Geoffrey Moore: Reach Your Escape Velocity No.3
OK, so the close for this thing at the top level, if you were the board of the directors and you're saying, OK, OK, Geoff, we got this disease, OK, great, great, great. What do you do? How do we start? You can start at any point in this hierarchy. You can start with the category power level which tends to be we need to look at portfolio. We tend to have way too much money in aging categories with the Boston Consulting Group calls, cash cows and we don't have enough rising stars. So that could be the problem. Or we can say, no, it's a company power problem and the problem is we can never -- first of all, we can kill nothing and second of all, we can never really make any big bets. Every big bet we hedge and after a while we're like the person at the roulette table who put the chip on every single square. So we win every time. Except, we just lose money. So on the market focus, we can actually go after markets in a directive way. It turns out it's extremely hard for large corporations to go after niche markets. But it's critical. It's critical because otherwise, you'll end up coming in second or third in every primary in the entire election and you don't get nominated, right? You must win definitively in places particularly in the right year, in the right place. And then offer power which I will come back to that one, that's a little more we can create highly differentiated offers. I'm going to say something a lot more about that in a minute. And then organization.
So how do we actually drive transformation initiatives through the antibodies or whatever to actually get them done. There are ways to organize inside a large company to create -- carve out an entrepreneurial space not just to incubate innovation because all of them do that but to actually go from an incubated innovation to a material business. That's when they all get killed and so there's a whole thing around execution power and organization for dealing with that. And what I'm going to talk about in the second half of this talk is offer power and how it affects innovation. But before I do, since I've been blasting pretty hard for the last 25 minutes, questions or push back or like if you're crap detector went off, it'll be good to sort of -- I mean, that was a pretty fast explosion but just anything about that model that either calls you to ask -- yes, yeah. Sir, there are like certain empirical metrics for figuring out which sectors of your company are not sort of high-growth...? So the question is are there empirical metrics for which sections of your company are high-growth -- not high-growth efforts? Yes. The first one is simply to look at the average growth rate of everybody in that sector. And basically, it's pretty straight forward. You look at what -- what does it take to motivate growth investor? It's typically 15 to 20% growth or higher. Maybe 15 to 30 might be a better range. And so if it's 15 to 30 or higher, it's definitely -- that's a growth. If it's single digit, it's almost always low growth and 10 to 15 is sort of a little bit of the muddy area. But what most companies often do is they'll have a portfolio where they'll have fourth businesses that grow 4% and one business that grows at 8%. And they'll call the 8% business a high growth business. It's like, no it's not, it's a taller midget. So don't -- come on, there's no basketball player in the room. So that's how you do it. Yes? How about empirical evidence showing that people that apply these principles are more successful than ones that don't. Because Apple is -- you could apply 1,000 frameworks, a...? If you have an App Store you too will be great. What's the statistical significance is this principle ahead and if so out of the five types of points of entry which is the most powerful type compared to other things? So what are the things... definitely needs to do about it? OK, so you're talking to an English major not a Quad so this is anecdotal, more qualitative more than quantitative. It's kind of why I put up those 20 companies that I had on that other slide because at least those are 20 stories, not one story, but still it's still qualitative. In terms of which is more powerful, in general, category tramps company, company tramps market, market tramps offer, offer tramps execution. Largely, that's the way it goes. This one is offer power, however, it can -- it's probably the lever that you can use if you're behind to move up as you're going to see in the next section. But you can generally use -- if you say, look, there's such -- you remember that first slide with all the companies? That's kind of the negative proof. That's the proof that there's a common deterioration in the technology sector that appears to take two decades. And the number of companies that were successful two decades ago, I mean, aren't around anymore. So it should take at least 2 1/2 -- in 1985 the leading enterprise software company was called Cullinet. Cullinane, Cullinet, no, John Cullinane, Cullinet. Who knew, right? And number one, right? Novell was number one in local area networking. I mean, these are not chump change folks. Kodak was number one in imaging in the whole world. Not so much. So that's the best I can do. I mean, and I would love for people who are more quantitative to say, why, I'd like to apply a little more research discipline to this because Geoffrey is Irish and the Irish are kind of famous for waving their arms and he participates deeply in that genome. Other -- yes? You mentioned Jeff Bezos as an example of someone who's power driven, right? That company is also so much spread thin, they are in Web services, they're selling books, they're in the social media business and so on and so forth. How can you reconcile focus with spreading around...? Well, I think the problem with putting yourself too thin is you have the opportunity to gain power but you're dissipating because you don't focus enough. You don't actually accumulate it, you actually end up dissipating it because you trash. You go from thing to thing to thing to thing to thing. And I mean, right now I will argue this, Cisco is struggling without that right now. They have a management system, they have a -- John laid out an incredibly ambitious agenda for the decade. I think there was nothing that agenda that was stupid. I think the company has felt, man, there was just too much on our plate. And so lots of growth categories. The one thing you would not criticize Cisco for is you're in low-growth category. That is not their challenge. Their challenge is can we get our arms around the categories that are most important? So you're watching them right now sort of try to pull back and achieve more focus. So I think at some point you do go too far. And you can't -- it's a -- by the way, that's a performance culture too. I mean, they have a very strong -- and it is not that you have power or performance, it's -- this is the and and not the or. This is performance and power.
One more then I'm going to kind of go forward -- yeah, OK, right in the middle. Yeah. So in the beginning you have performance culture and said it was a good thing, right, but it went too far. Is there kind of the same thing for power if you go too far of the power spectrum? Is there a danger that -- I think there could be. Yeah, yeah, I think you can get to the point where you are -- you actually lose your operating income to kind of keep yourself going. And so because in the short-term, you often -- you can make sacrifices in performance in order to invest in power. And if you over-invest in power and all of a sudden people stop believing in that, you can't get funding.. You can't get your next round of funding. In general, by the way, venture investing is about power and public exchange investing is about performance if you think about it. Because in a venture-backed company, there's not enough revenue to really say the performance is the game changer. It's power is the game changer in venture. And that's why I think this was an easier both for me to write maybe than somebody else because every Monday, every dialogue we have is essentially about power. And it's usually category power first and then actually offer power becomes a very, very important to a venture company. OK, I'm going to move on to this notion of now I want you to take off your CEO hat, I hope you kind of enjoyed that moment of leadership and the board of directors and whatever, and liability, I might add. Some of you might look good in an orange jumpsuit, you'll never know. But now I want you to go back and say, you know what, I left this auditorium and next Monday I took on an assignment and by and large, a high tech company and I'm a product manger or product line manager. I am now -- what is amazing about tech by the way, is that product managers -- the unit of wealth creation in tech all of my life has been the product. Now increasing the service as a sort of invisible product. The product and product management is largely conducted by people in the first 10 years of employment. So all of a sudden, relatively early in a career, unlike most professions, most other industries, you actually have your hand on the tiller that changes that fate of your company. So it's an amazing privilege to work in a high tech company because the amount of power you get short -- particularly if you can get into this role of product marketing and product management. So that's the role you have now. That's the role I'm going to give you for the rest of this conversation. And your job now is you have a really cool product but you're living in a company that makes its living through a very old and boring set of products. But they make money. So this is your challenge, OK?
So to understand the lever you have, you have some resources and the question is where are you going to spend them and what are you going to get for them. So think about having an innovation budget. Not much but some. Well, you could spend it on differentiation and that means I'm going to spend it on some kind of innovation R&D and I'm going to create something unlike anybody -- anything that anybody else has and that's going to cost the customer to go, wow, I want this offer. I don't want those other offers. We'll talk about that a bit more in a second. The second way you could spend your budget is hold on, everybody else in our category now has this new feature and we don't. And people by the way, are noticing it. So if we don't do some back filling of this feature set, we're going to -- and no matter how different we are over here, they're going to go, yeah, yes, it's an amazing car, they have no wheels on it though. You know what I mean? You kind of need wheels, don't you? So that will be that part. Now you've got you're budget is getting pulled in two different directions and you've got a third idea which is, you know, if I could figure out a way to do some productivity things, maybe I can get some more money to spend on red and blue. And so basically, those are the three things you can -- the three levers -- the kinds of initiatives that you can go. I'm going to -- charter differentiation thread, neutralization thread or a productivity thread. And I'm going to kind of walk you through -- there's a lesson at that end of this which is an amazingly -- it seems like it's such an obvious lesson. It is almost universally not followed -- the principle you're going to follow. Which just to give you a head's up on it is these three things are not mutually compatible with each other. And whenever you charter a single team in a single project stream to do two or more, you're screwing up. And I would say that 99% of all the project streams I see are combinations of those three things which is a fairly high ratio for screwing up. But let me kind of walk you through, that's the place where this is going to end. So differentiate, why do you do that? To separate from your competitive set. Pretty obvious and pretty exciting and by the way, every engineer in the world wakes up thinking that's what I do for a living. I'm the smartest person on the planet and I will be able to demonstrate it. Neutralize, catch up with the competition, nobody likes to do this. Nobody likes to do this. But they get -- but it's part of being an adult. So you say, OK, I'm an adult, I guess I have to make my bed, I have to do a few things, OK. And then optimize, again, even worse for engineers, like what? But the point is there's a big return on this if I can increase -- for you as the product manager, product line manager, if you can get this done because there is a bunch of places where you have resources reporting to you doing stupid stuff. Too much stupid stuff and if you could actually get that initiative going, you could free up more budget to do the top two.
