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Stanford Entrepreneurship corner, Geoffrey Moore: Reach Your Escape Velocity No.2

Geoffrey Moore: Reach Your Escape Velocity No.2

And so what the -- we created a model called the hierarchy of powers. It's kind of a framework of frameworks. And the intention of this hierarchy is to let people sort out the power equation in a set of levels that make sense. So the hierarchy of power is just five powers but you talk about each power separately from the other four and you talk about them in sequence from top to bottom. The reason why that sequence exists from top to bottom is actually a lesson we learned from the investment community. When investors allocate assets the first thing they do is they allocate it by category. Actually, you mean by category, they'll say bonds versus equities versus cash in hand or whatever. But within equity itself say you want to be in retail, do you want to be in natural resources, do you want to be in tech, do you want to be in whatever. And so category power has to do with how fast are the categories that you are in growing? Because if you're in a category that's growing 100%, even if you're kind of a doofus, you're probably going to do pretty well this year. And investors aren't stupid. By the way, vice versa, if you're in a category that's growing at 4%, you have enormous pressure on you to make sure you make every penny of your earnings. And it's very, very hard for you to do much better than that because the category is giving you no lift whatsoever. You can take share in a category that's not growing but not forever. Eventually, you run into a wall. So investors at the margin would prefer your company to be in high-growth categories, not low growth. So a company like General Electric would routinely sell off low-growth businesses in order to get capital to buy high-growth businesses and they would kind of migrate the footprint of the corporation going forward. That's in order to have more category or power. You can hold your company accountable to what category is you're in. The board of directors can hold the management team accountable to that.

The next one is company power. So in the categories you're in, how powerful? Do you control your own destiny or somebody else is calling the tune and you're just trying to keep step and keep pace with them? This is market share. This is Jack Welch saying, you want to be number one or number two or you don't want to play because you wouldn't have enough company power to get the return on being in that category. You ought to get out of that category and get into some categories where you can be number one or number two. So it's about power. The third one is market power that has to do with, are you in the markets that are the fastest growing segments or the more strategic segments? Now, category and market sometimes get confused but category is defined by a group of competitors and markets are defined by a group of customers. And as long as you kind of keep that sort of simple quote in your head, you will not confuse the two of them.

So a market is about getting a group of customers and the idea here is a little bit like winning primaries for a presidential nomination. You want to win in New Hampshire primary. There are not very many delegates in New Hampshire but is a very strategic primary to win. And in markets, there are always segments that are early bellwether segments that are different for different markets, different technology, different categories, well, there's always some. And so winning those early or maybe there's a segment that's in transition where the segment like this particular part of the economy is completely being disrupted by the Internet this year so whatever they're going to buy, they're going to buy this year. So get in there and be successful if it's the kind of stuff that you sell. That's what market power is about; winning segment shares in the critical segments. Offer power is based on how compelling is your offer compared to the rest. We're talking about differentiation. How different is it, but then also how comparable is it to the -- are you living up to the norms of your category? That's sort of table stakes and then how different is it. I'm going to come back to offer power so I won't say more about it right now. And then execution power is, when you guys set yourself out to do something, when you're going to enter a new category, when you're going to do one of these transformational initiatives, can you actually get it done or do you find yourself kind of redoing it? So if you look at this thing, we often sit down with our clients and we'll say, let's just ask you a couple of questions kind of among us kids and the door is closed and there's no recording devices going. So the questions go like, are we in the high-growth categories or do we have category envy? HP right now must have Tablet envy, right? It has to, right? Everybody looks at Apple going, like that, OK. Category envy. OK. Company power. Do customers and competitors see us as the team to beat or is that somebody else? Let's just be honest with each other, where are we and think about your company or the company you may have been in before you came here or the company you're in now, the company you intend to go to. Market power. Are we winning the key primaries definitively or -- and are we winning them fast enough? I'll tell you, "Yeah, we're going in the right market," but it's like one year, two years, three years, nothing is happening. It's dying. That's not what we meant. Winning meant, you know, moving on. So do your flagship offers, you know, set the bar or are you always playing catch up and not doing it fast enough, and we'll come back to that again as I said with offer power. Can you make stuff happen and make it stick or are you continually pushing the reset button? There is nothing more discouraging than being in a large corporation which does a massive reorg once or twice a decade because the last team couldn't get it done. And it feels like you're watching this very large sort of drain, this water is just going like this. This could take you a long time but it only appears to be one way that this thing is going to go. And so it's important when you sit here and to say, the questions you want to ask are where are we strong and where do we need help. And no matter how good or how bad you are, you probably have places that you're better than others, and so what are we going to build on and where do we need to go forward? But I hope you can see that each one of those topics is different from the other four because what happened before when people would say, we're going to have a discussion about strategy, and strategy is normally about power, about achieving a position of power. What are we going to do to achieve a position of power? That's kind of what strategy means. But the problem with the dialogue around strategy was it would go up and down through these five levels of category, mixing and matching, making arguments that never ever connected. So it was always like this. And so at the end of the day, we'll, you believe what you believe and I believe what I believe and now let's argue about who get the head count. And so that's why you would default back to a performance model because in the performance model, it's like, we'll, who wins? Well, who ever got the most revenue or the most margin -- the most earnings.

So it was a way of essentially saying since I can't talk about this articulately at the level of power, I will only measure it at the level of performance. And that leads to that slow draining of the corporate battery. And by the way, there was a time when these companies all had enormous power. That's why we've heard of them. That's how they got up to the top of the mountain in the first place. Now, they're kind of going down the mountain, they're not renewing their power but that was a very tall mountain they got to the top of at one point in their lives. And so they have -- Novell at one point was the power company in networking by far. And then it just, you know, year after year after year it's still around but it's kind of toward the bottom of that mountain. OK, so that's the stuff we're talking about just to kind of make it dirt obvious. OK, so let's apply this to Apple because right now they're the golden child. So what categories are they're in? Well, music mobility and media, all of them are still growing at hyper-growth rates. That's pretty cool. By the way, even the Mac they brought back in the hyper-growth. Company power, so team to beat in all three. I guess or anybody else so you would say would be Apple is trying to catch up too in those things. I don't think so. I don't think so. Market power, we don't need no stinking markets, we got the world. I mean, right now the truth is they are so powerful and now, do they do certain kinds of things? Sure. Are they looking at the business market in some ways? Yes, they have programs but basically not. Like, man, the people are beating the path -- they're waiting outside of our stores at midnight to get an iPhone that is white. OK, enough said, enough said, OK. So the offer powers are like huge -- and by the way, it's not just the products, it's the -- it is iPod plus iTunes. It is iPhone and iPad plus apps store. I mean, it's a huge -- this is a dominantly powerful situation and they did all of these in less than a decade. So you kind of -- every other leader in tech saying, so what are you guys doing? So what are you up to, huh? No, no, not much, huh. OK, I just want to check. So that's why it is currently -- I think -- this was true earlier this year, I think it's still true. You know what's the most highly valued company in tech. It's about $320 billion. Microsoft is about 220 but there was a time not very long but maybe still, it was the second most valuable company in the world; Exxon and then Apple. So this issue of power -- and if you look at the guy you say, well, what's Steve about? One of the things Steve is about is he cares about power and he assumed performance will take care of itself. Jeff Bezos is the same way to Amazon, that's why periodically, he does stuff that just drive the shareholders crazy because he gives away performance in the short-term because he says, I want the power. He's always done that. So if you can do it, and there are examples, but the problem is they tend to be examples of companies that are run largely through a charismatic founder who is just -- has a power instinct. Bill Gates being a third to this amazing example.

OK, so just to kind of close on this thing in terms of how this category -- hierarchy of power affects the corporate dialogue, there are three things that a CEO is asked to articulate in relation to this power hierarchy. The first is a vision. And the vision is about what is happening in the world in the zone of your category that the other people outside of your company care about and want to interact with. What role is your company going to play in the unfolding of those forces? And which markets are going to be the bellwether markets that are going to indicate how well you're doing? And that's a vision. That's what you talk about a vision for your company, that's what vision does. When you go down to strategy, you kind of go down one level and you say, OK, we're in this category because categories -- strategies change by category. In this strategy, what position -- what's our power position relative to our competitors today, in what markets are we going to fight in order to change that position and what offers are the critical offers that are going to change our power position relative to our competitive set? That's what strategy is about. And then when you do down one more and it's execution, it's, OK, guys. Now, in terms of which markets -- which offers and how fast and this is back to weekly commits, monthly reviews, quarterly deliverables, we're just going to get it done. And so all three kind of these issues; vision, strategy and execution have a vocabulary of power around them that is useful -- and every one of these things have a bunch of frameworks behind it. So what the book will share is a bunch of models about the -- well, category power, the category, the optionalized cycle, the technology, the optionalized cycle, how do things grow, I mean, I've been writing about that for a long time but every one of these has its own set of models that you can bring out and say, OK, we'll, let's look at our company through this lens and kind of see how we stack up. So the intent is to create vocabulary with this book. It's not to say, we know your business better than you know it but it's just to say, look, look at your business through these lenses; clear, blacker, sharper, which one? Right, that kind of stuff. So these are some companies that we've been working with for the last 20 years. What they have in common is that every one of these companies we work with on an initiative for at least over a year that was sponsored directly by the CEO. So the CEO was in the middle of this initiative and we built these frameworks in conjunction with the teams led by the CEOs. And they did very well. I mean, this is sort of a little bit of a self -- pat ourselves in the back kind of things, but they did. These things actually work. So I don't want to imply that this stuff is just a theoretical stuff because those are real companies that had a lot of success with this stuff.


Geoffrey Moore: Reach Your Escape Velocity No.2 Geoffrey Moore: Erreiche deine Fluchtgeschwindigkeit Nr. 2 Geoffrey Moore: Atingir a sua velocidade de fuga n.º 2 Geoffrey Moore: Reach Your Escape Velocity No.2 Джеффрі Мур: Досягніть швидкості втечі №2 杰弗里-摩尔:达到你的逃逸速度之二 杰弗里-摩尔:达到你的逃逸速度之二

And so what the -- we created a model called the hierarchy of powers. It's kind of a framework of frameworks. And the intention of this hierarchy is to let people sort out the power equation in a set of levels that make sense. So the hierarchy of power is just five powers but you talk about each power separately from the other four and you talk about them in sequence from top to bottom. The reason why that sequence exists from top to bottom is actually a lesson we learned from the investment community. When investors allocate assets the first thing they do is they allocate it by category. Actually, you mean by category, they'll say bonds versus equities versus cash in hand or whatever. But within equity itself say you want to be in retail, do you want to be in natural resources, do you want to be in tech, do you want to be in whatever. And so category power has to do with how fast are the categories that you are in growing? Because if you're in a category that's growing 100%, even if you're kind of a doofus, you're probably going to do pretty well this year. And investors aren't stupid. By the way, vice versa, if you're in a category that's growing at 4%, you have enormous pressure on you to make sure you make every penny of your earnings. And it's very, very hard for you to do much better than that because the category is giving you no lift whatsoever. You can take share in a category that's not growing but not forever. Eventually, you run into a wall. So investors at the margin would prefer your company to be in high-growth categories, not low growth. So a company like General Electric would routinely sell off low-growth businesses in order to get capital to buy high-growth businesses and they would kind of migrate the footprint of the corporation going forward. That's in order to have more category or power. You can hold your company accountable to what category is you're in. The board of directors can hold the management team accountable to that.

The next one is company power. So in the categories you're in, how powerful? Do you control your own destiny or somebody else is calling the tune and you're just trying to keep step and keep pace with them? This is market share. This is Jack Welch saying, you want to be number one or number two or you don't want to play because you wouldn't have enough company power to get the return on being in that category. You ought to get out of that category and get into some categories where you can be number one or number two. So it's about power. The third one is market power that has to do with, are you in the markets that are the fastest growing segments or the more strategic segments? Now, category and market sometimes get confused but category is defined by a group of competitors and markets are defined by a group of customers. And as long as you kind of keep that sort of simple quote in your head, you will not confuse the two of them.

So a market is about getting a group of customers and the idea here is a little bit like winning primaries for a presidential nomination. You want to win in New Hampshire primary. There are not very many delegates in New Hampshire but is a very strategic primary to win. And in markets, there are always segments that are early bellwether segments that are different for different markets, different technology, different categories, well, there's always some. And so winning those early or maybe there's a segment that's in transition where the segment like this particular part of the economy is completely being disrupted by the Internet this year so whatever they're going to buy, they're going to buy this year. So get in there and be successful if it's the kind of stuff that you sell. That's what market power is about; winning segment shares in the critical segments. Offer power is based on how compelling is your offer compared to the rest. We're talking about differentiation. How different is it, but then also how comparable is it to the -- are you living up to the norms of your category? That's sort of table stakes and then how different is it. I'm going to come back to offer power so I won't say more about it right now. And then execution power is, when you guys set yourself out to do something, when you're going to enter a new category, when you're going to do one of these transformational initiatives, can you actually get it done or do you find yourself kind of redoing it? So if you look at this thing, we often sit down with our clients and we'll say, let's just ask you a couple of questions kind of among us kids and the door is closed and there's no recording devices going. So the questions go like, are we in the high-growth categories or do we have category envy? HP right now must have Tablet envy, right? It has to, right? Everybody looks at Apple going, like that, OK. Category envy. OK. Company power. Do customers and competitors see us as the team to beat or is that somebody else? Let's just be honest with each other, where are we and think about your company or the company you may have been in before you came here or the company you're in now, the company you intend to go to. Market power. Are we winning the key primaries definitively or -- and are we winning them fast enough? I'll tell you, "Yeah, we're going in the right market," but it's like one year, two years, three years, nothing is happening. It's dying. That's not what we meant. Winning meant, you know, moving on. So do your flagship offers, you know, set the bar or are you always playing catch up and not doing it fast enough, and we'll come back to that again as I said with offer power. Can you make stuff happen and make it stick or are you continually pushing the reset button? There is nothing more discouraging than being in a large corporation which does a massive reorg once or twice a decade because the last team couldn't get it done. And it feels like you're watching this very large sort of drain, this water is just going like this. This could take you a long time but it only appears to be one way that this thing is going to go. And so it's important when you sit here and to say, the questions you want to ask are where are we strong and where do we need help. And no matter how good or how bad you are, you probably have places that you're better than others, and so what are we going to build on and where do we need to go forward? But I hope you can see that each one of those topics is different from the other four because what happened before when people would say, we're going to have a discussion about strategy, and strategy is normally about power, about achieving a position of power. What are we going to do to achieve a position of power? That's kind of what strategy means. But the problem with the dialogue around strategy was it would go up and down through these five levels of category, mixing and matching, making arguments that never ever connected. So it was always like this. And so at the end of the day, we'll, you believe what you believe and I believe what I believe and now let's argue about who get the head count. And so that's why you would default back to a performance model because in the performance model, it's like, we'll, who wins? Well, who ever got the most revenue or the most margin -- the most earnings.

So it was a way of essentially saying since I can't talk about this articulately at the level of power, I will only measure it at the level of performance. And that leads to that slow draining of the corporate battery. And by the way, there was a time when these companies all had enormous power. That's why we've heard of them. That's how they got up to the top of the mountain in the first place. Now, they're kind of going down the mountain, they're not renewing their power but that was a very tall mountain they got to the top of at one point in their lives. And so they have -- Novell at one point was the power company in networking by far. And then it just, you know, year after year after year it's still around but it's kind of toward the bottom of that mountain. OK, so that's the stuff we're talking about just to kind of make it dirt obvious. OK, so let's apply this to Apple because right now they're the golden child. So what categories are they're in? Well, music mobility and media, all of them are still growing at hyper-growth rates. That's pretty cool. By the way, even the Mac they brought back in the hyper-growth. Company power, so team to beat in all three. I guess or anybody else so you would say would be Apple is trying to catch up too in those things. I don't think so. I don't think so. Market power, we don't need no stinking markets, we got the world. I mean, right now the truth is they are so powerful and now, do they do certain kinds of things? Sure. Are they looking at the business market in some ways? Yes, they have programs but basically not. Like, man, the people are beating the path -- they're waiting outside of our stores at midnight to get an iPhone that is white. OK, enough said, enough said, OK. So the offer powers are like huge -- and by the way, it's not just the products, it's the -- it is iPod plus iTunes. It is iPhone and iPad plus apps store. I mean, it's a huge -- this is a dominantly powerful situation and they did all of these in less than a decade. So you kind of -- every other leader in tech saying, so what are you guys doing? So what are you up to, huh? No, no, not much, huh. OK, I just want to check. So that's why it is currently -- I think -- this was true earlier this year, I think it's still true. You know what's the most highly valued company in tech. It's about $320 billion. Microsoft is about 220 but there was a time not very long but maybe still, it was the second most valuable company in the world; Exxon and then Apple. So this issue of power -- and if you look at the guy you say, well, what's Steve about? One of the things Steve is about is he cares about power and he assumed performance will take care of itself. Jeff Bezos is the same way to Amazon, that's why periodically, he does stuff that just drive the shareholders crazy because he gives away performance in the short-term because he says, I want the power. He's always done that. So if you can do it, and there are examples, but the problem is they tend to be examples of companies that are run largely through a charismatic founder who is just -- has a power instinct. Bill Gates being a third to this amazing example.

OK, so just to kind of close on this thing in terms of how this category -- hierarchy of power affects the corporate dialogue, there are three things that a CEO is asked to articulate in relation to this power hierarchy. The first is a vision. And the vision is about what is happening in the world in the zone of your category that the other people outside of your company care about and want to interact with. What role is your company going to play in the unfolding of those forces? And which markets are going to be the bellwether markets that are going to indicate how well you're doing? And that's a vision. That's what you talk about a vision for your company, that's what vision does. When you go down to strategy, you kind of go down one level and you say, OK, we're in this category because categories -- strategies change by category. In this strategy, what position -- what's our power position relative to our competitors today, in what markets are we going to fight in order to change that position and what offers are the critical offers that are going to change our power position relative to our competitive set? В этой стратегии, какова наша позиция по сравнению с нашими конкурентами сегодня, на каких рынках мы собираемся бороться, чтобы изменить эту позицию, и какие предложения являются критическими предложениями, которые изменят нашу позицию по сравнению с нашими конкурентами? соревновательный набор? That's what strategy is about. And then when you do down one more and it's execution, it's, OK, guys. Now, in terms of which markets -- which offers and how fast and this is back to weekly commits, monthly reviews, quarterly deliverables, we're just going to get it done. And so all three kind of these issues; vision, strategy and execution have a vocabulary of power around them that is useful -- and every one of these things have a bunch of frameworks behind it. So what the book will share is a bunch of models about the -- well, category power, the category, the optionalized cycle, the technology, the optionalized cycle, how do things grow, I mean, I've been writing about that for a long time but every one of these has its own set of models that you can bring out and say, OK, we'll, let's look at our company through this lens and kind of see how we stack up. Итак, книга будет посвящена набору моделей о силе категории, категории, факультативном цикле, технологии, факультативном цикле, о том, как все растет, я имею в виду, я писал об этом для долгое время, но у каждой из них есть свой собственный набор моделей, которые вы можете вывести и сказать: «Хорошо, мы, давайте посмотрим на нашу компанию через эту призму и посмотрим, как мы складываемся». So the intent is to create vocabulary with this book. It's not to say, we know your business better than you know it but it's just to say, look, look at your business through these lenses; clear, blacker, sharper, which one? Это не значит, что мы знаем ваш бизнес лучше, чем вы его знаете, но просто сказать: посмотрите, посмотрите на свой бизнес через эти линзы; четче, чернее, резче, какой? Right, that kind of stuff. So these are some companies that we've been working with for the last 20 years. What they have in common is that every one of these companies we work with on an initiative for at least over a year that was sponsored directly by the CEO. So the CEO was in the middle of this initiative and we built these frameworks in conjunction with the teams led by the CEOs. And they did very well. I mean, this is sort of a little bit of a self -- pat ourselves in the back kind of things, but they did. These things actually work. So I don't want to imply that this stuff is just a theoretical stuff because those are real companies that had a lot of success with this stuff.