Universal Entrepreneurial Disciplines

The entrepreneurial disciplines are not just desirable; they are conditions for survival today.

Every institution-and not only businesses-must build into is day-to-day management four entrepreneurial activities that run in parallel.  One is organized abandonment of products, services, process, markets, distribution channels, and so on that are no longer an optimal allocation of resources.  

Then any institution must organize for systematic, continuing improvement.  Then it has to organize for systematic and continuous exploitation, especially of its success. And finally, it has to organize systematic innovation, that is, create the different tomorrow that makes obsolete and, to a large extent, replaces even the most successful products of today in an organization.  I emphasize that these disciplines are not just desirable; they are conditions for survival today.

ACTION POINT:  Abandon what is about to be obsolete, develop a system to exploit your successes, and develop a systematic approach to innovation.

Converting Strategic Plans to Action

The best plan is only good intentions unless it degenerates into work.

The distinction that marks a plan capable of producing results is the commitment of key people to work on specific tasks.  Unless such commitment is made, there are only promises and hopes, but no plan.  A plan needs to be tested by asking managers, “Which of your best people have you put on this work today?”  The manager who comes back (as most of them do) and says, “But I can’t spare my best people now.  They have to finish what they are doing now before I can put them to work on tomorrow,” is simply admitting that he does not have a plan.

Work implies accountability, a deadline, and finally, the measurement of results, that is, feedback from results on the work.  What we measure and how we measure determine what will be considered relevant, and determine, thereby, not just what we see, but what we-and others-do.

ACTION POINT: Establish specific numerical criteria to measure results.  Set deadlines for yourself and your organization to achieve these results.

Piloting Change

Neither studies nor market research nor computer modeling is a substitute for the test of reality.

Everything improved or new needs first to be tested on a small scale; that is, it needs to be piloted.  The way to do this is to find somebody within the enterprise who really wants the new.  Everything new gets into trouble.  And then it needs a champion.  It needs somebody who says, “I am going to make this succeed,” and who then goes to work on it.  And this person needs to be somebody whom the organization respects.  This need not even be somebody within the organization.

Often a good way to pilot a new product or new service is to find a customer who really wants the new, and who is willing to work with the producer on making truly successful the new product or the new service.  If the pilot test is successful-it finds the problems nobody anticipated, whether in terms of design, of market, of service-the risk of change is usually quite small.

ACTION POINT: Make sure the best ideas in your organizations have fierce advocates to see them through a test in the marketplace.

Being Strategic

being "strategic" largely means being less myopic than your undeliberative self.

Being strategic is being less myopic--less shortsighted--than others.  You must perceive and take into account what others do not, be they colleagues or rivals.  Being less myopic is not the same as pretending you can see the future.  You must work with the facts on the ground, not the vague outlines of the distant future.  

Whether it is insight into industry trends, anticipating the actions and reactions of competitors, insight into your own competencies and resources, or stretching your own thinking to cover more of the bases and resist your own biases, being "strategic" largely means being less myopic than your undeliberative self.

ACTION POINT: Work with the facts on the ground to perceive and take into account what others do not.

Myopia

 there is a more fundamental challenge common to all contexts.

Making a list is a basic tool for overcoming our own cognitive limitations.  The list itself counters forgetfulness.  The act of making a list forces us to reflect on the relative urgency and importance of issues.  And making a list of "things to do, now", rather than "things to worry about" forces us to resolve concerns into actions.

Today, we are offered a bewildering variety of tools and concepts to aid in analysis and the construction of strategies.  Each of these tools envisions the challenge slightly differently.  For some it is recognizing advantage; for others it is understanding industry structure.  For some it is identifying important trends; for others it is erecting barriers to imitation.  Yet, there is a more fundamental challenge common to all contexts.  That is the challenge of working around one's own cognitive limitations and biases--one's own myopia.  Our own myopia is the obstacle common to all strategic situations.

ACTION POINT: Be ever aware of your own myopia.

Make a List

...think through the intersection between what was important and what was actionable.  

Making a list is baby-steps management.  Pick up any book on self help, on organizing yourself, or on the nuts and bolts of running an office or organization, and it will proffer this advice: "make a list."  Carnegie's benefit was not from the list itself.  It came from actually constructing the list.  The idea that people have goals and automatically chase after them like some kind of homing missile is plain wrong.  The human mind s finite, its cognitive resources limited.  Attention, like a flashlight beam, illuminates one subject only to darken another.  Given Fredrick Taylor's assignment, some people might have listed the bills they had to pay or the people they needed to see.  One can only guess at Carnegie's list.

Taken seriously, Taylor's injunction was not simply to make a list of important issues.  It was not simply to make a list of things to do.  And it wasn't to make a list of what might be important.  Taylor's assignment was to think through the intersection between what was important and what was actionable.  Carnegie paid because Taylor's list-making exercise forced him to reflect upon his more fundamental purposes and, in turn, to devise ways of advancing them.

ACTION POINT: Reflect upon the important and actionable issues that will advance your business. 

Andrew Carnegie meets Fredrick Taylor

 "if you can tell me something about management that is worth hearing, I will send you a check for ten thousand dollars."

It was 1890, and there was a cocktail party in Pittsburgh.  All of the movers and shakers were there including Andrew Carnegie.  He held court in a corner of the room smoking a cigar.  He was introduced to Fredrick Taylor, the man who was becoming famous as an expert on organizing work.

"Young man," said Carnegie,  "if you can tell me something about management that is worth hearing, I will send you a check for ten thousand dollars."  Now, ten thousand dollars was a great deal of money in 1890.  Conversation stopped as people nearby turned to hear what Taylor would say.

"Mr. Carnegie," Taylor said, "I would advise you to make a list of the ten most important things you can do.  And then, start doing number one."  And, the story goes a week later Taylor received a check for ten thousand dollars.  

ACTION POINT:  Make a list of the the 10 most important things you can do and start with number one.

The Process of Learning

After hundreds of iterations, the original hypothesis has long since vanished, replaced by a myriad of new hypotheses, each covering some aspect of the growing, evolving business.

In 1987, Schultz bought out the Starbucks' retail operations and adopted the Starbucks name.  The new firm combined the old Starbucks business of selling dark-roasted arabica coffee beans with the new one of operating espresso bars. 

By 2001, Starbucks had become an American icon, with 4,700 worldwide outlets and $2.6 billion in revenue.   The bulk of its revenues came from selling coffee drinks--the company called them handcrafted beverages.  The rest came from the sale of coffee beans, some other food items in its coffee bars, and licensing agreements with food-service firms.  Only a few years before "coffee" had been seventy-five cents and came in a plastic foam cup.  Now the urban landscape is peppered with Starbucks outlets, and the sight of young professionals sipping pin-sized three-dollar takeout lattes has become commonplace.

Howard Schultz envisioned an Italian espresso bar in Seattle.  he tested this hypothesis and found it wanting.  But the test produced additional information, so he modified his hypothesis and retested.  After hundreds of iterations, the original hypothesis has long since vanished, replaced by a myriad of new hypotheses, each covering some aspect of the growing, evolving business.

ACTION POINT: This process of learning--hypothesis, data, anomaly, new hypothesis, data, and so on--is called scientific induction and is a critical element of every successful business.

Privileged Information

As knowledge accumulated, he altered policies. 

One of the most important resources a business can have is valuable privileged information--that is, knowing something that others do not.  There is nothing arcane or illicit about such information--it is generated every day in every operating business.  All alert businesspeople can know more about their own customers, their own products, and their own production technology than anyone else in the world.  Thus, once Schultz initiated business operations, he began to accumulate privileged information.

As knowledge accumulated, he altered policies.  He took the Italian off the menu, then eliminated the operate music.  He knew the baristas were central, but he did away with their vests and bow ties.  He departed from the Milanese model and put in chairs for the sit-down trade.  Over more time, Schultz discovered that Americans wanted takeout coffee so he introduced paper cups.  Americans wanted nonfat milk in the lattes, so, after a great deal of soul searching, he allowed nonfat milk.  In the technical jargon of international business he gradually "localized" the Italian espresso bar to American tastes.

ACTION POINT: As you accumulate knowledge about your customers tastes, alter your policy where needed to localize the customers experience. 

Living Experiement

Schultz and his team were alert to customer response.

Schultz's proprietary information was only a glimmer in his mind, a mood, a feeling.  Others, exposed to exactly the same information and experiences, did not have this insight or feeling.  The privacy of his insight was both blessing and curse.  Were it easily shared with other, Schultz himself would have been irrelevant.  But because it could not be fully shared, it was difficult to convince others to back the project. 

Schultz left Starbucks to start his own shop (Il Giornale).  The new shop was a direct copy of an Italian espresso bar.  In it, he "didn't want anything to dilute the integrity of the espresso ad the Italian coffee experience."  Italian decor, shots served in small porcelain cups and Opera music in the background were all part of the shop.  

Had Schultz stuck to this initial concept, Il Giornale would have remained a single small espresso bar.  But, like a good scientist who carefully studies the results of experiments, Schultz and his team were alert to customer response.  Il Giornale, once started, became a living experiment.

ACTION POINT:  Take chances and test your hunches, then study the results.

Searching for Change

A change is something people do; a fad is something people talk about.

Entrepreneurs see change as the norm and as healthy.  Usually they do not bring about the change themselves. But-and this defines the entrepreneur and entrepreneurship-the entrepreneur always searches for change, responds to it, and exploits it as an opportunity.

Look at every change, look out every window. And ask: “Could this be an opportunity?”  “Is this new thing a genuine change or simply a fad?”  The difference is very simple: A change is something people do, and a fad is something people talk about.  An enormous amount of talk is fad. You must also ask yourself if these transitions, these changes, are an opportunity or a threat.  If you start out by looking at change as threat, you will never innovate.  Don’t dismiss something because this is not what you had planned.  The unexpected is often the best source of innovation.

ACTION POINT: Take a half an hour to discuss with a colleague the changes sweeping your industry and identify the biggest genuine changes.  Ignore the fads; figure out how to capitalize on the genuine changes.

Testing the Hypothesis

To expect to make money from a new business, the entrepreneur should know something that others do not, or have control of a scarce and valuable resource. 

A deep problem Shcultz faced was that his vision required a radical change in consumer tastes and habits.  What he observed in Milan was not just a different business model but the result of several hundred years of divergent social history.  In the United States, coffee had emerged as a bland tea substitute to be drunk both at meals and at breaks throughout the day.

In southern Europe, coffee was an alcohol substitute, taken in small strong doses at lively "bars."  Whether he knew it or not, Schultz wanted to do more than just open a coffee shop; he wanted to change American tastes and habits.

Schultz's second problem was that there seemed nothing new about coffee, espresso, coffee bars, or espresso shops.  Millions of other Americans had traveled to Italy and experienced Italian espresso bars.  Knowledge about these businesses was hardly privileged.  To expect to make money from a new business, the entrepreneur should know something that others do not, or have control of a scarce and valuable resource. 

ACTION POINT: What do you know about your industry or business that others do not?

Anomalies II

the Italian expresso experience could be re-created in American and the public would embrace it.

For Schultz, the experience in Milan was an anomaly.  In Seattle, the market of dark-roasted arabica beans was a niche, populated by a small but growing group of especially discerning buyers.  But the vast majority f people in Seattle, and in America--even the feel-to-do-drank cheap, bland coffee.

In Milan, expensive high-quality coffee was not a niche product but the mass-market product.  and there was a further anomaly: in the United States, fast food meant cheap food and plastic surroundings. In Milan he saw "fast coffee" that was expensive and served in a lively social atmosphere, so different form that of an American Main Street diner or coffee shop.

Schultz formed a strategic hypothesis--the Italian expresso experience could be re-created in American and the public would embrace it.

ACTION POINT: Are there anomalies in your business or markets that can lead to opportunities?

Anomalies

Each one had is own unique character, but here was one common thread: the camaraderie between the customers, who knew each other well, and the barista, who was performing with flair."

An anomaly is a fact that doesn't fit received wisdom.  To a certain kid of mind, an anomaly is an annoying blemish on the perfect skin of explanation.  But to others, an anomaly marks an opportunity to learn something, perhaps something very valuable.

In 1983, Howard Schultz noticed an anomaly and from that insight a fascinating new business was eventually born.  At that time, Schultz was the marketing and retails operations manager for a tiny chain of Seattle stores selling dark-roasted coffee beans.  On a visit to Italy, Schultz discovered the Italian expresso experience.  He recalled his first vista to an expression bar in Milan:

"A tall thin man greeted me cheerfully, "Buon giorno!" as he pressed down on a metal bar and a huge hiss of steam escaped.  He handed a tiny porcelain demitasse of espresso to one of  the three people who were standing elbow to elbow at the counter.   Next came a handcrafted cappuccino, topped with a head of perfect white foam.  The barista moved so gracefully that it looked as though he were grinding coffee beans, pulling shots of expresso, and steaming milk all at the same time, all while conversing merrily with his customers.  It was great theater...

It was on that day I discovered the ritual and romance of coffee bars in Italy.  I saw how popular they were, and how vibrant.  Each one had is own unique character, but here was one common thread: the camaraderie between the customers, who knew each other well, and the barista, who was performing with flair."

ACTION POINT:  Learn from anomalies and look for the opportunities in them. 

Organize for Constant Change

Today’s certainties always become tomorrow’s absurdities.

One thing is certain for developed countries-and probably for the entire world-we face long years of profound changes.  An organization must be organized for constant change.  It will no longer be possible to consider entrepreneurial innovation as lying outside of management or even as peripheral to management.  Entrepreneurial innovation will have to become the very heart and core of management.  The organization’s function is entrepreneurial, to put knowledge to work-on tools, products, and processes; on the design of work; on knowledge itself.

Deliberate emphasis on innovation may be needed most where technological changes are least spectacular.  Everyone in a pharmaceutical company knows that the company’s survival depends on its ability to replace three quarters of its products by entirely new ones every ten years.  But how many people in an insurance company realize that the company’s growth-perhaps even its survival-depends on the development of new forms of insurance?  The less spectacular or prominent technological change is in a business, the greater the danger that the whole organization will ossify, and the more important, therefore, is the emphasis on innovation.

ACTION POINT: Are you and your organization in danger of ossification? Decide how you and your organization can systematically innovate, and build this into your management process.

Enlightenment and Science

...in a world of change and flux, "more of the same" is rarely the right answer. 

If new insights or ideas are not needed, deduction is sufficient.  There can be times when results are fine, when no new opportunities seem to have developed and no new risks have appeared.  Then, the logical answer to the strategy question is simply "Keep it up, do more of the same."

But in a world of change and flux, "more of the same" is rarely the right answer.  In a changing world, a good strategy must have an entrepreneurial component.  That is, it must embody some ideas or insights into new combinations of resources for dealing with new risks and opportunities. 

ACTION POINT: To generate a strategy, one must put aside the comfort and security of pure deduction and launch into the murkier waters of induction, analogy, judgment, and insight. 

Strategy is a Hypothesis II

Similarly, we test a new strategic insight against well-established knowledge about the business.

In science, you first test a new conjecture against known laws and experience.  Is the new hypothesis contradicted by basic principles or by the results of past experiments?  If the hypothesis survives that test, the scientist has to devise a real-world test -- an experiment-- to see how well the hypothesis stands up.

Similarly, we test a new strategic insight against well-established knowledge about the business.  if it passes those hurdles, we are faced with trying it out and seeing what happens.  Given that we are working on the edge, asking for a strategy that is guaranteed to work is like asking a scientist for a hypothesis that is guaranteed to be true--it is a dumb request.  The problem of coming up with a good strategy has the same logical structure as the problem of coming up with a good scientific hypothesis.  The key differences are that most scientific knowledge is broadly shared, whereas you are working with accumulated wisdom about your business and your industry that is unlike anyone else's. 

ACTION POINT: A good strategy is, in the end, a hypothesis about what will work.  Not a wild theory, but an educated judgment.

The Science of Strategy

A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment.

Good strategy is built on functional knowledge about what works, what doesn't, and why.  Generally available functional knowledge is essential, but because it is available to all, it can rarely be decisive.  The most precious functional knowledge is proprietary, available only to your organization.

An organization creates pools of proprietary functional knowledge by actively exploring its chosen arena in a process called scientific empiricism.  Good strategy rests on a hard-won base of such knowledge, and any new strategy presents the opportunity to generate it.  A new strategy is, in the language of science, a hypothesis, and its implementation is an experiment.   As results appear, good leaders learn more about what does and doesn't work and adjust their strategies accordingly.

ACTION POINT: Look for the pools of knowledge within your organization to identify what does and does not work, then adjust.

Thinking Like a Strategist

There are a number of ways of thinking about thinking that can help you create better strategies. 

In creating strategy, it is often important to take on the viewpoints of others, seeing how the situation looks to a rival or to a customer.  Advice to do this is both often given and taken.  Yet this advise skips over what is possibly the most useful shift in viewpoint: Thinking about your own thinking.

Our intentions do not fully control our thoughts.  We become acutely aware of this when we are unable to suppress undesired  ruminations about risk, disease, and death.  A great deal of human thought is not intentional--it just happens.  One consequence is that leaders often generate ideas and strategies without paying attention to their internal process of creation and testing.   There are a number of ways of thinking about thinking that can help you create better strategies.    Inductive leaps are part of both the scientific hypothesis and strategy.   Subjecting your ideas to deeper criticism can help expand your thinking and sharpening your sensitivity can help you see beyond the excitements of crowd thinking to better form independent judgments about important issues.

ACTION POINT: Consider your own process for thinking and look for ways to sharpen and expand it.

Turbulence: Threat or Opportunity?

When it rains manna from heaven, some people put up an umbrella.  Others reach for a big spoon.

The manager will have to look at her task and ask, “What must I do to be prepared for danger, for opportunities, and above all for change?”  First, this is a time to make sure that your organization is lean and can move fast.  So this is a time when one systematically abandons and sloughs off unjustifiable products and activities-and sees to it that the really important tasks are adequately supported.  

Second, she will have to work on the most expensive of resources-time-particularly in areas where it is people’s only resource, as it is for highly paid, important groups such as research workers, technical service staffs, and all managers.  And one must set goals for productivity improvement.  

Third, managers must learn to manage growth and to distinguish among kinds of growth.  If productivity of your combined resources goes up with growth, it is healthy growth.  Fourth, the development of people will be far more crucial in the years ahead.

ACTION POINT: Get rid of unjustifiable products and activities, set goals to improve productivity, mange growth, and develop your people.