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BUSINESS PLANS

Everything Will Change

Perhaps the ultimate business tool is acceptance. Everything Will Change. Many of the changes will surprise you. If that sounds exciting, you're ready for the future. A conversation with Scott Cook.

Justin Stephens

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Scott Cook has been a star of Inc.'s universe for a long time--since 1990, in fact, when his software company, Intuit, first appeared on the Inc. 500. The company went on to make the list twice more as it came to dominate the business of helping Americans manage their finances and get through April 15th. Today, Intuit is a global company with annual revenue of more than $2.3 billion. Its products--Quicken, QuickBooks,TurboTax, QuickBase, Payroll--serve individual consumers, small businesses, and, increasingly, large corporations.

Cook caught our attention again recently when Intuit commissioned the Institute of the Future, a research organization in Palo Alto, California, to study how the small-business economy was evolving. (The first two parts of what will be a three-part report are at Intuit.com.) Cook recently spoke with John Koten, CEO and editor in chief of Mansueto Ventures, Inc.'s parent company, about the results of the study and how they mesh with Cook's own views about how to run a business in 2007 and beyond.

John Koten: Intuit (NASDAQ:INTU) has been serving the small-business market for many years. What prompted you to sponsor a study of the entrepreneurial economy at this time?
Scott Cook: The major theme of the past 60 years in businesses, in my view, is the rise of entrepreneurship in our economy. I don't think this aspect of business, however, has been that well covered or that well understood. There has always been a lot of attention paid to large companies. The mainstream press simply hasn't connected all the dots and seen the bigger picture when it comes to small business.

In your view, what's missing?
The big picture is that entrepreneurship is what drives the success of economies. We think of Japan as being driven by government-organized keiretsu. But Japan's economy was rebuilt after the war by a bunch of radical entrepreneurs--people like Konosuke Matsushita, who founded a company known in the U.S. as Panasonic; Akio Morita, who built Sony (NYSE:SNE); and Soichiro Honda, who built Honda (NYSE:HMC). The business strength of Germany is the Mittelstand--middle-size entrepreneurial businesses.

The Industrial Revolution in the U.S. was propelled by entrepreneurs like Carnegie, Mellon, and Rockefeller. They are now thought of as old dead guys or as rich industrialist patrons, but they were, in fact, entrepreneurs and they created the modern age. The advantage the U.S. economy has is its ability to continually re-create our entrepreneurs.

You don't hear many U.S. politicians talking about the importance of preserving our entrepreneurial economy or our entrepreneurial society. Leaders outside the U.S. are paying attention, though.
The Chinese certainly seem to get it. So, actually, do the British. Tony Blair is a big proponent of entrepreneurship. A lot of Americans would be surprised if they visited Vietnam these days. Saigon is an entrepreneurial hotbed.

What did your study of the U.S. entrepreneurial economy uncover that you found particularly important or surprising?
The diversity of backgrounds of entrepreneurs. It will surprise some people that over half of newly formed businesses are now run by women. Some people have this view of immigrants coming in and working in factories and taking American jobs. Maybe that's what our grandparents saw, but immigrants today are highly entrepreneurial.

Some people believe the real entrepreneurial boom in the U.S. is behind us.
I disagree with that. Think about Google, Facebook, MySpace, Second Life, JetBlue, Vitaminwater, YouTube.

There's also more interest in entrepreneurship today on college campuses.
That's a palpable change. When I was a freshman at the University of Southern California, the school asked every incoming member of my class what their career ambition was. Over half picked one field--medicine. Today half the class would tell you that they hoped to run their own business someday. Younger people want to be active participants. I think one of the reasons you see a higher rate of job change among younger people is that they get into traditional job environments where they're being told to take it as it is. And they're saying, No, I want to make it the way it should be.

Do you think businesses being started today are different than those of 10 or 20 years ago?
Some are very different. The way Philip Rosedale runs Linden Lab, the company behind Second Life, is an extreme example. Not only is this company novel on the outside, because its product is a virtual world, it's novel on the inside. Linden Lab does not assign jobs and tasks to most employees. Instead, the employees figure out which projects are needed and figure out what they want to work on. There may be a few exceptions. I'm sure someone is assigned to do the payroll. But most of the company's work force is essentially a volunteer organization.

This challenges one of the longest-held tenets of business: that the senior executives of a company have responsibility to figure out what needs to be done, to tell people what needs to be done and assign them to do that work. But Linden Lab does the opposite. And it's one of the fastest-growing companies in the country.

But is that representative of new businesses or just an extreme example?
Extreme. But not the only example. Engineers at Intuit have "unstructured time," time every week that is theirs to devote to anything they wish. Each engineer dreams up and decides what he or she wants to work on. They need no one's approval. What they're inventing is exciting.

We learned this from a company down the street. They've done this for years. In addition to unstructured-time projects, the company management also picks and funds new product priorities. One of their founders told me recently that the employee projects have succeeded better than management's picks. You may have heard of this company: The name is Google.

I can understand why "command and control" management structures were so important in the past. They facilitated communication and decision making.
It's less necessary today. The models for industrial organizations coming out of the 19th century were the military model and the railroad model. Both of those were hierarchies where work was believed to be work, something you didn't want to do and had to compel people to do. I think the nature of a lot of work done today requires a different approach. Employers are finding we must behave as if we have a volunteer work force because that in fact is what we have. Top performers at your company or at my company can easily go out and get two job offers within the next month.

You've been involved with Intuit from the beginning. You've learned a lot along the way. So isn't it tempting from time to time to just say, "No, no, that's not how we do it?"
Yes, it's very tempting. And I do that from time to time, and sometimes regret doing it. But I think any leader today had better get used to being surprised at having things you thought were true turn out not to be true. Clayton Christensen, the Harvard Business School professor and the author of Seeing What's Next, calls this "emergent strategy," and he writes about the importance of recognizing that, as the saying goes, "shit happens." Sometimes it's the stuff that you never expected that turns out to be the key direction you need to take. The iPod was supposed to be just a low-volume extension to the Macintosh. Intuit was supposed to be a consumer software company. That's what I intended to build, based on products like Quicken and TurboTax, but now our largest business is serving the needs of businesses with QuickBooks.

Then, just a few years ago, we thought we were primarily a company focused on small businesses, but now, with QuickBase, we have a system that's used by 53 of the 100 largest companies in America. We built a system for small work teams and it got adopted by midmarket and Fortune 100 companies. These things emerged from the creative work of our people and the unpredictable maelstrom of the market.

So you don't just say to an employee, "Hey, that's not what we do here"?
I do say words like that, when it comes to ethics, values, and how we treat people. On those issues, when an employee wanders off the ranch, it's important to be clear.

At the same time, when it comes to creating new products and businesses, the standard of success is not "what we do here." To me, success is changing customers' lives for the better, solving their important problems. That means we're constantly trying new things, things that have not been "what we do here."

I am often asked by employees, customers, and others to define the strategy of the company I lead. It sounds to me, however, as if you are saying that I'm making a mistake if I try too hard to answer that question.
Exactly. I think it's valuable to have a vision that's passionately held, but you also need the agility to change it. I've learned that adhering to a strict business definition would have prevented some of our bigger successes. If I had done that five years ago, 15 years ago, I would have defined us away from uncovering huge markets that we now serve. Instead, I focus on where we can find an important but unsolved problem for customers. That's what delivers our home runs.

Is there any advice you'd give to somebody going into business today?
Plastics.

Really? Oh, I get it, you're making fun of me by quoting The Graduate.
I certainly wouldn't pretend to know what business any individual should enter. The advice I would give is to listen to your heart. You can't succeed at something you don't love. You must find something you just love doing and find through that passion a way to change the customer's life, to change the world for the better. That's where your entrepreneurial destiny will lie.

That sounds corny, but I've found that it's a very common driving force for entrepreneurs--the deep belief that they are making the world a better place.
No question. It's hard being an entrepreneur. You get sand kicked in your face all the time, and worse. It takes undying love and passion to keep going. If your mind is wandering to something else you'd rather do, go do that.

Do you think the technology that's widely available today has made it easier to become a successful entrepreneur?
Yes, with a few important caveats. It is certainly easier to start and easier to scale a business and to deliver the kind of quality and service that only a large business could deliver in the past.

What are the caveats?
One is that your weaknesses will get broadcast more widely. Word of mouth is getting broadcast and amplified by the Internet. Think of Zagat, TripAdvisor, and Amazon reviews. Customers are gaining a megaphone to tell all about how you treated them.

Good companies that treat their customers really well are going to pick up more customers. And companies that treat customers poorly will suffer. To me that's good news.

But you don't have a lot of time to get things right. This is going to force business leaders to figure out how to be delivering better for their customers every week. Good enough just isn't good enough. Customers can now vote publicly and come or go in mobs.

Smaller companies historically have been slower at adopting new technology. Do you think that's changing?
Yes, because technology has gotten cheaper. Installing a computer-controlled manufacturing system 30 years ago was really expensive. General Motors (NYSE:GM) could do it, but not a relatively small company. That has changed. In fact, it's more efficient now to be small.

Smaller is better? There was an award-winning film that came out a few years ago called The Corporation, which basically argued that large companies are getting bigger all the time and dominating our lives more and more.
It used to be that there were economies of scale in almost everything. The most efficient computers, in terms of speed and cost per bit, were the Cray and the IBM 360. But in the 1990s, there was a major reversal. The cost per bit suddenly became cheaper on small disc drives than big disc drives. Microprocessor-based computers became cheaper than any other form of computer. It now costs less per employee to install technology in smaller companies than it does in larger companies.

So smaller companies now have a competitive edge?
Yes, I think that's what this change means. I also would tell growing companies to be wary of someone trying to sell a technology solution that requires a lot of people to get it to work--system integrators, consultants, and the like. You are going to end up with something that drags you down, something that is hard to maintain and can't change as you change.

As somebody who runs an increasingly large company, do you still in the long run feel that there's a place for big companies?
The point is not size, it's agility. Agile firms of any size, small or large--think Toyota--will win. Rigid firms will disappear.

There's a natural progression that companies go through as they grow, moving from hungry and innovative--a "have not" mentality--to defensive and protective--a "have" mentality. That's when bureaucracy seems to set in.
The question for corporations is, what is the fountain of youth? What keeps your company forever young and revolutionary and willing to embrace change? Some companies seem to have found it. Procter & Gamble (NYSE:PG) is 170 years old and is continuing to invent and innovate and be customer focused. What I learned when I worked at P&G was to remain focused on solving the customer's problems. That's what keeps your company young.

A lot of leaders want the system underneath them to affirm their choices, to prove them right. Is there a basic humility you have to have to let the customer be the boss instead of the boss?
That's deeply rooted in my beliefs. The future belongs to humble leaders. Humble to let your people lead and be led by them. Humble to make the customer your boss. Humble to listen and listen intently. Humble to know that almost all of the best ideas come from others. Humble to admit you were wrong, and tell your team. I try to live this way every day. I usually fail, but I keep trying.

Last updated: Sep 1, 2007




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