Entrepreneurs usually excel at situational awareness. But take them out of their particular situation, and they become as blinkered and shortsighted as the rest of us.
The news media daily cover egregious examples of leaders, companies, and countries caught by surprise, from Brexit to Donald Trump. Apart from macro bolts from the blue, leaders also often miss bombshells right under their noses. An obsession with near-term results typically creates blind spots about threats and opportunities. Successful entrepreneurs systematically scan for fault lines and undercurrents of change in three domains:
- Their own organization
- Their immediate business environment
- The broader world.
The best leaders stay in touch with what is happening inside their own organization, their business or industry, and the world at large. Consider the following framework:
What's Happening Inside Your Company?
Volkswagen's manipulation of pollution tests is a very costly example (exceeding $20 billion) of leaders missing nefarious actions in their own garage. The same goes for Wells Fargo, where overly eager employees opened fake bank accounts, charge cards, and insurance policies for customers just to meet sales targets. The causes of such internal threats range from covert actions by a few rogue actors (as Volkswagen it seems) to systemic factors such as incentives, culture, goal myopia, and leadership failures (at Wells Fargo). The typical response of senior leaders caught flatfooted is that they were as shocked as the rest of us (never mind that they should have known). In Wells Fargo's case, of course, thousands of people were complicit, many were fired, and the CEO stepped down shortly after the news broke.
Other internal threats include fraud, accounting manipulations, and theft of customer lists or intellectual property. Apart from ignoring such threats from within, leaders may also miss opportunities bubbling inside their own organizations. Remember such classics as Xerox overlooking its in-house gold mine, that PC-type software which Steve Jobs "borrowed" for Apple? Or Abbott, which under-appreciated such in-house talent as George Rathmann, who went on to build Amgen into the largest biotech company. Or Bill Gore, who left DuPont with an unproven polymer technology to create W.L Gore & Associates, makers of rain-resistant and breathable Gore-Tex plus other intelligent fabrics. And then there was Carter Bryant, the creative toy designer, who left Mattel in frustration and partnered with MGA Entertainment, a little-known company whose edgy Bratz dolls captured a third of Barbie's market share.
How is Your Business or Industry Changing?
Ten years ago, the largest companies like Exxon, Boeing, or Walmart were asset heavy. Today, the top players are asset light, operating digital platforms that cut across traditional industry boundaries. Think Uber, Airbnb, Facebook, or Visa. These digital players can move very quickly, unlike asset-heavy firms, which cannot scale quickly. Changes in business models are hard to see at first, because they usually happen at the periphery, so that is where you need to look. As Jack Welch warned, "If the rate of change on the outside exceeds the rate of change on the inside, the end is near." Leaders need deep curiosity, wide professional networks, and a broad hunt for weak signals to stay abreast of threats and opportunities in their industry. Staying ahead is especially challenging in emerging technologies, where leaders often misjudge nearby business opportunities, as Kodak, Nokia, and Blackberry did. Remember how the Encyclopedia Britannica turned down Bill Gate's offer to jointly launch a CD-ROM version, resulting in the former's print-version demise? Or how Lego rejected an offer to team up with Lucas Film on merchandise for a new Star Wars movie, a decision Lego's CEO later reversed? Both organizations fell victim to the well-known "not-invented-here" bias, often driven by fears of cannibalizing a winning product, as well as trepidation about entering new markets with new partners from outside their industry.
What Are the Key Shifts the Macro Environment?
Internal changes, as well as industry trends, should be easier to feel and experience for entrepreneurs than deep changes in the external world at large, because of the latter's wide scope and complexity. Many smart people have dedicated their careers to studying the big picture, however, and so their insights should be leveraged. Alvin Toffler, for example, clearly foresaw the momentous turbulence afoot in the 1970s, from multiple oil crises and technological revolutions to profound social changes and geopolitical shifts, and foretold as much in his 1970 book, Future Shock. Toffler envisioned the dizzying pace of change and the disorientation that many citizens experienced in the U.S. and beyond.
Entrepreneurs need to distinguish external shifts that they can model (such as demographic trends, political trends, business cycles, regulatory changes, and technological substitution) from external dynamics that neither their organizations, nor other market participants, can see coming. The latter would include the dot-com bust in 2000, the global financial crisis of 2008, numerous political upheavals in the Middle East, the development of cloud computing, or the promise of machine learning. When dealing with uncertainty as opposed to risk (where probabilities are known), entrepreneurs need to explore various scenarios about what could happen and not stick their necks out so far that they lose flexibility in case change is needed. Likewise, their organizations need to remain agile, able to navigate unexpected currents while spotting threats or opportunities sooner than rivals.
The Power of Pivotal Questions
In an uncertain or ambiguous world, leaders should focus on asking better questions, seeking new insights, accelerating learning, and creating responsive organizations. Since you can focus intently on only a few points of vulnerability, you need to separate the weak signals of impending threats or opportunities from all the distracting noise. This requires asking penetrating questions about a few areas of high priority. A good place to start is to identify where you have been vulnerable in the past and thus may continue to be in the future.
Together with my colleague George Day from Wharton, we developed a set of questions about the above vulnerabilities that will guide you to best practices in sensing and responding to change, depending on your current challenges. Our Wharton survey can also help you benchmark how your scores compare to other relevant organizations we surveyed. Below are four questions from our questionnaire that can help you and your colleagues get started.
1. In the past three years, how often have you been surprised by threats from outside your company (e.g., new entrants, technologies, regulations, business models, etc.)?
If you answered more than twice a year, then you may want to consider tapping your external partner networks and other contacts for insights. If it's less than twice per year, then just study those cases for some quick lessons about why things were missed and keep a watchful eye on the external developments at the periphery of your business.
2. In the past three years, how often have you been surprised by threats from inside your company (e.g., fraud, harassment, malfeasance, incompetence, or other bad behavior)?
If it's more than twice a year, then you may want to consider reaching deeper in your organization for early warnings about undesirable behaviors. If it's less than twice per year, carefully study those cases, extract some key lessons, and remain open to signals from below.
3. How well do you spot opportunities originating outside your company (e.g., new customers, suppliers, partners, business models, channels, technologies, social trends)?
If you are typically late and must hustle to catch up, try understand better why external signals are being filtered in your organization and somehow don't reach the top. If your answer is that you are typically well ahead of your rivals, then just keep honing whatever behaviors and skills allow you to have this advantage.
4. How well do you spot opportunities inside your company (e.g., emerging talent, innovative ideas, efficiency improvements, better incentive systems, IT applications)?
If you often overlook good ideas right under your noses, ask why and examine some prototypical cases in-depth. Also, try attending venture fairs and innovation tournaments, and develop better bottom-up information channels to tap deep inside the organization, develop trust and reward creative thinking.
The key is to know where your organization has been systemically weak in spotting threats and opportunities, study those cases for hidden lessons, and adopt some of the remedies suggested.
My thanks to George Day and Kirsten Sandberg for their editorial advice.