Finding that first market — a few customers willing to pay for your early product — is hard enough. But there’s one thing that may be even harder. And that’s finding the second market. Especially because companies are often so focused on protecting what they already have.
In 1996 when Steve Jobs returned to Apple, I was in charge of an industry-recognized channel program for the company that was responsible for growing a $2M business to $180M business in 18 months. By working with a few dedicated partners — some were called “value-added-resellers” and some were national retailers such as Best Buy — Apple was able to grow its sales exponentially.
So, as I went into the full business review, it never occurred to me that Jobs wouldn’t appreciate the channel program. It was the most profitable part of Apple’s business at the time and a needed source of revenue. But Steve’s take on it (in his words, not mine): “Fuck the channel; we don’t need the fuckin’ channel.”
And he was right. Getting to that next growth market takes more than being unhappy with your current results (in this case, abysmal sales margins and underperforming stock), and it takes more than being willing to change. You have to be willing to do what feels unnatural.
As you become successful in something, you develop a feel for how to do it. You know when something is “right.” You’ve built up the equivalent of a hand callus in response to the friction and pressure of what it has taken to get to that first-market success. So, when you try to replicate that in a new context — a second market in this case — all courses of action just feel…off.
In the late 90′s and early 00′s, a good channel strategy made the key difference between a $100M and a $2B company in the tech world. If you had enough money, you could buy distribution and thus sales. The channel, therefore, had a powerful position in relationship to the brand.
But Steve wasn’t willing to play that game. Steve wasn’t going to use the past to shape the future. At the time, even though the World Wide Web was just coming into its own, it was easy to see that online commerce would allow a more direct relationship between brands and their customers. Every tech company knew this change was coming but few were bold enough to embrace change. Some still haven’t.
There are plenty of examples of companies who’ve used the past to determine in the future. Both Blockbuster and Borders relied heavily on brick-and-mortar stores when they knew they were being disrupted by click rivals. Nokia and RIM missed the smartphone application market by a mile. GM ignored the move to more efficient cars for nearly 10 years. Most of the publishing industry continues to think of its product as 90,000-word printed things, when it’s clear that nuggets of sharable information make most sense for spreading ideas. These businesses seem committed to doing what they already know, and despite Roger Martin’s guidance that you can’t analyze your way to growth, companies continue to think of growth creation using the rearview mirror.
When Jobs said, “Fuck the channel,” he taught me something: our job as innovative business leaders is to manage the present while inventing the future. We must recognize that we are always a product of what we’ve done and who we aspire to be. It is not enough to lead our current businesses; we must also lead our future businesses. Over the past dozen or so years, I’ve learned that to do this, the best leaders do five key things well:
- Master unlearning. One of the most difficult tasks for corporate innovators is to learn how to unlearn the legacy business models they have perfected. Often, maybe even always, companies take the standards they have for their current business and use that to measure the new model. Start unlearning by explicitly recognizing that these metrics or assumptions are from the past and not necessarily useful for the future.
- Augment expertise. The knowledge you need for future growth may not exist inside your firm’s walls. You can augment — but not skip — the internal learning process. If you’re investing in a new project and the options look like this: (a) 10 months by doing it alone, or (b) six months with an additional $200K in outside expertise, or (c) outsource it entirely, choose (b). Knowledge can be conveyed, but wisdom is only earned by the experience of trying.
- Pilot, invest, experiment. Obviously you won’t get “the new thing” right the first time. Peter Sims talks of this as “little bets.” It’s okay to invest in something you know is going to fail. It’s the equivalent of letting kids explore. This is part of unlearning, saying, “Our goal is X, we tried Q, we learned K so our next pilot should be T.” The iterations take time, but it is a “go slow to go fast” play.
- Reward learning and cooperation. Peg people’s bonuses to the new projects. Here’s how one compensation model I worked on said it: “Base pay covers the core business; of course we need to do that right to keep the core engine working, but bonuses cover the new ideas and unlearning, which will require us to stretch our minds/hearts/abilities.” And regardless of anyone’s focus area, everyone gets bonuses on the shared new area of growth. This doesn’t eliminate but greatly reduces potential checkmate behavior within the company that can block change.
- Know your aspiration. You cannot find a second market without having a vision of who you serve and why. This doesn’t mean you can see into the future; it means you’ve committed to a process of discerning which unique abilities you have now, and which you’ll need to win a decade from now. Apple ended up not defining itself by its hardware or software expertise but by its design point of view.
We’re often told that we should do what we’re good at, leveraging those unique gifts. Gosh, that does sound like we should do more of what we’ve already been doing, right? Well, selectively, yes. If you draw a Venn diagram of not only what you have achieved but what you imagine you can become, you leave yourself room to navigate new waters. That doesn’t mean it comes easily. It means that you get to grow.
To grow new markets means making yourself uncomfortable. It means you can’t keep doing more of what got you here. You need to also look into the lens of the future and imagine what you could be. Just as people are always living at the intersection of our history and our dreams, so too are companies. Until we decide to stop avoiding risk and embrace the discomfort of creating, we will keep measuring nascent ideas against established, proven businesses. That is the epitome of managing to yesterday’s business, rather than inventing the future. Which only leads to more of the same. And that’s not enough anymore.
By: Nilofer Merchant at The Harvard Business Review