Attacking “Business Entropy”
Not long ago, I wrote a post on how clarity affects the bottom line. It emphasized the importance of a sharing a common vision among a company’s management team and laments how often it’s inadequate. “The lack of this understanding is so common among $10-50M companies that I’ve stopped being surprised when they can’t articulate a clear positioning statement.” The point has since arisen in several CEO discussions, and as I continued to ponder how it happens, a relevant term suggested itself from the fields of physics and cosmology.
Entropy. According to Merriam-Webster’s Online Dictionary, entropy is defined as “the degradation of the matter and energy in the universe to an ultimate state of inert uniformity” and as “a process of degradation or running down or a trend to disorder.” These words could also describe how the purpose, meaning, and direction underlying a successful business can lose strength over time.
When brand new ventures pursue funding, investors want to understand the business and seek answers to questions like:
- What category of business is this?
- What is its primary offering?
- Who are its competitors?
- What are the competitors’ weaknesses that can be exploited?
- What makes the company’s offering unique in the market?
- How will it gain advantage in the market and keep it?
and so forth. In a well developed business plan, these questions are answered clearly and formulate the company’s strategic positioning.
As a business grows, it naturally changes, causing the strategic positioning to evolve. New competitors enter the market. The product strategy and product mix react to external economic forces. Customer requirements result in development of new products and services. Acquisitions occur. Partnerships are struck.
Such changes affect the strategic positioning of the company and also the shared management vision. If the company positioning is ignored as these changes occur, the business equivalent of entropy can begin and proliferate. The previous “uniformity” of vision gradually erodes. A “degradation” of the company’s messaging about itself, its products, and its services follows a “trend to disorder.” The lack of shared vision within the management team causes inertia and delays in execution.
Thankfully, the remedy to this “business entropy” doesn’t involve a comprehension of cosmology. All it requires is foresight and a willingness to take action. Periodically, especially during and after significant game-changing events, the company’s strategic positioning must be reviewed and revised. Senior management and other key players should reach a consensus vision about the company, its market, its competitors, and its direction. And of course, outside assistance can facilitate the process.
When Should You Partner?
Given that we’ve answered the “why partner” question, now let’s think about the “when to partner” question. Marketplace issues, whether threats or opportunities, commonly drive partnership decisions. For each issue, consider three factors that determine your desire and ability to grow through partnering:
- Timing: What is the timing associated with this threat or opportunity? Is it immediate or long-term?
- Potential Impact: What is the potential impact of some threat or opportunity that is currently presenting itself? Is it high or low?
- Ability to Respond: What is my current ability to respond? Is it strong or weak?
As far as the Timing factor goes, if an issue, i.e. a threat or an opportunity, is not immediate, set it aside. Maybe someday you’ll find time to worry about that one!
For each immediate issue, determine whether it can have a relatively high or low impact and how strong is your ability to respond. Here’s a diagram depicting these points, followed by a brief description of each one:
High threat/opportunity, strong ability to respond (“Pursue Aggressively”)
This issue is too pressing to postpone, and your company has the resources needed to address it aggressively through product enhancement and new product creation.
Low threat/opportunity, strong ability to respond (“Quick Hits”)
When you spot a weakness in a competitor’s ability to respond to such an issue, attack by leveraging your strength in this area.
Low threat/opportunity, weak ability to respond (“Prepare to Respond”)
These are usually “who cares” issues now that may grow into high impact issues later, so keep an eye on them while doing little to address them.
High threat/opportunity, high ability to respond (“Create Partnerships”)
If you can’t adequately respond to a pressing threat or opportunity, a partnership is the right answer. A partnership can be a precursor to an acquisition.
If I’m right and I’ve communicated clearly, you have a better understanding of why and when to form a business relationship. These are practical business concepts that will ensure your efforts are directed at the best opportunities to achieve the desired outcome for your business – a business that knows where it’s going!
Introducing 20/20 Outlook
Near the end of 2008 after laboring in high tech companies for over 30 years, it became clear that some personal reinvention was in order. Wide-ranging experience in a multitude of roles yielded a perspective that friends have described as unique, and I wanted to combine what I’d learned in three leadership areas – M&A, product strategy, and partnerships – into a process that would benefit small to medium organizations.
In my role as chief marketing officer at Infoglide Software, I’m fortunate to work for Mike Shultz, a talented and experienced serial CEO who has also become a trusted friend. When I told him about my desire to help multiple companies, he was immediately supportive and was key in crystallizing the idea of 20/20 Outlook. He even offered to let me develop and prove the system by applying it at Infoglide.
Earlier this year, the 20/20 Outlook process began to evolve. While the goal of aligning efforts across the organization to support an exit strategy was clear from the beginning, defining the steps of this new methodology took significant thought and interaction with the management team before it began falling into place. 20/20 Outlook will continue to evolve but has already proven to be quite valuable in its current state.
In future posts, I’ll share thoughts and ideas here about how the process works and how it can benefit other companies. I hope you’ll come along for the ride and join in the discussion!
