What Business Are You In? (Hint: It’s Probably Not What You Think)

What Business Are You In? (Hint: It’s Probably Not What You Think)

“What business are you in?”

How do you answer this all-too-common question?

Do you name the company you work for?

The industry you’re in?

The function you perform?

Bad news, your business isn’t defined by the company, the industry, and even your function.

Good news, the business you’re in is defined by your customers. 

And their definition unlocks incredible potential for innovation and growth.

The 2:00 am Answer

In my first few months as an Assistant Brand Manager at P&G, I had a truly terrifying experience. Sitting in a training session, a senior executive locked eyes with me and asked, “What is Brand Equity?”

My first thought was, “you tell me, buddy. I’m the newbie here.”  My second thought, and the one that came out of my mouth, was probably something straight out of a marketing textbook.

“Wrong!” he exclaimed. “Brand equity is what a consumer says if you wake them up from a dead sleep at 2:00 am and scream ‘What is [brand]?’ in their face.”

I don’t know what scared me more, being yelled at for being wrong or the idea that breaking and entering and screaming brand names at unsuspecting sleepers was suddenly part of my job description.

The 2:00 am Answer is the business you’re in

The 2:00 am answer applies to more than just brand equity. 

It reveals the business you’re in.

Because it’s the Job to be Done your customers hire you to do

As the training went on, we learned how this mantra manifests in everything a brand (or company) does – its products, pricing, packaging, distribution, and marketing. 

For example, if the most important thing to you about laundry is that clothes come out of the washing machine clean, you have dozens of options and probably buy the cheapest one.

But, if you want to be sure that clothes will be immaculate after the first wash because you know your kids will wear anything, even if it has stains, which will lead the other parents to judge you, you have one option – Tide. 

Why the 2:00 am Answer matters

The 2:00 am Answer also defines where you have a right to play and to win. 

Sometimes this space is bigger than you expect, revealing incredible opportunities for innovation and growth. 

Sometimes it’s smaller than you want, exposing a strategic misalignment between what you offer and what your customers want. This happened to LEGO and took the company to the brink of bankruptcy.

In 1998, LEGO posted its first loss in company history. To reinvigorate growth, it shifted from being in the business of Toys to being in the business of Play. This led to two decisions that, while strategically aligned with Play, almost bankrupted the company. First was the introduction of new toys specifically designed to be built in less than 10 minutes so kids could start playing quickly. The second decision took LEGO into other aspects of play – video games, amusement parks, and a TV show supported by a line of action figures.

In 2003, LEGO reported a $238M loss, and with only one profitable product line, the future was bleak. So, LEGO started talking to customers (though probably not at 2:00 am). Through the conversations, LEGO learned that its expansion into all forms of play and the prioritization of Play over creation (building) wasn’t LEGO-y in the minds of consumers. So they rejected the new offerings. Instead, people loved LEGO because it offered “creative play” – the freedom and ability to turn ideas into tangible and interactive 3D models. 

LEGO listened and went “back to the brick.”  The results speak for themselves. In 2015, LEGO overtook Ferrari to become the world’s most powerful brand. In 2021, LEGO earned $8.06B in revenue, a 27% increase from the prior year.

How to get and use the 2:00 am Answer (without committing a felony)

First, get clear on the business you WANT to be in. Ask yourself and your colleagues, what do we want our customers to hire us to do? Push beyond the easy and obvious answers (usually functional Jobs to be Done). How do you want customers to feel after hiring your company (emotional Jobs to be Done)? How do you want them to be perceived (social Jobs to be Done)? What Job to be Done do you want to do uniquely well?

Second, talk to your customers one-on-one at a time and place of their choosing. Ask them why they hire your business. Again, push beyond the easy and obvious answers to understand what they want to feel and be perceived after choosing you. Ask what other options they considered and why they hired your business.

Find and close the gap. What’s the difference between what you wanted to hear and what you actually heard? If the gap is bigger than expected, how can you expand and innovate your business to grow into all the Jobs people want to hire you to do? If the gap is smaller, how can you shift or redirect efforts to grow in ways where you have permission to operate?

The 2:00 am Answer can be the key to defining, growing, and transforming your business.

Who says nothing good happens after midnight?

3 Mind-Blowing Things I Learned in Nebraska

3 Mind-Blowing Things I Learned in Nebraska

In the Before Times, we attended conferences to learn, make connections, and promote ourselves and our businesses. Then COVID hit, and conferences became virtual.   Although that made them easier to attend, it also made them easier to skip. Because, if we’re honest, most conferences were more about connecting and promoting than learning.

Last week, I went to one of those rare, almost mythical, conferences more focused on learning and connecting than promoting. It was fantastic! It was also in Nebraska (which is a pretty interesting place, btw).

Here are my three biggest mind-blowing takeaways from Inside Outside’s IO2022 Summit:

Strategy is the direction you take to win in the future

Kareen Proudian, Managing Partner at Faculty of Change

It’s a bit embarrassing to admit, but if you asked me to define “Strategy,” I’d respond with a long and rambling answer. Which means I can’t define “strategy.”  This admission is especially embarrassing because I have a resume littered with places where I developed, drafted, and implemented strategies, so I should have learned what the word means. But nope, I didn’t.

I suspect I’m not alone.

Asking for the definition of strategy is like asking if you must wear clothes to the office. You should know the answer. But unlike whether or not clothing is mandatory, most of us don’t know the answer, AND it’s easy to get away with never knowing the answer.

The elegant simplicity of Kareen’s definition of strategy blew my mind. It’s short, memorable, and something that most people can understand. Maybe I should share the definition with my alma maters and past employers.

When we feel threatened, our IQ drops 50 to 70 points”

Alla Weinberg, CEO at Spoke & Wheel

When I first heard talk about Psychological Safety and Safe Spaces in today’s business world, I rolled my eyes. Hard. As a Gen X-er, I grumbled about how we didn’t need “safe spaces” when I grew up because we were tough and self-reliant, and I lamented the inevitable downfall of society caused by weak and coddled Millennials.

I was wrong.

Psychological Safety is absolutely and unquestionably essential for individuals to grow, teams to work, companies to operate and innovate, and societies to function and evolve. I’ve seen teams and businesses transform and achieve unbelievable success by discussing and living the elements they require for Psychological Safety. I’ve also seen teams and businesses fail in its absence.

These results aren’t surprising when you realize that you feel threatened when you are in a complex situation in which you cannot accurately predict the outcomes. And when you feel threatened, you are half as intelligent, effective, and creative as you are when you’re calm.

So, if you’re a manager and you’re upset that your people aren’t as intelligent, effective, or creative as they should be, it may not be their fault. It may be yours.

Stage expertise, not industry expertise, is key to innovation success

Sean Sheppard, Managing Partner at U+

There is deep comfort in the known. It’s why we gravitate to people like us. It’s also why companies ask job candidates and consultants about their experience in the industry and choose those with deep experience and impressive expertise. Often, there’s nothing with this question or the resulting decision.

Sometimes, it’s precisely the wrong question.

Sometimes, functional expertise is significantly more important than industry experience. After all, if you’re the hiring manager at a healthcare company looking for a Director of Finance, who would you hire – a Marketing Director from a competitor or a Finance Director from a CPG company?

That’s the case with innovation.

Decades of real-world experience (not to mention the successful launch of 100+ startups) show that successful corporate startup teams had expertise (mindsets, skillsets, executional drive) in the startup’s phase and a working knowledge of the industry rather extensive industry expertise and little to no innovation experience.

Questions are good. The right questions are better. So, the next time you’re staffing up an innovation team (or hiring a consultant), choose based on their innovation experience and willingness to learn about your industry.

Innovation happens everywhere

That’s why people from San Francisco, Austin, Washington DC, NYC, Toronto, Boston, and dozens of other places converged on Lincoln, Nebraska.

We went to see innovation in action and learn about the thriving startup community in the middle of the country. We also went to learn and connect with others committed to creating new things that create value. 

Getting our minds blown was a bonus.

Why Decisions Based On Data Will Lead You Straight to Hell

Why Decisions Based On Data Will Lead You Straight to Hell

Many years ago, Clay Christensen visited his firm where I was a partner and told us a story*.

“I imagine the day I die and present myself at the entrance to Heaven,” he said. “The Lord will show me around, and the beauty and majesty will overcome me. Eventually, I will notice that there are no numbers or data in Heaven, and I will ask the Lord why that is.”

“Data lies,” the Lord will respond. “Nothing that lies can be in Heaven. So, if people want data, I tell them to go to Hell.”

We all chuckled at the punchline and at the strength of the language Clay used (if you ever met him, you know that he was an incredibly gentle and soft-spoken man, so using the phrase “go to Hell” was the equivalent of your parents unleashing a five-minute long expletive-laden rant).

“If you want data, go to Hell.”

Clay’s statement seems absolutely blasphemous, especially in a society that views quantitative data as the ultimate source of truth: 

  • “In God we trust. All others bring data.” W. Edward Deming, founding Father of Total Quality Management (TQM)
  •  “Above all else, show the data.” – Edward R. Tufte, a pioneer in the field of data visualization
  • “What gets measured gets managed” – Peter Drucker, father of modern management studies

But it’s not entirely wrong.

Quantitative Data’s blessing: A sense of safety

As humans, we crave certainty and safety. This was true millennia ago when we needed to know whether the rustling in the leaves was the wind or a hungry predator preparing to leap and tear us limb from lime. And it’s true today when we must make billion-dollar decisions about buying companies, launching products, and expanding into new geographies.

We rely on data about company valuation and cash flow, market size and growth, and competitor size and strategy to make big decisions, trusting that it is accurate and will continue to be true for the foreseeable future.

Quantitative Data’s curse: The past does not predict the future

As leaders navigating an increasingly VUCA world, we know we must prepare for multiple scenarios, operate with agility, and be willing to pivot when change happens. 

Yet we rely on data that describes the past.

We can extrapolate it, build forecasts, and create models, but the data will never tell us with certainty what will happen in the future. It can’t even tell us the Why (drivers, causal mechanisms) behind the What it describes.

The Answer: And not Or

Quantitative data Is useful. It gives us the sense of safety we need to operate in a world of uncertainty and a starting point from which to imagine the future(s).

But, it is not enough to give the clarity or confidence we need to make decisions leading to future growth and lasting competitive advantage.

To make those decisions, we need quantitative data AND qualitative insights.

We need numbers and humans.

Qualitative Insight’s blessing: A view into the future

Humans are the source of data. Our beliefs, motivations, aspirations, and actions are tracked and measured, and turned into numbers that describe what we believed, wanted, and did in the past.

By understanding human beliefs, motivations, and aspirations (and capturing them as qualitative insights), we gain insight into why we believed, wanted, and did those things and, as a result, how those beliefs, motivations, aspirations, and actions could change and be changed. With these insights, we can develop strategies and plans to change or maintain beliefs and motivations and anticipate and prepare for events that could accelerate or hinder our goals. And yes, these insights can be quantified.

Qualitative Insight’s curse: We must be brave

When discussing the merit of pursuing or applying qualitative research, it’s not uncommon for someone to trot out the saying (erroneously attributed to Henry Ford), “If I asked people what they wanted, they would have said a horse that goes twice as fast and eats half as much.”

Pushing against that assertion requires you to be brave. To let go of your desire for certainty and safety, take a risk, and be intellectually brave.

Being brave is hard. Staying safe is easy. It’s rational. It’s what any reasonable person would do. But safe, rational, and reasonable people rarely change the world.

One more story

In 1980, McKinsey predicted that the worldwide market for cell phones would max out at 900,000 subscribers. They based this prediction on solid data, analyzed by some of the most intelligent people in business. The data and resulting recommendations made sense when presented to AT&T, McKinsey’s client.

Five years later, there were 340,213 subscribers, and McKinsey looked pretty smart. In 1990, there were 5.3 million subscribers, almost 6x McKinsey’s prediction.   In 1994, there were 24.1M subscribers in the US alone (27x McKinsey’s global forecast), and AT&T was forced to pay $12.6B to acquire McCaw Cellular.

Should AT&T have told McKinsey to “go to Hell?”  No.

Should AT&T have thanked McKinsey for going to (and through) Hell to get the data, then asked whether they swung by earth to talk to humans and understand their Jobs to be Done around communication? Yes.

Because, as Box founder Aaron Levie reminds us,

“Sizing the market for a disruptor based on an incumbent’s market is like sizing a car industry off how many horses there were in 1910.”

* Except for the last line, these probably (definitely) weren’t his exact words, but they are an accurate representation of what I remember him saying

How to Make Innovation “The Way We Do Business” (it’s easy as ABC)

How to Make Innovation “The Way We Do Business” (it’s easy as ABC)

“We need to be more innovative.”

How many times have you said or heard that? It’s how most innovation efforts start. It’s a statement that reflects leaders’ genuine desire to return to the “good ol’ days” when the company routinely created and launched new products and enjoyed the publicity and growth that followed.

But what does it mean to “be more innovative?”

Innovation’s ABCs

A is for Architecture

Architecture includes most of the elements people think of when they start the work to become more innovative – strategy, structure, processes, metrics, governance, and incentives.

Each of these elements answers fundamental questions:

  • Strategy: Why is innovation important? How does it contribute to our overall strategy?
  • Structure: Who does the work of innovation?
  • Process: How is the work done?
  • Metrics: How will we know when we’re successful? How will we measure progress?
  • Governance: Who makes decisions? How and when are decisions made?
  • Incentives: Why should people invest their time, money, and political capital? How will they be rewarded?

When it comes to your business, you can answer all these questions. The same is true if you’re serious about innovation. If you can’t answer the questions, you have work to do. If you don’t want to do the work, then you don’t want to be innovative. You want to look innovative*.

B is for Behavior

Innovation isn’t an idea problem. It’s a leadership problem.

Leaders that talk about innovation, delegate it to subordinates and routinely pull resources from innovation to “shore up” current operations don’t want to be innovative. They want to look innovative.

Leaders who roll up their sleeves and work alongside innovation teams, ask questions and listen with open minds, and invest and protect innovation resources want to be innovative.

To be fair, it’s incredibly challenging to be a great leader of both innovation and operations. It’s the equivalent of writing equally well with your right and left hands. But it is possible. More importantly, it’s essential.

C is for Culture

Culture is invisible, pervasive, and personal. It is also the make-or-break factor for innovation because it surrounds innovation architecture, teams, and leaders. 

Culture can expand to encourage and support exploration, creativity, and risk-taking. Or it can constrict, unleashing antibodies that swarm, suffocate, and kill anything that threatens the status quo.

Trying to control or change culture is like trying to hold water in your fist. But if you let go just a bit, create the right conditions, and wait patiently, change is possible.

Easy as 123

The most common mistake executives make in the pursuit of being “more innovative” is that they focus on only A or only B or only C.  But, as I always tell my clients, the answer is “and, not or.”

  1. Start with Architecture because it’s logical, rational, and produces tangible outputs like org charts, process flows, and instruction manuals filled with templates and tools. Architecture is comforting because it helps us know what to do and how.
  2. Use Architecture to encourage Behavior because the best way to learn something is to do it. With Architecture in place (but well before it’s finished), bring leaders into the work – talking to customers, sharing their ideas, and creating prototypes. When leaders do the work of innovation, they quickly realize what’s possible (and what’s not) and are open to learning how to engage (behave) in a way that supports innovation.
  3. Leverage Architecture and Behavior to engage Culture by creating the artifacts, rituals, and evidence that innovation can happen in your company, is happening and will continue to happen. As people see “innovation” evolve from a buzzword to a small investment to “the way we do business,” their skepticism will fade, and their support will grow.

Just like the Jackson 5 said

ABC, It’s easy a 123

Architecture, behavior, culture – they’re all essential to enabling an innovation capability that repeatedly creates new revenue.

And while starting with architecture, building new leadership behaviors, and investing until the culture changes isn’t easy, it’s the 123 steps required to “be more innovative.”

What Business Are You Really In? Ask These 3 Questions to Find Out

What Business Are You Really In? Ask These 3 Questions to Find Out

Imagine that you decided to temporarily shut down your business. You made this decision because you knew something major could go wrong and, despite some efforts, you didn’t make as much progress as you hoped. So, you temporarily closed without knowing how long “temporarily” would be.

Three months later, you have made big changes. Massive, ginormous, monumental changes. Changes to foundational elements of your business. You discontinued a beloved product, made existing products safer and expanded a controversial product.

Now, imagine that the press followed all of this. They reported on every meeting, speculated on every discussion, and critiqued every statement. They even said you should be fired.

But now, today, you announced that you’re open for business. All the problems are solved, and all the changes rolled out. The press celebrated, and articles, podcasts, and news stories heralded your business’ re-opening.

Your customers yawned. 

They didn’t miss you.

Many didn’t even know you were gone.

A True Story

You just read the story of Major League Baseball at the end of its 99-day lockout.

But it could also be the story of your business if you make the same mistake MLB did in December, which is the same mistake it has made for the past 20+ years.

It forgot what business it’s in.

MLB thinks it’s in the baseball business. For some customers, diehard fans, it is. But for most, baseball is in the business of helping customers to:

  • Make memories
  • Have fun
  • Feel connected to others
  • Be entertained
  • Drink beer and eat junk food without guilt

These are the Jobs to be Done that customers hire baseball to do for them. But there are dozens of other businesses offering to do the same Jobs, many in ways that are lower cost and more easily accessible. And fans are taking their business to those competitors.

According to Statista, the average per game attendance was 18,900 in 2021, a 34% decline from 2019. Even more troubling than this “generational low” is that people aren’t even watching baseball at home, evidenced by the 12% decline in TV viewership for games.

Customers are rejecting baseball. They just don’t care about it as much as they used to. As a result, they’re spending less time and less money on it and finding newer and better alternatives.

3 Questions to Figure Out if You’re Out (or In)

This story isn’t unique to MLB. It’s the story at the core of many failed businesses. The outward view of solving customers’ problems gives way to an increasingly inward-facing view of the business the business is in.

The story isn’t fast-paced or obvious, either. The declines happen slowly – average gameday attendance dropped only 367 people annually from 2012 to 2019, a decrease that’s easy to miss when considering that the average MLB ballpark holds 43,000 people. 

But once the decline starts and apathy sets in, it is challenging to change the story. But not impossible.

If you want customers to care about you again, to need you and your products the way they used to, you need to care more about your customers than your business. You need to ask three questions:

1. “Why do you choose us?” (in Innovation-speak this translates to, “What are your Jobs to be Done?”)

2. “When you don’t choose us, who do you choose and why?”

Then you must listen. Really listen. To EVERYTHING customers say. The reasons you want to hear and the ones you don’t,  The competitors you know and the ones you least expect. The things that make them better that you know and the ones you don’t agree with.

Then, and only then, do you look inward at your operations and business model and ask.

3. “What business are we in?”

Are your operations set up to deliver delight to customers or maximum efficiency to your business? Is your business model set up to create value for customers or maximize profit for you? Are you increasing the size of bases 3 inches and claiming its safer or doing everything possible to reduce the game’s length and increase its fun factor?

It’s not customer rejection that kills a business. It’s customer apathy.

Don’t allow your customers to become apathetic. They cared about your business once. Keep giving them reasons to care by asking what they care about and delivering it.

How do you make sure that you’re in the right business?

3 Common Resource Allocation Mistakes (and What to Do Instead)

3 Common Resource Allocation Mistakes (and What to Do Instead)

You know that to deliver today’s business and achieve tomorrow’s goals, you need a portfolio of projects that improve your existing operations and a portfolio of innovation projects. You also know that to max out your odds of hitting tomorrow’s goals, you need a portfolio of different types of innovation projects. 

You are also keenly aware that with limited resources, you can’t possibly fund every project.

So how do you make some of the most complex decisions that confront leaders?

Don’t fall into the trap of false choices.

It’s easy to feel like you need to decide between funding operations projects and innovation efforts. You don’t.

Projects that improve what you do today, like increasing efficiency and improving existing offerings, are fundamentally different than innovation projects that create something new. Trying to compare them is like trying to compare strawberries and broccoli – they’re fundamentally different, and people have strong feelings about both.

Do allocate resources to improvement AND innovation projects.

Most of your resources should go to improvement projects because there are what keep you in business and equal to (or ahead of) competitors. They’re also the lowest risk, so you can be confident of achieving your expected ROI.

Innovation projects are higher risk, and the number of resources they need is hard to predict, especially when they are in their earliest days or focused on something radically new and breakthrough. 

Don’t give innovation projects all their resources at once.

Annual budgets make sense when you’re 99.9999% certain that the line item will be around for an entire year. But when you don’t know if a project will be around until next quarter, let alone next year, don’t give them all the resources upfront. Project teams will be tempted to front-load their spending and, if the project needs to end, it can be hard to quickly free up the resources to allocate them to a different project.

Do protect all innovation resources for an entire year.

Even if you have the excellent discipline to carve out an annual budget for innovation and dole it out in bite-sized chunks based on hitting key milestones, it can be hard to maintain that discipline. Over time, the funds allocated to innovation, but not specific projects, start to look like a piggy bank that you can “borrow” money from when your existing business needs to. And while your intentions may be good, borrowed money is never repaid and, as a result, isn’t available when it’s needed.

Don’t use the same criteria to evaluate every innovation project.

Every project needs a small initial investment – money and people to answer a question or explore a space to see if “there’s a there there.” But before allocating a single additional resource to an innovation project, you should be able to answer the following five questions:

  1. What is the problem we’re solving, and who has it?
  2. How can/will we solve this problem?
  3. Why should we solve this problem/create this solution (e.g., does this support our strategy and priorities or create a compelling and sustainable competitive advantage)?
  4. What results do we need/will we get?
  5. What is the next major milestone, and what is required to get there?

If these questions can’t be answered, more work needs to be done, or the effort must be canceled. But often, these questions can be answered, but additional resources aren’t allocated because they can’t be answered with the same depth, breadth, and certainty that later-stage innovation projects can. 

Applying the same burden of proof to an early-stage project asking for $10,000 to conduct consumer research as you apply to a late-stage project asking for $10M to launch doesn’t protect you from making a mistake. It drains your innovation portfolio and “protects” you from growth.

Do evolve decision-making criteria as a project progresses and resource requests get bigger.

At every stage of its development, a project should be able to answer the five core questions above with increasing depth and greater confidence rooted in ever more concrete and quantifiable evidence.

For example, consider a project in the design phase (first draft of a solution) seeking a few thousand dollars to test a paper concept with customers. When asked, “What results do we need/will we get?” if the answer is “We believe we can generate $X revenue based on the following eight assumptions, all of which we find believable based on internal or external benchmarks.” If you agree, then give them the money.

When that same project reaches the De-Risk phase (in-market testing) and requests millions of dollars and dozens of people for launch, if the answer is the same, STOP everything immediately (and, honestly, it shouldn’t have gotten this far)! The answer in this phase should be a detailed P&L and NPV because you know more than you did back at Design, and you’re asking for more.

Resource allocation is complex, especially when you have limited resources and an abundance of very different but very attractive choices. But it can be easier with a bit of discipline and common sense.

What other tips and tricks do you use to make resources allocation decisions?