In 1964, the Metropolitan-Dade county government completed construction of a new Miami port that accelerated the growth of the nascent Caribbean cruise industry. Throughout the next fifteen years, dozens of start-ups, including Royal Caribbean and Carnival, retrofitted existing ships to offer pleasure cruises. Established transatlantic cruise companies, such as Hamburg America Line and the White Star Line, which transported tens of millions of immigrants from Europe to the United States in the late 19th century, failed to seize the opportunity.
Incumbent cruise lines had every incentive to exploit the new market. The rise of non-stop commercial flights between Europe and North America decimated demand for transatlantic passenger cruises, produced massive overcapacity, and wiped out industry profits. They also knew about the market. For decades, European passenger lines had sailed overnight cruises to Caribbean ports with departures from Miami as a way to utilize their ships during the Winter, when rough waters limited Atlantic crossings.
Managers and entrepreneurs walk past lucrative opportunities all the time, and later kick themselves when
Entrepreneurs and managers can consciously design experiments to surface flaws in their business plan and spur revision. An entrepreneurial experiment, as I use the term, is a test designed to reduce uncertainty critical to success before committing additional resources. Common examples include customer research, prototypes, regional service, and beta customers. Based on the results of these experiments, entrepreneurs may decide to cut their losses, revise their working hypothesis and run another experiment, or harvest the value they have created. Below are some examples.
- Identify the deal killers. Every plan includes countless assumptions. Rather than worrying about all of them, an entrepreneur should identify potential deal killers, variables that could prove fatal. Deal killers vary: In commercial real estate development, title disputes or environmental liabilities could scotch a deal, while a software start-up faces a deal-killer if a deep-pocketed rival has a valid claim on the underlying intellectual property. Deal killers are often discernible early on, and managers and entrepreneurs should try to surface these critical source of uncertainty early. New deal killers may appear as the venture proceeds, while others prove tractable.
- Know what you are betting on. In turbulent markets, multiple variables influence the an opportunity’s
Entrepreneurs can pursue an opportunity much as scientists pursue knowledge–by following a disciplined process of identifying an anomaly in the market, formulating a plan to fill the gap, testing their plan in the real world, and revising their assumptions in light of new information. Menlo Park based ONSET Ventures, a venture capital firm focused on fledgling start-ups, has codified a set of practices that increase the odds that entrepreneurs formulate, test, and revise their working hypothesis in a disciplined fashion.
Since its founding in 1984, ONSET has backed over 100 early stage start-ups, 80% of which have gone on to receive subsequent rounds of financing, a much higher success rate than the average for investments in raw start-ups. When they co-founded ONSET in 1984, Terry Opdendyk and David Kelley (who also founded IDEO) conducted a systematic study of 300 seed stage ventures, with an eye to understanding the factors that influenced their ultimate success or failure. They found that a few factors accounted for most of the variation between successful and failed start-ups, and codified these findings into a set of principles for incubating new ventures.
- Simplify the working hypothesis. When selecting potential investments, ONSET partners use a set of
My last post described Karl Popper’s cycle that explains how scientists spot anomalies in existing theory, formulate a working hypothesis, submit it to rigorous testing, then revisit their hypothesis in light of new information. Entrepreneurs, it turns out, can exploit opportunities much like scientists pursue knowledge, by spotting a gap in the market, formulating a business plan to fill that gap, and then running experiments in the market, and revise their plan in light of new information.
- Notice a gap in the market. In the first step, the entrepreneur or manager notices an anomaly in the market that may point to a potential opportunity. Typical anomalies include a product that shouldn’t sell but do or customers using a product in an unexpected way. Consider Noodles & Company, a chain of
My last post described strategic agility as a means by which US Marines allocate scarce resources to their most productive use, despite facing situations in constant flux, incomplete information, time pressure, and high stakes. Strategic agility focuses on plunging into the action, remaining alert to unexpected opportunities, retreating in the face of established resistance, and vigorously exploiting opportunities when they arise. The rise of Tingyi, a leading Chinese food company, illustrates strategic agility in action.
Based in Tianjin and traded on the Hong Kong stock exchange, Tingyi booked 2008 revenues of US$4.3 billion, EBITDA of US$625 million, and had a market capitalization of US$6 billion at the end of that year. Tingyi controls “Master Kong,” one of the best recognized consumer brands in China, as well as a distribution network of over five hundred sales offices serving nearly six thousand wholesalers and seventy thousand retailers. According to ACNielsen, at the end of 2008 Tingyi was the leader in China’s market for instant noodles with 51% share, ready-to-drink tea with 43% market share, and number two in sandwich crackers with one-quarter of the market.
Tingyi’s success in China was neither inevitable, nor particularly likely. Tingyi traces its origins to the Ting Hsin
Agile organizations consistently identify and exploit opportunities ahead of rivals. An organization’s values, defined as the shared set of norms that unify a group of employees, inspire them, and define appropriate behavior, can promote agility. But not just any values will do. After more than a decade studying more and less flexible companies, I have observed a small set of values shared by the most agile ones: achievement, teamwork, creativity, ownership, and open communication. Firms use different terms to describe these values, and also include additional norms specific to their firm or idiosyncratic to their organizational history. But the core set of values is quite robust across firms that excel at agility over time. This post will describe the core set of values, why they matter for agility, and use the Reckitt Benckiser (RB) case as an example.
1) Achievement (aka performance, results-oriented, delivery, meritocracy, winning in the market)
To out-execute competitors on a consistent basis, agile firms must inspire employees to exert effort equivalent how hard entrepreneurs work in a start-up, and evoke this effort on an