THE STORY
I was excited the first time I was to visit the Museum of
Modern Art in New York. The museum is
full of famous works of art. I had read
about or seen pictures of this art in books, but now I was going to get a close
up look at the original paintings. I imagined that it would be a very inspiring
visit.
Instead, it turned out to be a very disappointing
visit. As it turned out, not only do you
see the greatness of the paintings when you see them up close. You also see all the imperfections. In particular, I remember looking at some
very famous Picasso paintings. When you
studied them up close, you could see the rough pencil sketch underneath the
paint. They looked a lot sloppier than
the little photographic reproductions I had seen of them earlier in art books. After awhile, I became so fixated on the
imperfections that I couldn’t enjoy the paintings.
I kept thinking to myself that I could probably find many
artists who would be able to reproduce all of these paintings and have fewer
imperfections. But in later reflection, I realized that I was missing the
point. No matter how much more “perfect”
these reproductions would be, they would never be more valuable than the
original.
Copying is a lot easier than creating something entirely
new. Imitators may even be able to make small improvements over the
original. But in the world of art, the
value belongs with the original, no matter how flawed it might be.
A similar situation exists in the business world. The ones who create, get known for and
exploit exciting new business models first usually create more value than the
later imitators.
Therefore, you’d think that there would be more business
people striving to be the next Picasso—creating something new, exciting and
very valuable. Yet, when I look around, it seems that the business world is more
often filled with imitators and copiers. The idea seems to be that “People like
that original over there, so if I make something just like it, they will like
mine just as well.”
But as we all know, a “just like Picasso” is never as
valuable as a real Picasso. Why should
we expect the rules to be all that different in business?
We are currently on the second blog in a series on the three
characteristics which tend to determine whether a business is a great, lasting
winner, or a long-term loser. In the first blog, we looked at “Passion” and saw
that the winners have a passion for the business and the intricacies of the
business model which makes it work in the marketplace. The losers focus their passion on the money
that comes out of the business and are only tangentially concerned about the
details in how it is made.
In this blog we will look at “Direction.” Winners tend to move in new and different
directions, like Picasso. Losers direct
themselves to follow what is already working (the imitators).
The Problems With
Following
There are many reasons why the followers rarely become the
great companies. It doesn’t matter if you are following the standard rules of
convention for your industry or following the innovation of the leaders. You are still following. And followers rarely reap great rewards.
There are three problems with focusing on following the conventional
rules for how your industry works.
First, if everybody is doing the same things in the same way, then you
tend to have parity of offerings amongst the competition. How do you win over the competition if you
are all perceived as being the same?
This tends to lead to price wars (“everything is the same, but we cost
less”), and we all know that price wars are not the path to creating above
average prosperity.
Second, even if you can execute within the conventional
rules a little bit better than everyone else, it is usually only a temporary advantage.
In an earlier blog, we looked at the battle between Fuji and Kodak in
conventional analog photographic film.
Sometimes Fuji would have a slight advantage; then Kodak would get a
slight edge—back and forth it went with no clear winner. The real winners were the innovators who
abandoned the conventional rules of photography and brought digital imaging to
the masses.
Third, there are limits to how much better one can become by
playing by the same rules. The law of diminishing returns tells us that ever
increasing improvements tend to lead to ever smaller perceived benefits. For example, I could make an ever more perfect
nail, but at some point, the guy hammering that nail into a board won’t be able
to see how those perfections improve his hammering. In other words, superior executions of the
status quo often do not create enough of a differentiating benefit to shift
habitual shopping patterns for the customers.
So what about following the innovators? Well, you’re still a follower. The last time I checked, followers never win
races. Just as Picasso gets superior
credibility for pursuing a new path, business innovators get superior
credibility over their followers. The
innovator becomes synonymous with the innovation. The rest are seen as mere copiers.
For example, Google means search. Even though the follower Bing claims a slight
superiority in blind tests, Google still wins the war for market share in
search. Why? We are not brand blind. The emotional bonds associated with the
leader brand overcome the slight differences.
The same thing happened when follower Pepsi claimed superior taste in
blind taste tests over Coke. Coke still
won the war.
Finally, the follower usually is one step behind the
innovator. By the time the follower
catches up to where the leader was, the leader has moved on to the next
innovation. That is why hockey great Wayne Gretzky attributed his success to
ignoring where the puck currently is and instead going to where the puck is
going to be. Rather than following the
puck, he got in front of it.
There are only two ways to win by following. First, you can win by having your competitors
make colossal mistakes. Their failure becomes an opening for your gain. But a strategy that depends on others to make
mistakes is not much of a strategy. In
addition, if you are a follower, you will probably follow them into similar
mistakes. For example, the financial
collapse which triggered the great recession was caused by colossal mistakes in
the banking industry. But because most
of the big banks tended to be following each other and playing by the same
flawed rules, most of them fell victim to the flaw and could not gain
meaningful advantage.
The second way to win playing by conventional rules is if
you are substantially larger than everyone else and can leverage your size to
your advantage. However, this begs the
question of how one gets to be so much larger than the others in the first
place. Usually the bigger players got to
be so much bigger because they were the innovative leaders which rewrote the
old conventional rules into what became today’s conventional rules. It was
their leadership which made them big, not any form of followership.
The Value of Being
Different
There are two ways to be different. First, you can create a new business model
which is inherently superior to the status quo model at delivering value. For example, Southwest Airlines has been a
consistent success competing against other airlines who struggle to
survive. Why? Southwest Airlines played by a different
business model, focused on point-to-point (among other things). It’s unique business model allowed it to
provide superior value that those playing by conventional rules could not
imitate. Even the best player by
conventional rules could not exceed the value offered by Southwest’s different
approach to the business.
Another example would be Salesforce.com. While others were playing by the old rules of
installing and supporting software scattered everywhere, Salesforce.com
eliminated the software paradigm and was a leader in putting everything up in
the cloud. That change in business model
gave Salesforce.com inherent advantages that the conventional operators couldn’t
match if they stayed in the old paradigm, no matter how well they executed it.
This helps reinforce the first differentiation we talked
about in the prior blog—where winners focus on business models. You won’t find the success of a Southwest
Airlines of Salesforce.com unless you spend time focused on business
models.
The second way to win in difference is by creating a new
value proposition which did not exist before.
Apple has been a winner by creating wholly new types of value
expectations. The iPod, iPhone, and iPad
changed the whole way people thought about how to live and enjoy their
lives. They created new values in new
places.
The “Fast Fashion” operators, like H&M, Zara and Forever
21, helped change the definition of what to value in fashion for a significant
segment. Instead of defining fashion by Exclusive
Labels, High Prices, High Quality and Fashion Seasons, they made fashion more
disposable, where frequent change/variety combined with low prices (and lower
quality) was a new winning formula.
If you look across the spectrum of business, you will find
that nearly every great company at some point took one of these different
directions. They either came up with a
new business model which had inherent advantages over the old model in the
conventional industry, or they invented whole new industries by redefining or
creating new value formulas.
One of the key differences between business winners and
losers is the direction the leaders take the company. The losers tend to move in a following
direction—either following the conventional rules or following the
innovators. By contrast, the winners tend
to move in a new direction, either by finding new ways to better satisfy old
values or by creating new values through new industries.
Artists create; craftsmen copy. Are you an artist or a craftsman?
No comments:
Post a Comment