One of the most thoughtful voices on transformative challenges and disruptive change is Geoffrey Moore. His books are must-reading in business schools, but are applicable to anyone seeking significant growth or change. I’ve spoken on the topic of personal and industry change at various conferences. After one of my speeches, someone connected me to Geoff. I enjoyed meeting him since all of his books are in my private library at home: Crossing the Chasm, Inside the Tornado, The Gorilla Game, Living on the Fault Line, and Dealing with Darwin.
I recently had the opportunity to talk to him about his new book, Escape Velocity: Free Your Company’s Future from the Pull of the Past and his view on reinvention, product cycles, and professional and personal success.
Tell us more about Escape Velocity. In working with senior executives for over 20 years, what themes have you seen that influenced this book?
The story of Escape Velocity is captured in its subtitle: Free Your Company’s Future from the Pull of the Past. The big challenge for established enterprises is growth, and the great frustration is that, despite numerous opportunities and massive resources, the goal of breakout growth continually eludes them. This is not good for their shareholders, their employees, their customers, or their communities, so doing something about this is a high priority. That is what the book is about.
The focus of the book is on power, specifically the kind of power that can fuel breakout growth. We follow a model called the Hierarchy of Powers, which calls out five different types in descending order of priority: Category Power (where growth comes from participating in widespread adoption of a whole new type of offer), Company Power (growth from market partners steering extra business your way), Market Power (growth from being in the hot segments at the right time), Offer Power (growth from having a superior offer), and Execution Power (growth from taking strategic initiatives beyond the tipping point). The book guides management teams through the process of pulling together a subset of these types of power to address the opportunities and challenges of the coming year.
Talk about a hidden force–you call it the pull of the past–that can be a real challenge during secular market change. Why and how do we allow the past to have such an impact?
In large enterprises typically the annual planning process begins with the CFO circulating last year’s plan, circling the numbers in Q4, with the suggestion that managers multiply these by 4 to get a revenue target for next year, and then put together a plan to reach that number. By so doing management teams confer an entitlement upon existing lines of business to get “first dibs” at all the scarce resources. By the time the new business opportunities get to the table, the pickings are slim, and the critical resources for developing new markets are gone entirely. This makes the enterprise captive to its past, and is at the core of established enterprises’ recurrent failures to achieve breakout growth, even when next-generation categories are booming all around them.
Today it seems that there are much shorter product life cycles. What changes do you suggest to take advantage or cope with extremely short product life cycles?
Short product life cycles are due to one of two things: hyper-growth markets that are driven by dramatically reducing price/performance (have to get on the new next lowest cost platform) or mature markets driven by the next cosmetic (and thus easily copied) addition. They are not normal for B2B vertical markets where the problems are complex and the solutions take lots of focus and effort. So, if you are in a situation where they are normal, then plan your release cadence accordingly, and don’t get too ambitious for any one release. And if you are in one where they are not normal, then bear down harder on you differentiation to create sustainable barrier to entry against your direct competitors.
What pricing strategies should companies take with very short life-cycles and what mechanisms are there to keep competition a bay?
Pricing is an element of Offer Power that should be adapted to your other power ambitions. If you are in a hyper-growth category, for example, and can capture more market share through lower pricing, that should be your number one priority (as this growth is temporary and will never be repeated). In niche “crossing the chasm” market segments, value pricing is just fine, because the customer is getting so much value they are happy to pay a premium. In commodity markets, pricing raises the most challenges, as free markets squeeze the margins until they are subsistence-grade. Here you have to live off a value-retaining portion of the offer and base your revenue plans as much as you can on this; else you have to play the economies of scale game which has only one winner, and not such a good winner at that.
What process or strategies do you suggest for companies to “reinvent themselves” when technology threatens their traditional offerings? Many companies are finding that technology is making their traditional products/services either obsolete or forcing price cutting—what should they do?
Classically there are three “pivot points” around which enterprises can consider transforming themselves when facing direct disruption: Technology, Customer, or Management. That is, they can embrace the new technology itself—a real challenge for any incumbent, as the folks at Kodak will tell you. Or they can pivot on their customer base, maintaining their business or brand relationships with them, and transition them to the new technology base via customer loyalty—the way car companies are trying to access the hybrid and electric vehicle markets. Or they can pivot on their management expertise and divest themselves of one category and get into a wholly different one—the way GE is famous for doing. What you cannot do is stand pat. Unfortunately, that is just what the pull of the past causes you to do—hence the “creative destruction” of so many iconic companies, particularly in tech.
Since technology is moving faster than the patent office, what are ways that companies can protect their advantages in intellectual property in new products?
Even with a full portfolio, companies cannot protect their IP for very long—witness Steve Jobs’ frustration with Google Android (and earlier with Microsoft Windows). Brand loyalty can substantially retard customer defections, on the other hand, as can whole product ecosystems (like iTunes and the App Store). The more partners who are invested in your product as a platform for theirs, the stronger the hand you have to play. Otherwise, you have to be fleet of foot and stay a step ahead of the competition.
What are your thoughts on market segmentation in light of rapid product life cycles and technology acceleration? What are the best ways for companies to go about finding the market segments that count for them?
In B2B markets, where customized solutions to complex problems are the focus, segmenting by industry and application still creates powerful barriers to competitor entry and customer exit, and there is no need to change one’s approach. But in B2C markets, especially on the web, traditional segmentation is no longer useful. In this world, real-time analytics that can detect even minor fluctuations in propensity to engage are the current path to high-value focus. Consumer packaged goods brands are just picking up on this. As they do the advantages of retailers will decrease and brands increase—but I expect that will take the rest of the decade to come to pass.
You discuss various powers, you call them the Hierarchy of Powers. Give us an example that brings one of these to life.
Forgive me for using Apple, but it is an obvious one and familiar to all. Category Power: Three huge category inflations, specifically around digital music, smart “phones” (who makes phone calls anymore?), and digital media consumption via a tablet, have driven Apple sales through the roof. Company Power: The company used iTunes and the App Store to create ecosystem pull that has created an enormous tilt toward its offerings, something that Android is struggling to catch up to. Market Power: None really used. Offer Power: “Insanely great” products, sold through insanely great retail outlets—a decade-long performance so amazing I doubt it will ever be matched. Execution Power: Staying the course through to and beyond the tipping point—a real challenge with the iPod in particular. The net: Enormous accumulation of power, most directly reflected in the enormous P/E ratio of the company’s stock.
You’ve studied corporate success for years. How about individuals? Are there specific characteristics in individuals or management teams that you have observed that can tell you whether they will make it across the chasm, or through a successful transition?
There are so many different types of leaders and styles of company culture that have been successful, and in parallel, so many that have failed, that no one approach is right to endorse. What I do endorse, on the other hand, is an ongoing commitment to increase reserves of power even while delivering on current performance commitments. That said, when push comes to shove, it is more important to ensure power than to never miss a performance commitment—failing at the latter can be forgiven if you come back strong, failing at the former means you can never come back strong. So, having a deep and abiding focus on power—largely something that is given to you voluntarily by customers and partners when you serve them well—is the critical ingredient in my view.