May 6, 2013 - FILED UNDER Agile Business
Agile Marketing Series: the Emergent Strategy + Good Money vs. Bad Money
In the 1970s and 80s, Toyota had a deliberate strategy to sell big motorcycles in America. They looked at the market and decided there was a good opportunity for big hogs like Harleys.
However, they continually failed to break into the large road-bike segment. But that was Toyota’s big opportunity, in disguise.
Their deliberate strategy failed, but an emergent strategy changed the game entirely. Toyota wound up selling more of their smaller Super Cub motorcycle than they ever envisioned, and in the process they created a whole new market that didn’t exist: off-road motorcycles.
Agile management practices must always allow emergent strategies to develop, because that’s where the real innovation opportunity exists, and that’s the kind of opportunity traditional hierarchies will crush.
(For an example, see my case study on Microsoft, who in the 2000s missed several opportunities, including social networking and touch-screen technology, in deliberate pursuit of more hierarchy control over MS Office and their Windows platform.)
Case Study: iLook Ultrasounds
With agile, your strategy is what you’re actually doing, not what you say you’re doing.
For example, iLook, a provider of ultrasound technology for natal clinics and hospitals, said their strategy was to sell a small, inexpensive, handheld ultrasound equipment that was simple to use.
That was the emerging opportunity.
But the company’s salesmen had external incentives to sell bigger, more expensive models of ultrasound equipment. And company engineers had internal motivations to make bigger, more powerful machines—not simple, cheap ones.
This misalignment is how companies with hierarchical management systems can flail for many years without any improvement:
- The sales team pulls toward incentives
- The engineers make what they want to make
- The marketing department tries either to convey inconvenient truths (“We have an opportunity if we sell the simple, cheaper ultrasounds, dammit!”), or it gets buried under the hierarchical weight of the sales and engineering departments.
But don’t blame the salesmen and engineers!
They often run on external incentives, and they usually come well-schooled in surviving in the hierarchical system.
Agile must play more to motivation and emergence in order to survive. Agile must say, “Hey, let’s try a few cheaper ultrasounds, and see if it works.”
Abandon All Deliberate Strategies, Early and Often
Investors don’t care about your incentives. They don’t care that you never changed your mind or flip-flopped on decisions, either. Pride and ego are the only things that care about that.
Investors have two goals:
And neither of those two goals involves getting straight A’s on your quarterly report card. (Besides, making straight A’s is easy: you just open up the spreadsheet and type in a long line of them. Genius!)
But real growth and profitability cannot be easily forged.
Agile Failure Breeds Real Success
Professor Amar Bhide states in The Origin and Evolution of New Businesses that 93% of all companies that ultimately became successful beyond the start-up phase had to abandon their original strategy. Why? Because 93% of the time the original plan proved unviable. The real-life Mad Men don’t have a very good track record!
In the agile world, success doesn’t mean knowing exactly what to do. Instead: Success means having enough money left over to try an emergent opportunity after the deliberate strategy has failed.
Which it will. 93% of the time.
Where old-school thinkers only go for things that have 95% confidence level, agile innovators know creativity has a much lower success rate. If only 10% of your new creative ideas succeeded, you would have the Midas touch.
Most New Ideas Don’t Succeed
The point of agile management is to try something, see what happens, and respond quickly enough to the new information to find what will work. Or, as I’ve said before, never be afraid to fail, and never fail the same way twice.
The Theory of Good Money and Bad Money
The theory of good money and bad money, according to Clayton Christensen, says when the best strategy is not yet clear, the “good money” from investors should be patient for growth, but impatient for profit. That means, if you’re being agile, don’t blow huge piles of cash. Stay small and profitable on that scale, until the growth opportunity emerges.
And since 93% of startups have to change strategies before succeeding, growing too big, too fast, without profits is not the path of true enlightenment.
(And “too big to fail” doesn’t sound very agile, either, does it? Well, it’s not.)
Capital investments that demand growth before profits are “bad money,” but once a profitable strategy emerges, you must be agile enough to switch to a growth strategy—and also switch to being patient for profit while growth occurs.
The theory of good money and bad money says abundant capital can fuel the wrong strategy, and it can fuel it aggressively.
Investing first to grow big on an all-in, Mad-Men strategy and figure out how to make profits later is a road littered with failures.
When Honda created the small motorcycle market in America, it didn’t allocate lots of cash to one big strategy. In fact, it was the lack of huge financial investment that allowed Honda’s Super Cub business division to figure out the problem.
By the time you see the need for new business, it’s too late to begin.
That’s like planting seeds when you need shade trees immediately.
You must invest long before you plan to see the payoffs. Put in your time before you put in all your cash. Water rows of seeds before you know exactly which trees will come in handy.
That’s the agile way.