Monday, January 26, 2015

Strategic Planning Analogy #545: It Depends on Timing

When I was in college, I had a friend who was starting up a hobby of making wine. His early attempts were pretty bad.

First, he would get impatient and stop the fermentation too soon. That lead to odd-tasting juice rather than wine. To keep from making that mistake again, he poured a bunch of sugar into the mix to make the fermentation last longer. That lead to the fermentation ending before the sugar ran out, so the end result was too sweet to drink. 

I suppose he would have had good wine if he ever got the timing right, but after the early attempts, I never wanted to sample his wine again.

Over the years, I have had people show me a strategy and then ask me if I thought it was a good one. Usually, I would say “that depends.” He reason I say that is because the same identical strategy can be both good and bad depending on some other factors.

Two of the biggest factors are: 1) Who’s doing the strategy; and 2) When is the strategy being executed. In the next blog we will be looking at who’s doing the strategy. In this blog, we will be looking at the timing of the strategy. As we will see, if you get the timing wrong, a strategy can be a disaster, but if you get it right, you are a hero. Same strategy, but different outcomes depending on the timing.

As my friend found out in winemaking, being too early and being too late can both destroy your results. The same is true with strategies. Yes, there are advantages to being early, but history has shown that if you are too early, your venture will die before the idea catches on. You didn’t let the idea “ferment” enough.

Similarly, it’s nice to wait until you have everything figured out, but if you wait too long, you can miss out on getting in on the opportunity. The opportunity to “ferment” has already ended and all you have is a sweet gooey mess.

The principle here is that the timing of your strategy can be just as important as the content of your strategy. Therefore, spend as much effort on making sure you get the timing right as you do on the content.

Too Early
The primary problem with being too early has to do with the fact that strategies are not executed in a vacuum. You are typically part of a larger supply chain. On one side are your suppliers and on the other side are your customers. If your suppliers and/or customers are not ready, then your strategy will not work, no matter how “brilliant” it is.

For example, I was talking with the Netflix guys when they were just starting out. They said their original strategy was to do streaming of video over the internet. That’s why they called the company Netflix. However, they knew that the internet infrastructure was not ready yet for mass streaming of movies. The supply side was not there yet to send all those movies digitally and the customer did not have the tools to receive files that large. It was “too early.”

Therefore, Netflix initially went the route of putting DVDs in the mail, so that they could build a brand and some loyalty while waiting for the timing to be right for their real vision. If Netflix had not waited on internet distribution, it would have gone bankrupt long before the market was ready.

So was Netflix’s original strategy great? It all depends on when it would be put into effect. Fortunately, Netflix waited, so the results turned out well. But that same strategy could have been a disaster if they executed it too soon. They had to wait for the market to “ferment” to the right level.

Too Late
One way to avoid being too early is to wait until everything is in order—to wait until the whole supply chain is fully developed and the customer is fully ready to consume. But if you wait that long, your strategy can be just as much a disaster as being too early—because now you are too late.

Executing a strategy is a lot like working with clay. When the clay is soft and moist, you can mold it into lots of different shapes. But once the clay gets dry and hard, you cannot change its shape.

That’s what happens when you wait too long to enter a market. While you were waiting, others were getting involved, molding the market in their direction while the clay was still moist. But if you wait until the market is fully established, the clay is now hard. The channels are already established. Brand preferences have already been made. Habits are already in place. The new status quo has been formed and hardened. It’s too late to make your move.

Consider Facebook. Facebook was not the first social media site. There were others, like Friendster and MySpace, already out there when Facebook started. But the market was still early enough that the clay was moist. There was still time to make a big move. And Facebook made that move at the right time.

It was not too early, because it let others pave the way to get consumers and infrastructure in place to accept the strategy. But it got in before everything was settled. That’s good timing.

If someone were to take Facebook’s strategy and do an identical implementation today, it would probably be a horrific disaster. It’s too late. Another mass oriented, general sharing site for the internet is not needed or wanted. Thanks to network effects, the cost of switching out of the established networks to go to an upstart network is too large. Even if people grumble about the problems with Facebook, they don’t switch, because Facebook is where all the connections are. They clay is hard and holding the people inside Facebook.

Times have changed. To make a move today, you have to do something different than what Facebook did. You have to move to where the clay is still moist.

There’s a great quote by comedian Garry Shandling: “They should put expiration dates on clothing so we men will know when they go out of style.” You could say the same thing about strategies…they have expiration dates, too. Good luck to your financial health if you use a strategy past its expiration date.

Managing the Time
So are we totally at the mercy of factors outside our control when it comes to timing? Is it only luck that puts us in the right place at the right time?

No. There are things we can do to alter when the timing is right. But that will only happen if we incorporate “adjusting the timing” into our strategic plan.

Consider the Apple iPod, considered to have been a great success in digital music. But success was not guaranteed. There were dozens of companies who tried to build a business in digital music players before Apple attempted it. They had all failed. There were plenty of reasons to think that Apple would also fail.

The problem was that all the necessary pieces in the supply chain were not in place. You could have the most perfect mp3 music player in the world, but if the artists and music labels weren’t ready to sell mp3 files and the customers did not have an effective way to buy mp3 files, then the device is fairly worthless. And that was the situation Apple was walking into.

Therefore, the Apple iPod strategy had to incorporate more than just designing a great player. It also had to design a way to make sure the rest of the supply chain was ready for the player. In other words, Apple had to proactively adjust market timing.

So Apple found a path to get the artists and music labels ready. Then it designed a retail outlet (iTunes), so that consumers had a way to buy the music. Then Apple spent a fortune on advertising to create the demand. These efforts made the timing right for the iPod device. Without those efforts, the iPod would have been a disaster like all of the other players that came before it.

And because the Apple solution was a closed system, it effectively closed out competition from being able to fully participate in the market Apple developed. In other words, the same movements that made the timing right for Apple also served to quickly harden the clay so that others could not take advantage of the market Apple built. The strategy effectively opened and closed the timing so that only Apple could optimize the timing in the market for digital music.

You cannot just look at a strategy in a vacuum to determine if it is good or bad. You have to look at in within a context. One element of that context is timing. If the timing is right, the strategy can be very good. If the timing is wrong, that same strategy can be very bad. Therefore, timing issues need to be incorporated into your strategy. This involves two issues: 1) making sure you are not too early or too late; 2) Getting proactive to strategically alter timing more to your favor.

Gallo wines used to have a slogan: We will serve no wine before its time. That slogan works for strategies, too.

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