Change Agent - Issue 39

Let me prove it with a simple thought experiment. If your company hit the wall and fired all of its employees tomorrow morning, how long would it take your smartest and most-driven people to find a new job? And how likely is it that their new jobs would be in precisely the same business as yours?

Let's face it: Marketing people know how to market. Biz-dev people know how to biz dev. Salespeople know how to sell. "What business are you in?" now becomes a loaded question. And the answer to that question ought to be, "Whatever business maximizes long-term stakeholder value." Period, as Tom Peters would say.

Let's say, for example, that you've got a team of 40 smart people working in a venture-backed startup. You've got $6 million in the bank, and your new product launch is a dud. Nobody wants online laundromats, as it turns out, and so e-laundry.com isn't working. What happens next is that most companies assume that they gotta keep going: "Hey, we've invested all this time and money, it would be way too much trouble to throw this idea out and start over."

Uh, wrong answer.

You've got $6 million, a smart team of people who know and like each other, and desperate venture capitalists. What business are you in? If you're in the business of long-term stakeholder value, you've got only one obvious choice: Shut down the laundromat, fire your two employees who have nothing but laundry-specific knowledge, keep the rest of the smart folks, and start over. Now you're in a totally different business -- and, hopefully, a better one.

Redefining your business becomes far more important (and far more troubling) when we look at how companies that have been around for a long time define their future. There's a huge imperative to grow, especially among public companies, but it's pretty obvious that a company is not going to see rapid growth by introducing yet another laundry detergent or yet another soft-drink flavor.

When faced with the need to grow, combined with the challenge of the Net and with new competitors who are hell-bent on destroying your core business, the obvious strategy is to drop a few million dollars on some e-consulting firm and to have it build a Web presence for you. You want that consultant to "e-enable your e-commerce initiative" (or, to put it in English, to take your business and move it lock, stock, and barrel to the Web).

That strategy almost always fails. It's based on factory-centric thinking, on a CEO who decides that your company knows only how to manufacture the shoes or chemicals or hats or strategy consulting that it does -- and that you know only that too. What a waste. Because when the Web strategy doesn't work, all of those smart people who came together will disperse. All of the intellectual capital that had been attracted to your company's moment in the sun will go away. All of those PCs and cubicles have to get sold at auction.

Years ago, business was like the opera -- lots of costumes, expensive sets, complicated scripts in various languages. Once a group of performers decided to put on an opera, they were stuck with it. There was too much invested to quit. The goal was to sell every seat to every single performance and then hope you made money.

Today the rules are different. You're not running an opera company, you're running a repertory theater -- with talented actors, each able to play many different roles, with minimal sets, with no musical numbers, but maybe with some improv. If a show bombs, it only takes a few days to strike the set and put on a new production.

If you've got a bunch of smart people and some capital, why not figure out the very best business to be in and then go and be in that business? Companies like Bain & Co., GE, Microsoft, P&G, and Yahoo! are known for attracting, motivating, and keeping really smart people. But only a few such companies know how to use their existing assets and their market power to create new businesses.

I'm not suggesting that your brand or your customer relationships are worthless. Far from it. What is clear to me, though, is that brands and relationships have both natural rhythms and scale -- and that trying to grow those brands and relationships any faster or bigger than they want to grow is dangerous. Instead, why not build a new set of assets right next to your old set?

After my first year at Stanford Business School, I went to see Jim Levy, then-president of Activision Inc., which, at the time, was arguably one of the fastest-growing companies in the history of the world. Activision made games for the Atari 2600 game system and was rolling in dough. I wanted to work for Levy for the summer.

My bold proposal: "Hey, you've got all this cash and all these smart marketers and programmers. Why not go into the computer-game business? You can dominate the PC the way that you dominate the Atari 2600."