It was recently the 50th birthday of that favourite chocolate spread we sometimes convince ourselves is ok to eat between two piece of bread. Nutella.
What a lot of people don’t realise is that Nutella is what it is because they couldn’t afford to make it the way they wanted to. Originally Nutella was a pure chocolate spread, but during the post WW2 era, a time of heavy rationing in Italy, they bulked up the ingredients with hazelnuts. They did this because hazelnuts were plentiful in the local area and much cheaper than cocoa per kilogram. The presence of mind to turn to the woodchips, in this case hazelnuts, and remarket the brand was very clever indeed. The branding was adapted to talk up the nut credentials and make people believe it was actually a hazelnut spread.
In fact it only has 13% hazelnuts and a whopping 52% sugar by volume – ironically about the same amount as the white label on the jar. While I’ll leave the moral discussion on the marketing of Nutella for another blog post, the question it poses for all of us is this:
How do we turn necessary cost cuts or lack of availability of inputs into brand advantage?
I recently saw a prototype for the Google self drive car – It’s picture is below and looks kinda cute / cool / weird.
Anyone who follows the technology world will know that Google have successfully driven their self drive cars without incident for more than million miles. But up until now, the cars have been retro fitted Toyota and Lexus’s – other companies cars they fitted their self drive technology to. This is a bit of a shift in the projects trajectory. The Google car, is quite It’s further proof that information, when distributed freely and easily changes the physical world too. That dramatic changes in information, have dramatic impacts on all things physical. But what it should remind business people is that we simply can’t know who our competitors are any more. In a world where everyone has access to all the major factors of production we end up with a global demarcation dispute. Non linear competition where brands and big businesses get blindsided by category newbies. We’ve already seen it in retail, music and media, and we are about to see it in every form of hardware and manufacturing. The established industries who should, could and would provide the next level of innovation probably wont.
Tesla is already around half the size in market capitalisation of GM and Ford after a few short years in the market. And as we can see by this post the auto industry better get ready for new players from the technology world – Google, and possibly even Apple. The auto industry would do well to remember that cars are about to become mobile lounge rooms, and all the high tech companies are already competing for the ‘lounge room’ in the house. Next they’ll be competing for the lounge room in transit. A preemptive sense of future irony right there. Even small players like Tomcar Australia (which I have an interest in) have proven you don’t need to own a factory to make best in category vehicles and disrupt an established industry base.
I also read yesterday about two absolute powerhouse Australian companies (both in the top 10) Coles and Woolworths better get ready for a new set of competitors. And while they mentioned a siphoning of revenue category by category, I believe they have a much bigger problem coming their way:
What to do with 1000+ stores when no one goes to a grocery store to get their shopping.
And no, this is not like discretionary retail which can be made a social, fun and entertaining experience. Grocery shopping is a chore and technology has a habit of removing chores from the human experience. Not many people run fast or lift heavy things for a living. And mind you, the word computer, was originally a job title, not a machine.
In the food industry there is a term called ‘share of stomach’. What share did the food company get of the stomach. Which is the type of measure which is used to assess the truth about who the competition is, and where the revenue threats lie. I feel as though every industry needs to develop their own ‘Share of Stomach’ metric so they can see the real change in their industry. Maybe all industries related to transport need to measure share of human movement? Self driving cars, aren’t just a competitive play against legacy auto industries, but it’s hard to see city car parks being a valid business when we can ‘send our car home to our driveway’ and get it to pick us up later. It also raises questions about what relatively new businesses like Uber will do when cars don’t need drivers? Chances are they’ll need to become a system which organises and delivers our cars?
Just like life, the real life threatening diseases are from entities our body hasn’t encountered before and built a natural defence against. At times like these, a tectonic shift, business would do well remember lessons from the natural world.
Evolution itself does not have a strategy. It just lets what wins, win. If anything, it is the accumulation of a lot of in market testing. Traits, (or tactics) are tested for advantage, and those that work, keep on happening through natural selection. Nature tries everything. Nature lets things that don’t work die.
We too can help our business evolve. We just need to do what nature does. That is to not pretend to know what will work. Instead we should try everything and find out what does. The good news of course, is that it’s so cheap to try so much in a low cost technology world.
Innovation is an interesting word which gets thrown around lot in organisations. No one seems to disagree that it is the life blood of long term organisational survival, but I think it’s clear that the definition of what it actually is happens to be wrong. The definition tends to be most wrong in large stable industrial companies. I should know, once upon a time I was the ‘head of innovation’ in one such large organisation. I was recently pointed to this article which goes a fair way to demystifying innovation, versus novelty and invention. But for me it doesn’t go far enough. I think the problem with innovation in many large companies is this:
They confuse Asset Utilisation with Innovation.
A colleague of mine works in a large industrial concern heading up the product innovation area. Here’s a bunch of constraints they’ve placed upon him:
- All innovations must be able to manufactured in their existing factory.
- All innovations must use the existing machines in the existing factories.
- All innovations must focus on the existing core users of the brand.
- All innovations need to be able sold in the existing sales channels and retailers.
- All innovations should have a price point in and around the existing price points their range of products are already sold for.
- All innovations have exactly 13 weeks to prove themselves in market, because that’s what the reseller demands.
Clearly constraints like this prove that the core task is not at all about innovation and much more about business management within a set set of structured parameters. In simple terms it’s an asset utilisation program. There’s nothing wrong with asset utilisation. It’s a valid, profit centric, strategic imperative. It’s what companies must and should do to reach their financial potential. What’s foolish though, is confusing it with innovation. Such confusion can only lead to a long term displacement of brand relevance.
The problem is that I’m not exactly sure what they are. The passing of time is the only thing that will actually reveal them to me. As much I want to avoid making mistakes, I know I’m doing some things right now which will just look silly or uninformed once I look back at them. Last night I was looking back at my life in 5 year increments thinking about the things I’ve done, some of the projects I’ve undertaken and how I would have done things differently in hind sight I look back to what I thought was right 5 years ago, and it seems glaringly obvious what the mistakes are. The interesting part is that it is not a one off. It seems to be true again and again – as every period of time elapses, there in the past lies a set of errors. It’s not like I am graduating from mistake making either – granted, they are not the same mistakes, but the process of making them is yet to desert me.
My history is a constant reminder of the truth. Like everyone, at least I assume, I have clear strategic and tactical vulnerability. I used to worry about it, but now I realise if what I did then, didn’t seem stupid now, then personal growth would not have been possible.
Or is it?
Whenever a person or a company succeeds there is no shortage of post analysis on why the strategy was so clever. Why what they did worked, and how clever the people behind it were. And I’d say most time the people behind it are clever. But what I’m wondering is how much of it was planned, on strategy and predictable before any of it happened.
If we look at the history of science, very few of our discoveries started on paper, or in the lab. What was far more common was something actually happened which surprised and delighted. The people behind the discovery, or even those around it, then re-tested what happened to build a theory to describe it – or in business terms, a story that described what happened in the form of a strategy.
I’m pretty sure this is most often the case in business. For every new company, or game changing innovation there are probably a thousand or more failures of others trying to do the same thing. But these failures rarely get written about, only the success stories. And these success stories are always told post success – who wants to hear about failures anyway?
This tells us much about startup strategy. And what it tells us is that strategy is often an illusion. It’s a post rationalisation of what happened – the reverse engineering of business enlightenment. Where the real value is unlocked in business, is entering a realm where value needs to be created, and implementing a set of behaviours that lead to momentum and serendipity. This is a more accurate description of how a “pre success” strategy is landed upon.
In a world of rapid change we are better off letting events shape the opportunity, rather than trying to shoe horn our idea into a perceived market trajectory.
There’s a lot of talk in Australia about what makes a good Fish & Chip shop. It just so happens I know the answer to this question, and based upon this tweet by Heath, it has become clear I must share my rules right here.
Fish & Chip Shop rules:
- Cannot sell other food items which traditionally live outside of the Fish & Chip ecosystem. Namely pizza and kababs.
- Cannot be attached to another retail outlet such as a Milk bar. Must operate single business operation.
- Must have fish tiles on the wall.
- Must have wall poster of local fish population.
- Must wrap Fish & Chips in paper. Boxes are an unacceptable packaging material.
- Must not provide tomato sauce. Only salt and vinegar. Tomato sauce you have at home or go without. It’s just the way it is.
- Must sell pickled onions in a plastic tub on the counter, with the price written in a marker pen on the side.
- Must have traditional retro cans of beverage for sale in the drinks fridge such as Creamy Soda and Passiona.
- Drinks fridge must have a sign which says: “Please make selection before opening door”.
- Must make hamburgers and include a hamburger with the lot which has the options of beetroot, egg and pineapple.
- Hamburgers must be built on the grill while they cook by an expert burger cook.
- Must be run by hard working immigrant Greek family – the inventors & stalwarts of the local Australian fish & chip shop tradition.
- Must have home made chips from own potatoes. Frozen chips from bag are unacceptable.
- Must make potato cakes in house and dip in batter, just prior to dropping in deep fryer.
- Must provide both fired and steamed dim sims. These of course, must come from the frozen bag variety.
- Pricing board must be above the cooking fryers with prices written in chalk to allow for inevitable price inflation.
- Must have retro 1980’s arcade machine with a single game such as Galaga or Pacman.
- Must claim to be ‘local fish supplier’ of some random restaurant or pub in the local area.
- Must be located in working class area, preferably in the Western Suburbs.
- Should not be in obvious seaside location and counter intuitively be far away from waterway or estuary.
- Must be closed on Mondays.
- Must only be staffed by family members.
- Must have wide multi coloured plastic strip at door entry – to keep flies out.
- Must have cabinet at the front of the store window to display the ‘fresh’ fish.
- Must have semi inappropriate Chiko Roll poster on wall.
- Must sell ‘apple turnover’ oily apple pie with thick pastry.
- Must sell banana and pineapple fritters.
- Must wrap non-fried items in separate paper.
- Must use metallic industrial sized salt shaker to deeply cover chips in salt.
- Insert your rule here….
So why am I telling you this here on Startup Blog? Because sometimes the real innovation is about having the presence of mind to maintain a tradition in the face of change. While fish & chips might not be a thing where you live, I’m sure there is some kind of equivalent food or retail outlet. When change is the order of the day we can become worth talking about when we don’t change, or even bring back things of value which got lost along the way.
Leadership ironically, is sometimes about being a stalwart of the past.
The pace of change is overwhelming. Many established companies have finally realised that this change isn’t just a little blip in the way things are done, but an entire business eco system reorganisation. It’s fair to say that the level of corporate anxiety is at an all time high, and with good reason. Only 57 companies still remain on the inaugural Fortune 500 list from 1955, while more than half of the Fortune 500 companies were not in it just 10 years ago. And while the cost of not adapting to the digital era is likely to be extinction, it seems as though every day I see yet another story of a large legacy market leader who is, to put it bluntly, Kodaking.
Kodaking is the term I now use to explain a company implementing strategies which are fundamentally flawed in the new business infrastructure. But before I go through the signs of a firm who is Kodaking, I’ll recap some of the terrible decisions made by the once revered imaging company.
Kodak’s Digital Camera from 1975:
- – -
Kodak had over $16B in revenue in the late 1990’s – yet is bankrupt today. In fact they recently sold 1,100 of their remaining valuable digital imagery patents to a consortium of Apple, Samsung, Google and others for the sum of $527 million in a bid to restructure and salvage something. They ironically invented the digital camera in 1975, but had little incentive to facilitate its mass marketing as it disrupted their highly profitable film sale and processing business. As late as 2004 Kodak in their
wisdom stupidity attempted to sell digital cameras which plugged onto home based printers so they could continue with their old model of selling chemical film for profit. Here’s the kicker though…. What they did do, share memories, ‘Kodak moments’, has never been in stronger demand than it is today. Twice as many photos have been shared in the first half of this year as were shared in all of last year. What is facebook other than a Kodak moment 2.0? Facebook’s market capitalisation is (as of today) $122b while Kodak had a market value of only $28b at its peak. In fact there is no limit of new and large brands who took what Kodak resisted – Flickr, Instagram, Smartphones, GoPro, parts of Google, elements of Apple…. the list is long. Kodak could obviously see the future, because they invented most of it. But they were greedy. What they really failed to do was connect people, the way the people wanted to connect. They tried to dictate the methods of visual connection with people. As we know technology has no respect for the past, and our strategy must always be defined by our audience’s desires. They recognised the technology, but failed to open their mind to the revenue possibilities of it, and play the long game.
So how do we avoid Kodaking? Here are some things to look out for:
- Shelving technology which is less profitable, but highly probable to redefine a market.
- Defining the company by product portfolio instead of human needs underneath them (see the Marketing Myopia).
- Trying to find new ways to keep old revenue models alive.
- Not asking these core questions often enough: What business are we in? What business do we need to be in?
- Internal talk about the advantages of scale and infrastructure, when the opposite is true.
- Ignoring the potential of disruptive startups in adjacent industries.
- Trying to charge a fee for what can now be found elsewhere for free.
- Competing for market share in an existential pie (Kodak vs Fuji vs Agfa). The future is often in baking a new market share pie.
- Not entirely embracing technology as a mandatory company focus.
Startup blog says: Don’t be Kodaking.
No, we shouldn’t do that. It’s such a big thing with no clear way to start, and no clear way to end. There’s a really big chance we could waste a significant amount of financial, temporal and emotional resources on it. It’s too uncertain and adds a whole lot of life complications to it, it takes a lot of organising, registrations, financing, commitment to something for which a future which is unproven.
Here’ a better idea. We should do a project instead. Projects are superior to businesses. Superior because they tell us more about the future. It can sample our predicted future reality and test it for truth. In addition to that it has a number of micro benefits which add up to something significant.
- A project helps us get over our inertia. It’s only a project.
- A project can be bootstrapped more heavily, as we don’t need to build in any scale.
- A project allows us to do a minimum viable product, but actually mean it, and actually do it.
- A project is not a life long commitment. We can close it off any time for any reason we choose.
- A project tells our circle and the market that this is temporary, but worth trying.
- A project doesn’t need huge resources, only enough to cover one cycle.
- A project is likely maintain momentum and energy as the finish line is in sight from the start.
- A project let’s us test our assumptions, but in the real world – the market place.
- A project can lead to a better conceived project.
- A project can lead to important collaborations and discoveries.
- A project can lead to something bigger… maybe even a business.
- A project….
In fact, when we really think about it, business is simply a project which worked well and got bigger. Or we could say that a business is a number of separate yet continuous projects linked together in perpetuity, performed by the same people and infrastructure.
And so, it’s pretty clear if we just start with a project or tow, we might be lucky enough to end up with a business.
If we ask any well know brand who their major competitors are the answers are reasonably predictable. It’s those brands who have that other part of the market share pie. This is what we all got taught during marketing class, and it made sense in the AC Nielsen TV ratings market share industrial era. The problem is that it makes a lot less sense as we transition to the digital age. An age where incumbents are constantly being exposed on the flanks, rather than by direct competitors. If we went back and asked a number of industrial world businesses who their main competitors were, the story becomes much clearer:
Kodak: At first it was Fuji & Agfa, closely followed by Cannon and Nikon…. but really in the end their nemesis came from a different planet. The planet of Apple, Google, Instagram and Facebook. What is Facebook really other than a Kodak moment 2.0?
Encyclopedia Britannica: Clearly World Book and later Encarta, the CD ROM based delivery by Microsoft. But in the end it was you and me who provided more accurate data on the subject of ‘everything’ as we populated both Google and Wikipedia. We turned out to be more accurate, more timely and we came at everyone’s favourite price – free!
Free to Air Television: First became very worried about movie rental stores (VHS, DVD) followed by cable TV. While now their real worry is the other screens in the home as Netflix, Youtube and Pirate Bay eat their lunch.
There are of course an unlimited number of examples with the same story.
But the lessons in a period of technological transition are two fold.
Incumbents: If your company or brand is in a battle defending revenue and market share from industry players, you’re focusing on the wrong area.
Entrepreneurs: If you’re aiming to disrupt an industry that has intense and focused market share battles, you’re focusing on the right area.
Startup Blog says: In times of transition, it pays to look to the sides instead of straight ahead.