Editorial on the transitory nature of assets due to changing consumer needs and evolving technology.
Nobody likes to be surprised. How often have you heard an entrepreneur say it about a banker, a manager about a CEO, an employee about his or her boss? In business, everyone dreads the unexpected -- everyone, that is, except those novices who apparently don't know any better. We've all heard stories about them. There's the one about the fellow who thought he was launching a boating-equipment mail-order business, only to discover that what his customers really wanted -- surprise! -- were the moccasins, rain gear, and other apparel he'd included as an afterthought in the back of his first catalog. Today the company is built around that afterthought, recording sales of more than $650 million last year. It operates under the name of Lands' End.
Less well-known but equally serendipitous is the case of Maureen Barten, reported by Robert Mamis in this month's cover story. (See "The Secrets of Bootstrapping," September, [Article link].) Barten could have sworn she was in the business of producing handcrafted greeting cards. Her customers couldn't have disagreed more. What they wanted -- surprise! -- weren't the cards themselves but rather all those wonderful little doodads she pasted on them. "Barten saw the handwriting on the wall," writes Mamis. "She became a full-time -- and high-growth -- confetti maker."
Or consider Jon Jordan, who set up Southern Audio Services to sell home loudspeakers, racking up a grand total of $11,000 in sales during his first year. A local retailer asked him why he was wasting his time competing in a crowded market with a me-too product instead of doing something unique. "Like what?" Jordan asked. "Like making" -- surprise! -- "speakers for pickup trucks," came the reply. Within a few weeks Jordan had a prototype for his new line of pickup-truck speakers. "Man, that thing looks like a bazooka," he observed. Eight years later "that thing" accounts for all $6 million of Southern Audio's sales, which have doubled every year since the bazooka released its first audio blast.
There is, of course, a lesson in this for the rest of us, or at least for those of us who work in established companies. Perhaps the best way to get at it is to engage in a bit of business fiction. Imagine for a moment that Jon Jordan had never talked to the retailer and instead persevered in his original plan to build yet another home-loudspeaker business. For the sake of argument, let's suppose he managed to survive despite fierce competition from the likes of Bose and Boston Acoustics. Then one day a member of his sales force comes in and says he's been talking to a local retailer who thinks Southern Audio is crazy to be competing in a crowded market with a me-too product rather than doing something unique. "Like what?" Jordan asks. "Like making speakers for pickup trucks," says the salesman.
I needn't go any further. We all have a pretty good idea about how this story would end. At best, Jordan rolls his eyes and asks the salesman what else he did today. If things are really tough, Jordan may lose his temper and start railing about the lamebrain excuses he keeps getting from people who can't sell their way out of a wet paper bag. What Southern Audio doesn't do is abandon the dog-eat-dog home-loudspeaker business and move into the high-growth, high-margin speakers-for-pickup-trucks business.
The scenario is a familiar one. The world presents us with surprises, at an ever-increasing rate, and we choose to ignore them, to view them as excuses for jobs done poorly by employees or problems to be solved with customers, suppliers, and distributors.
So why was the real Jon Jordan able to respond so differently, and so positively, to the retailer's surprise? I don't buy the genetic argument, the notion that some people are simply born with the right instincts. Anyone who has built an established company has been as opportunistic and as smart as the real Jon Jordan at some point in his or her life. That's how established companies are created.
Perhaps, then, it is a matter of circumstances. After all, when Jordan started out, he was 20 years old and had little to lose. The name of the game was survival. Now he has assets that must be protected. He would probably not be very receptive to anyone who suggested he stop what he's doing and get into a whole different line of business.
Yet, for many companies, that might be exactly the right move. If there is any lesson to be drawn from the past two decades of American business, it is that assets are transitory. The assets you created yesterday are already declining in value -- because of changing customer needs, evolving technology, and increased competition. The question isn't whether your products or services will become obsolete. The question isn't even when. You can absolutely count on the fact that they will become obsolete, soon. The only real question is whether they will be replaced by someone else's products or your own.
But it is not only the illusion of assets that keeps established companies from responding to surprises the way start-ups do. An even bigger problem may be the manner in which the news is delivered. Let's face it. You react one way when you hear, direct from a customer, a request for something you don't currently produce or offer, and quite another when the request is reported back to you by one of your salespeople. Maybe you wonder whether the salesperson has an ulterior motive. Maybe you yourself have lost touch with the market and can no longer trust your own instincts.
Or is it simply that once a business is established, once it seems to be no longer at risk, you spend virtually all your time dealing with problems? You manage by exception, focusing your attention on negative deviations from the norm. You organize your entire work life -- your thinking, your meetings, your correspondence -- around problem solving.
Perhaps that's inevitable. Problems are a part of every business. As our friend Ichak Adizes is fond of pointing out, a company gets rid of its problems only when it dies; the more successful you are, the bigger the problems you face. But by investing so much of your attention and energy in problem solving, do you run the risk of closing yourself off to your next bazooka? Therein lies what may be the greatest challenge posed by this month's cover story.