Strategic Planning Analogy #545: It Depends on Timing

THE STORY
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.

THE ANALOGY
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
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.

SUMMARY
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.

FINAL THOUGHTS

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

Analogy #212: Incremental Dead-Ends

THE STORY
In case you were wondering why it has been so long since I wrote my blog, two weeks ago I was on vacation. This past week I had a medical problem with my eye.

The eye doctor diagnosed it as “Recurrent Corneal Erosion.” What happened was that the outer layer of my eye became sort of detatched from the rest of the eye. It is sort of like what happens when a popped boil creates loose outer skin on your body.

Every time my eyelid rubbed against the eye, it was irritating the loose eye layer. It was sort of like the pain of pulling a bandage off a scab. The eye doctor said that she was taught in school that this is the most painful condition one can have with an eye. I don’t know if it is the most painful, but I can vouch that it was indeed very painful.

To counter the pain and help it heal, the standard recommendation was an anti-biotic inside petroleum jelly. The jelly supposedly helps lubricate the scraping of the eye by the eyelid, while the anti-biotic fights infection.

The jelly came in a little tube, like tiny toothpaste. However, when you squeezed on the tube, the jelly all rolled up into a ball, making it almost impossible to apply to the eye. I was not very good at applying it, so it was not helping. Next, I had my wife help me apply it. That was better, but still problematic. The next day I went to the eye doctor and had her put it in. I figured that since she was a pro, she could do it better. It was only slightly better. I even asked the pharmacist if she knew any tricks to applying the jelly.

Even with the jelly in my eye, it only temporarily helped ease the pain. And it made it hard to see, because I was looking through a film of jelly. So even at its best, it wasn’t very good.

Finally, my eye doctor referred me to a specialist. It only took him a couple of minutes to solve the problem. He took something like a blank contact lens and put it in my eye. The contact lens immediately and permanently protected the cornea from the eyelid. The pain was finally gone. And I didn’t have to mess with the jelly any more. I wish we would have done that a lot sooner.

THE ANALOGY
In the business world we need strategies to solve problems and grow the business. Often times, the place where we start is with the conventional thinking of the recent past. In other words, we try to create a better future by making incremental improvements to the current way of doing things.

This was what I was trying to do with my eye problem. I was trying to find incrementally better ways to apply the jelly. The thinking was that the jelly was good and the standard cure, so if I can just apply it better, I’ll have a better cure.

The solution, however, required throwing away the jelly and trying something entirely different. Instead of looking to prescription ointments, we went in an entirely different direction and tried an artificial lens-like device.

Frequently, we need to do the same thing with our strategy. Rather than trying to improve the current business model, we need to throw it away and come at the problem from an entirely different direction that has almost nothing in common with the old approach.

THE PRINCIPLE
The principle here is the concept of discontinuous improvement. Great leaps in innovation and growth rarely come from a series of small incremental improvements. Instead, the great leaps come from completely abandoning the old business models and technologies and processes and doing something entirely different.

You cannot make incremental improvements to the radio and eventually end up with an iPod. The technology is entirely different. The way the money is made in the business model is entirely different. The players in the business model are entirely different.

Similarly, you cannot make incremental changes to the stove and eventually come up with a microwave oven. The technology is totally different. The cooking is done in such a radically different way that entirely new ways of packaging and preparing food developed.

If you want to go back even further, you cannot evolve carbon paper into photocopiers. You cannot evolve slide rules into calculators. New approaches created entirely new industries, which made the old ways obsolete.

One of my favorite recent examples is Procter & Gamble. For years, they had looked for solutions for better cleaning through better chemistry. This had about run its course. Then someone got the idea of looking for cleaning solutions through better physics. Suddenly, there were several new cleaning products for Mr. Clean, such as the Magic Eraser. Swiffer was based in part on the science of static electricity. These successful new products were relying on business principles as different from traditional chemistry as my petroleum jelly anti-biotic was from contact lenses.

Speaking of contact lenses, Bausch & Lomb for years had relied on lens technology to help improve eyesight. Eventually, they had the epiphany that you can improve eyesight with treatments that have nothing to do with creating lenses. For example, Bausch and Lomb is a leader in building machines to do laser surgery. Bausch and Lomb is also a leader in producing vitamin supplements which have been found to improve particular types of eye problems.

You cannot incrementally get from lenses to laser surgery and vitamins. These are radically new approaches with an entirely different business model. It requires taking an entirely different look at your entire approach to profitability.

The pharmaceutical industry has been hitting a slump because the traditional approach has pretty much been exhausted. New blockbuster drugs are not coming out like they used to. Perhaps the problem is that we shouldn’t be looking for blockbuster drugs anymore. The age of the pill as the solution may be coming to an end.

Perhaps the next phase will be electronic signals…or nano machines…or sound waves…or implants…or whatever. These new cures may not provide any business for the local pharmacy. A whole new industry may replace it.

Some key things to remember.

1) If the current players in an industry do not embrace and lead in these new directions, eventually an outsider will try going in the new direction. As long as the old ways will eventually be cast aside and marginalized (or made obsolete), one may as well seek out the replacements.

2) Don’t be afraid of experimenting with radically different business models. I don’t think the folks at Apple are upset with the new model they created with iPod. Of course, one may need to try many small experiments before finding the next big thing.

3) Don’t look at your changes in isolation. They may not only upset the current way you do things, but also the way others in the supply chain need to operate. In fact, it may require you to reinvent yourself into taking some of the roles.

4) Rather than focus on the process, focus on the solution. When Bausch and Lomb switched their thinking from the process (making lenses) to the solution (better eyesight) entirely new growth paths came into being. Consumers buy your solutions, not your process. If a new process gives customers a better solution, they will abandon you in a heartbeat.

SUMMARY
Big new successes and major leaps in growth typically come through radical changes to the business model. Incremental improvements to conventional wisdom won’t get you there. They eventually lead to dead-ends. Instead of thinking of how to do the current thing better, think of how to create a superior solution by doing something different.

FINAL THOUGHTS
I’ve still got a ways to go before my recurrent corneal erosion is healed, but I am so grateful that someone thought out of the box and came up with a radically better solution. Otherwise, I would be lying in bed in pain rather than writing this blog.

Hometown Bias

THE STORY
At the height of the popularity of the Dave Matthews Band, I saw a documentary about the history of the band. The documentary makers went back to where the band started in Charlottesville, Virginia. They interviewed some of the people who remembered the early beginnings of the Dave Matthews Band.

One of the people they interviewed was a guy who used to hang out at the first little local clubs where the band played. This guy blurted out, “I knew from the very beginning that eventually the Dave Matthews Band would become hugely famous” (or something like that).

My first reaction upon hearing him was, “My, this guy has a good sense about what music will sell in this country.” Then, I started to think, “I’ll bet that every little garage band that ever started playing in some local bars had some adoring fans who said, “I just know that some day this band will become hugely famous.”

Although every one of these local bands probably had fans who “knew” they would become famous, in reality over 90% go nowhere. That Dave Matthews fan in the documentary wasn’t an astute judge of success. He just happened to be lucky enough to be living in a place that had a local band that was one of the rare groups to actually become famous.

Some of us aren’t as fortunate. Back in the 1970s when I was in college, I enjoyed the music of a local Michigan band called the Whiz Kids. Pat McCaffrey, the leader of the duo, was a highly talented musician. He would simultaneously play the bass using the bass pedals on an organ, while playing keyboards with his left hand and playing a saxophone with his right hand. It was a sight to behold. I “just knew” that the Whiz Kids would eventually become famous.

Well, it didn’t turn out that way. The Whiz Kids never broke into the big-time like Dave Matthews. I went on the internet recently to see if I could find out whatever happened to the Whiz Kids. I found out that on October 9th of 2007, Pat McCaffrey and the Whiz Kids will be performing the after dinner music at the 38th Annual Conference of the “Excess/Surplus Lines Claims Association.” It will be at the Hyatt Grand Champions Resort near Palm Springs. It was nice to see that Pat was still earning a living in music some 30 years later, but I don’t think the “Excess/Surplus Lines Claims Association” conference is the same as the types of gigs the Dave Matthew Band gets.

THE ANALOGY
Strategies are used in businesses in order to help them determine where to place their “bets” on the future. Businesses have limited money, people & time, and they want to invest these limited resources where they believe they will get the best return.

As a result, the strategic process is often used to help find where the next big success will be. They are looking for strategies that will be “winners” for the company. Trying to pick the next winning strategy is similar to trying to predict who the next great band will be.

Just as over 90% of all those local bands never make it to the big time, around 90% of new business ventures never live up to expectations and destroy shareholder value. Every company believes they are betting on the next “Dave Matthews” type of business venture, when in reality, it is more like a “Whiz Kids” outcome (or worse).

In spite of the terrible odds, companies continue to try to pick winners. Take Kraft, for example. In recent years, they have spent a fortune on a huge number of new products and innovations, most of which were duds. The real money comes from things invented long ago, like Oreo cookies (which have been around since 1912) and Miracle Whip (a recipe they bought during the depression of the 1930s for about $300).

THE PRINCIPLE
The principle here is “the hometown bias.” We tend to have a sense of pride around our home-grown ideas and strategies, just as the locals have a sense of pride for their home-grown bands. Just as it is easy to imagine how our local band could become famous, we can imagine how our home-grown ideas can hit the big-time.

This bias can blind us to reality. I spent some time as a radio DJ. It gave me the opportunity to listen to a great deal of music. I tried to analyze the situation to try to see if there were any common factors which caused some of those bands to become a big hit and why some went nowhere. I discovered that sometimes highly talented musicians made it big, and sometimes they didn’t. Similarly, sometimes marginally talented bands made it and sometimes they didn’t. I couldn’t find much of any correlation for factors which created success.

I think the Australian band Skyhooks (one of the bands I heard as a DJ and didn’t make it) put it well in one of their songs. They said that the successful bands find a “million dollar riff” (a lucky twist of music that tickles the ear).

Now I’m not implying that business success is all luck. But it is true that sometimes just as there are only small nuances between a dud riff and a million dollar riff, there are small nuances between a huge strategic success and a dud.

Here are some tips to help avoid some of the duds of strategy:

1) Be aware of the hometown bias.
Realize that there are more Whiz Kids than Dave Matthew Bands and that local pride can blind us to giving too much credit to our homegrown ideas. Stand back and look at it with a more critical eye. If your bias does not let you look at it critically, then use unbiased research to help you see how the concept will be seen in the real world.

2) Realize that pride and egos can distort our judgment.
Examine your options with a dispassionate eye. Although it may hurt our egos for a time, it is okay to stop a pet project if it is starting to look like a dud. Pulling the plug early can often be a very smart thing. It’s not an admission of failure, but rather an avoidance of a bigger failure later.

3) Sweat the Details.
Because the difference between huge success and huge failure in music can hinge on the nuance of a riff, it is really important to sweat the details. Great ideas are important, but great execution can often be even more important. Designing and selling digital music players was a great idea. A lot of companies dove into the business. Yet most of these companies have failed to catch on, in spite of it being a great idea. Ipods did catch on, however. One of the reasons they succeeded with that same idea when others didn’t was because Apple did a better job of sweating the details. They spent more time mastering the nuances of the business.

4) Spread your Bets.
In the music industry, even though the music labels had experts with the “golden ear” who had a good sense about what music would sell well, they were still often wrong. As a result, the music label would hedge their bets by investing in a large number of bands. The logic was that even if nine out of the ten guesses were wrong, the tenth would be so profitable that it would more than make up for the losses on the other nine. Similarly, businesses need to use tactics to reduce the risk, like:

a) Don’t put all your hopes into a single idea. Have multiple experiments going on all the time. That way, you stand a better chance of hitting the idea that makes you a winner.

b) Stage your investments. Don’t bet the whole thing at once. Invest in the idea in stages. If a stage fails, then you can back out before you’ve invested everything. If a stage succeeds, you can ramp up.

5) Understand that your idea will not be executed in a vacuum.
Eventually, your idea will need to be executed out in the marketplace, where competition will try to minimize your success (for more on this, see the blog, “Bombs Start Wars”). To avoid future disasters out in the marketplace, ask yourself these questions:

a) Does my idea provide a superior enough solution in the marketplace for a consumer problem to cause people to switch from their current solution alternative to mine?

b) If the big, powerful competitors also decide to enter this space, do I have what it takes to beat them in head-to-head competition?

SUMMARY
Most new ideas fail. Don’t let egos or homegrown pride cause to you to back a bad idea. Be willing to do what is necessary up-front to reduce the bias and what is necessary later to pull the plug early if the idea does not pan out.

FINAL THOUGHTS
Good decision making requires looking at an issue both rationally and emotionally. Although we need to eliminate emotional biases that blind us to reality, we do not want to eliminate emotions entirely from our thinking. After all, our customers use emotions to make their purchases.