self-interested departmental silos (Pie Chart) and replace them with improved collaboration and common commitment (Venn Diagram).
- Product Management: Notice when product managers focus very narrowly on their own product lines (Pie Chart) and encourage them to see consider whether the combination of their products with additional products and services can accelerate growth (Venn Diagram).
- Strategic Partnerships: When a manager is at an impasse trying to grow the business using available resources (Pie Chart), identify a compelling reason that a partnering company would share needed resources (Venn Diagram).
Photo Credit: compfight.com
February 2 was the fifth anniversary of 20/20 Outlook. It’s gone by quickly. Long-time friends have been very supportive, and I’ve made many new ones along the way.
I’ll continue to share my thoughts and those of others about how to discover growth ideas and create new revenue initiatives through partnerships.
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The title of a popular business book years ago was All You Can Do Is All You Can Do. And it’s true, but sometimes choosing the right thing to do is all-important.
The dilemma for many CEOs is that they stay so busy running the business that they end up with too little time spent thinking about how to accelerate its growth. The old saying often applies: “It’s hard to remember that the original objective was to drain the swamp when you’re up to your ass in alligators.”
Speaking recently with a highly successful CEO who’s grown and sold several companies, he speculated on what determines how open a CEO is to coaching. His experience and mine perfectly aligned: a serially successful CEO will seek input and help from friends far more often than a first-time CEO and founder. Highly successful people learn how to choose advisors they trust in order to achieve the success they desire.
The stumbling block for many a founder and CEO of an established small company is that he or she comes to believe in his/her own abilities so much that they’re unable to accept the help that would take them to the next level. No matter how passionate they may be about accelerating growth, their complete reliance upon their own judgment closes their minds to innovative ideas, even if the source is someone they trust.
If you run an established business, test yourself with these questions:
- If an experienced CEO took a deep look at my company and told me I had to make big changes in order to grow, would I be open to changing?
- If a partnering expert offered to develop an alliance strategy that could double the growth rate of my company, would I listen to learn how?
If the answer to either of these questions is no, your company may already be decelerating or it’s about to hit a bump in the road. Once that happens, it will become even harder to carve out time to consider innovative ways to grow.
Are you focused on maintaining your role as chief problem-solver in your company, or are you passionate enough about growing your company to seek help trusted friends? Sometimes all you can do, by yourself, is not enough.
The Oxford Dictionary defines opportunity as “a set of circumstances that makes it possible to do something.” Although opportunities are generally thought of as spontaneous, serendipitous, and not amenable to process, is it possible to find them systematically?
In general, an opportunity is a chance to move from state A to state B; a business opportunity requires an interaction with another person or organization to create a desired outcome. Since a business opportunity implies a relationship, a thorough understanding of how and why relationships are created is the foundation of systematic opportunity discovery. Although some opportunities arise through original creative thought, even those are based on an understanding of relationships.
The exchange of money for goods and services is one type of business interaction, but it represents a desired outcome, not an opportunity. While the ultimate measure of success is revenue generation and profitability, value creation must precede it. An opportunity is created by an exchange of resources that enhance value. What classes of value-enhancing resources are there?
Five of the most common are:
1. new products and technology,
2. brand recognition,
3. additional staffing,
4. customer relationships, and
5. new markets and industries.
A majority of business opportunities arise from the recognition that one or more of these resources can be leveraged to add value to existing offerings. How can we intentionally and systematically identify and define opportunities based on this principle?
The process that leverages this knowledge comprises 4 steps:
1. Define your company’s value relative to others.
2. Define other companies’ value relative to yours.
3. Leverage individuals gifted in identifying and defining new opportunities.
4. Discover opportunity in the gaps.
Valuing Your Company
A crystal clear picture of your company’s value is a critical enabler of systematic opportunity discovery. What resources does your company have, and which ones does it need? Well-understood strategic positioning affects the bottom line positively. It minimizes investing in opportunities that deliver little or no return while enhancing the chance of finding richer opportunities.
Valuing Other Companies
The second step depends upon the first. Knowing clearly what your company offers, you can view other companies through this lens: if another company were to acquire mine, what would be the increase or decrease in the value of the combined companies? An exit strategy approach is a proven way to identify value in other companies, and you’ll learn what resources you may have that they need.
Leveraging Gifted Individuals
Some individuals are naturally gifted in identifying and defining opportunities. Harnessing this strength by including the right individuals in your company. If your team lacks this strength, augment your team with advisors who possess vital insight into opportunity discovery.
Opportunity in the Gaps
Opportunity is driven by accurate perceptions of value, so clarifying your understanding of what others find valuable versus what you find valuable leads to discovery. The gaps between companies represent potential opportunities.
To systematically discover opportunities, the CEO must to set the right tone. Leading your company to an opportunistic frame of mind is less tangible but vitally important. Set the right example by staying curious and remaining open to new possibilities, then follow this four-step process!
“…the availability of information about a threat or opportunity has little influence on who wins and who loses. What makes the difference is what a company does with that information.”
— Clayton M. Christensen, Scott D. Anthony, Erik A. Roth in Seeing What’s Next, 2004
Business challenges come dressed as high-impact threats and opportunities, and each demands a response. The strength of your ability to respond is the primary determinant of your next move, whether you opt to: 1. compete (fight), 2.alter direction (flight), or 3. develop an alliance (unite).
The authors of Seeing What’s Next suggest that asymmetries of skills or motivation play a critical role in determining our next moves. “Asymmetries of motivation occur when one firm wants to do something that another firm specifically does not want to do. Asymmetries of skills occur when one firm’s strength is another firm’s weakness.”
In focusing businesses on growth-accelerating strategies, our consistent guidance has been to adopt a three-phase approach: “clarify, comprehend, connect.” Assuming that the CEO has aligned the company around a crisp, clear view of its own skills and weaknesses (i.e. clarify) as a foundation for effective execution, the second step is to evaluate the relative strengths and weaknesses of the competition (i.e. comprehend). When one firm demonstrates strengths in markets in which another firm’s capabilities are weaknesses, and vice versa, a self-fueling partnership (i.e. connect) may be an alternative to fight or flight.
The choices of responding to a significant threat or opportunity are:
Fight (asymmetric analysis highlights your company’s relative strength)
When your company’s processes and offerings are much stronger than competitors, leverage your unique capabilities to increase market share at the expense of competition.
Flight (asymmetric analysis highlights your company’s relative weakness)
When the cost is prohibitive of overcoming a competitor’s strengths that far outweigh your own, refocus on other markets or submarkets where your company can be a dominant player.
Unite (asymmetric analysis identifies complementary strengths and weaknesses)
If it’s clear that combining your resources with those of another company could make both stronger by compensating for weaknesses, the oft-overlooked third option is to create a symbiotic partnership.
The bottom line for any CEO? Develop an eye for asymmetries, then make a rational decision between fight, flight, or unite!
(A more detailed discussion of these alternatives are found in the excerpt “The Innovator’s Battle Plan” that is drawn from the book.)
Competing too hard will kill your business. If you see competition everywhere, you may be strangling your company’s growth.
Working with CEOs and management teams to create growth strategies, I watch for existing practices and attitudes that may hinder growth. It’s challenging enough to launch a new venture or a restart a faltering business without creating internal obstacles that weigh it down. An unrealistic view of competition can severely limit or slow the company’s rate of growth.
A famous CEO mentor was fond of telling me, “If you don’t have a competitor, you don’t have a business.” Competition is a great motivator. If you have a company in a market with no competitors, either the market you’re pursuing isn’t really viable, or you lack the constant competitive motivation needed to keep you at the top of your game, or both.
The diagram above illustrates how your perception of competition can affect your company’s rate of growth. Perceiving no competitors suggests that you haven’t yet identified a winnable market worth pursuing. In this situation, a company constantly chases one-off deals, is too inwardly focused, and may be in too weak a position to accelerate revenue by leveraging external assets through partnering.
The converse obstacle, defining competition too broadly and seeing it everywhere, leads to a lack of focus and an obsession with growing market share one percentage point at a time. A “quarter-inch deep, mile wide” market approach precludes finding a repeatable sales model that leads to higher margins and greater working capital. A better path is to pick one or two close competitors to focus all your competitive energy on.
The bottom line is that an unrealistic view of your company, its capabilities, and its relative strengths and weaknesses vis-a-vis other companies will impede growth. The reality deficit can come from many places, but it falls to the CEO to recognize and remove this obstacle whenever it exists, especially when the CEO is the source. Carefully consider whether you are encouraging your team to view the company through rose-colored glasses (no competition) or constantly raising the specter of competitive doom to motivate them (competition everywhere).
How then do top-performing management teams compete effectively?
- They realize that focusing on competing against too many others weakens their company by draining its resources, so they choose instead one or two closest competitors and focus on winning against them.
- They prioritize “growing the pie” over increasing the size of their slice.
- They stay outwardly focused to learn what the market is telling them about customer demand.
- “Know thyself.” They understand their company’s strengths and weaknesses so well that, when a high-impact threat or opportunity arises that can’t be addressed organically, they create self-fueling partnerships that enable them to respond quickly.
Joel Trammell requested a guest post for his American CEO blog, and it’s called 2014 Issues for a 2016 Exit. You’ll find many other great thoughts for CEOs there, and since it’s a two-part article, subscribe there and/or here to make sure you get the second half next week.
In reading and listening to stories of Nelson Mandela’s life, one in particular jumped out at me. F. W. de Clerk told of Mandela’s focus on ensuring that Afrikaner desires were reflected in the agreement they negotiated to break up apartheid. Mandela apparently insisted that forming a successful partnership required adequately addressing the opposition’s needs, so he probed de Klerk to learn what they were.
Hearing this while driving away from consulting with a CEO and his leadership team about how to create partnerships, I found it fascinating that a political leader embraced a powerful principle that many business leaders miss. Strategic partnerships are often underutilized as a path to faster growth, and making them work requires the kind of transparency and active listening suggested by this story.
Leveraging another company’s resources (e.g., technology, branding, geographic presence) can accelerate growth (e.g., product development, market visibility, revenue), but three obstacles face any brave CEO who decides to drive a truly productive partnership:
- Stories of unsuccessful partnerships abound.
- Doing it right requires a high level of transparency.
- Deciding when to partner requires deliberate thought.
Stories of failed partnerships leads many CEOs to see diverting resources from organic growth to partnerships as overly risky. In fact, without adequate planning and process, they’re right. On the other hand, consider the huge payoff from a wisely crafted partnership like the one Apple consummated with AT&T to launch the iPhone. Apple got accelerated distribution into a large and growing customer base, while AT&T used the hottest product on the market to accelerate the growth of its base for several years before its competitors gained access to the iPhone. (By all accounts, Apple approached Verizon first but the two didn’t come to terms.)
The second issue of transparency is all-important in the partnership process. When do you play your cards? How many should you show? While controlling information is important in all negotiating, successfully initiating a partnership discussion requires a level of openness beyond the norm that doesn’t come naturally to many CEOs. Minimizing the risk requires investing the effort it takes to identify who best to partner with and how best to advance a compelling offer to them. That knowledge provides the confidence to move more openly toward a growth-enhancing relationship.
Timing a partnership can be tricky, but when two factors are simultaneously present, then it’s time to consider partnering: (1) a high-impact threat or opportunity has arisen, and (2) your company’s ability to respond is weak. In this dual circumstance, gaining access to the resources needed to respond faster becomes a matter of defining your organization’s needs very clearly, identifying and prioritizing a list of candidates with the right resources, and most importantly, being intentional about creating a highly compelling proposition before talking to anyone.
When you finally open the conversation, listen ala the Mandela story to confirm and refine your understanding of their needs in order to uncover where your resources can best help them in their areas of weakness.
The word “coopetition” has been around much longer than most people think. I first encountered it when my boss Ray Noorda, Novell CEO, brought it back into use in the early 1990s to describe his insight about the then-emerging market for local area networks (LANs).
Novell was one of a number of companies competing to become the LAN market leader. Ray decided to encourage his competitors to focus on “growing the pie”, i.e. the networking market, rather than continuing to fight for a bigger slice of a small market. We created the Networld trade show (later renamed Networld/Interop) and invited every company related to the networking industry to participate, including our closest competitors. The show rapidly grew to become the largest tech gathering of its time, engulfing Las Vegas for a week every year.
Working in and leading a group of a dozen highly talented people who built partnerships with the largest companies in the industry was one of the most exhilarating experiences of my career. During that time, Novell’s partnership efforts helped it hit a billion dollars in revenue faster than any company to that point. In addition to a network of over 20,000 resellers who depended upon us for a significant share of their revenue, we grew partnerships that aligned leading companies (e.g. CA, Compaq, HP, IBM, Lotus, Oracle) behind our network operating system and encouraged them to develop new solutions for our customers.
Observations made during that time led me a few years ago to coin the term “self-fueling” to describe partnerships carefully constructed to last. Like most useful concepts, the definition of a self-fueling partnership is simple:
“a relationship structured so that positive results for the first party drives it to act in ways that increase positive results for the second party, and vice versa.”
The partnership between ATT and Apple is an excellent example. It lasted several years enabled each to them to capture significant market share. We all owe a debt to the late, great Ray Noorda for pointing the way to self-fueling partnerships by selling the idea of coopetition to the industry.
“In this new wave of technology, you can’t do it all yourself; you have to form alliances.” -Carlos Slim Helu
Addressing startup entrepreneurs at RISE Week Austin, I asked, “If the richest man on the planet thinks alliances are critical, shouldn’t you?” (As a four-time startup survivor – 1985, 1995, 2000, 2002 – I’m driven to give CEOs the knowledge and passion they need to accelerate growth through partnerships.
The Apple/AT&T partnership was a classic: Apple sought broad distribution while AT&T needed new technology. Together they demonstrated how to create a self-fueling partnership, i.e. one that is structured such that positive results for the first party drives it to act in ways that increase positive results for the second party, and vice versa.
Let’s dissect this well-known business case to identify a few principles of “self-fueling partnerships”:
Principle #1 “Partner when the impact of a threat or opportunity is high, and your ability to respond is weak.”
Apple had an innovative product that needed to be deployed rapidly in order to grab the top spot in the emerging smartphone market. The opportunity was huge, but the carriers controlled access to the customers. AT&T, on the other hand, wanted to grow its data services revenue, and a killer product would help to capture more subscribers.
Principle #2 “Develop a compelling approach before approaching the other party.”
Apple based their approach to AT&T on its need to capture new subscribers by raiding other carriers. Since people are reluctant to change carriers, AT&T could afford to heavily subsidize the iPhone in exchange for the long-term annuity they’d build from people who switched to their network.
Principle #3 “Be willing to provide exclusivity if you can limit the time and geography.”
While Apple wanted to grab the #1 spot with rapid deployment, they knew they’d later have to extend distribution through other carriers after significantly penetrating AT&T’s base. A good bet is that Apple agreed to extend exclusive access to iPhone for as long as AT&T continued to meet aggressive growth goals, then at a later date, Apple would be free to sell through other carriers.
If you have other interesting partnership examples, let us know!.