The Entrepreneurial Mindset Part 3 with Rita McGrath

You have to be able to create a continuous flow of new innovations and exploit new opportunities. And so the book was really designed to think about that process. And of course we've built on it since then.

And you tell us here, the new ratios are not accomplished without creating new competence. To build their competitiveness. That's really important that you can't go into new arenas or build , new opportunities without building the capabilities to be able to deliver on those. So we're going to talk a little bit about that in this early part of this session.

But before we turn to the topic of creating new competence, let's share this key ratio concept. This is core concept to get our heads around.

But I think what we did that was a little different here was we tried to use the key ratios to articulate specifically what innovators need to do. , take a more current example, right? When Amazon says, how can we build our systems so that we could legitimately deliver goods, in shorter and shorter periods of time. That's a key ratio, from a, a customer placing an order to the package, turning up on your doorstep. That's a length of time that can be measured.

And what Amazon does is relentlessly hone in on a few of those key ratios as part of their ongoing quest for a greater competitiveness. And it's provoked things like, they've got enough data now to know that in a given geography, there's likely to be x number of common products sold. So they actually now create inventories of those common products proactively , before any customers placed an order and farm them out into their various warehouses.

That's an example of the operating things that can happen.

Is that you have to train your analysts, what your new business model looks like. So years ago, probably around the time I was writing this book, I was working with gases company. They make industrial gases and they had essentially three lines of business. So one was their conventional. Large order packaged gas, then there was a more small business oriented gas and canisters business. And the 3rd line of business was gases that were sold into the semiconductor business.

Now that analysts really understood the 1st 2 businesses. They'd had decades and decades of experience understanding what drives performance in a conventional gases business. But the semiconductor business is completely different because it's very much peaks and valleys. And you needed to look at different key ratios to understand what would drive performance in that business.

And it drove everybody crazy because they insisted on trying to impose the structure of the conventional gas business on this very unpredictable semiconductor business. And it took, it took a lot of work to sit those analysts down and say, no, no, no, you're looking at us the wrong way.

So I think part of the challenge when you're embarking on a new business model is you have to explain to everybody in your ecosystem, the people that are evaluating you, people who are investing in you, what these numbers actually mean.

The distribution channels we use today or the geographical or areas in which we operate today are going to fit with the new business domains we are creating.

So you suggest the best place to start is to develop a simple stratification map. Maybe we'll share this with our audience

Asymmetries. What you'll often find is there are asymmetries between how much revenue something generates and how profitable it is. So a very typical pattern as a business has gone, on for a long, long time, competition's caught up, you're reaching diminishing returns with investment. And so it may be quite a large business, but it can be quite profitable. Not that stunning in terms of profitability, right?

Meanwhile, you've got these small businesses which are in newer areas, which are more volatile, tend to be riskier, whatever. And often they will have profits that outshine the size of their businesses. And what I find interesting when I, Look at this with senior leaders is a lot of times. They're not even aware of these asymmetries. They've never just sat down and sorted out. Well, where are we making money? Where are we incurring cost? And do those things have a proportionate relationship?

So it's a good place to start to evaluate. Maybe there are candidates for disengagement that we've got in our portfolio. And maybe there are things we need to give more attention to.

But if you've done all this hard work up to this moment, now you must be prepared to shape perceptions by communicating and reinforcing the upside potential of your most important projects. It is unlikely that people will arrive at this point of view on their own. You have to coax them. You have to communicate. And this is a critical role for the corporate explorer.

To champion and identify observers of entrepreneurial activity with inside the organization to be these champions as well so this part is something that I think many corporate explorers including myself in the past didn't do because part of your wants to own it yourself. But without actually finding these champions and in a way giving away some of the credit you're gonna fail. This happens all the time with inside large organizations.

Maybe you'll tell us about championing this key, key critical activity that needs to happen. , , Rita McGrath: there's a ton of research that shows that it is necessary if you're going to make a significant move as a company you have to cross organizational boundaries. And so you need to get a lot of allies engaged in your effort. And, the, the thing that I want to really emphasize here is we're talking about meaningful. new growth opportunities.

So these are not incremental tweaks over something you're already doing. These are new business models, entirely new geographies. As we've talked about before, entirely new arenas. And so there are big transformative potential for the organization.

And so what that means is you're up against what Niccolo Machiavelli very famously said, there's no one who faces as difficult a challenge as the Prince who would like to change things because The people who will benefit from the new system are only weakly aware. And the people who are benefiting from the current system are very inclined to keep it. So it becomes a a political question and you need to be able to mobilize people in your favor.

So the first thing I would observe is that there are three leadership roles, which companies only vaguely. understand. So let me give a historical example and then we'll bring it up to the current day. So, back in the day A. G. Lafley, who at the time was the CEO of Procter and Gamble came to this stunning realization that not all great ideas happened at P& G's research lab in Cincinnati, Ohio.

And so he launched this program, which was called extend and develop, I think, or connect and develop something like that. And he basically tasked all of his senior leaders He said, look, I want you to be able to show me at the end of the year. That 50 percent of what you're working on originated somewhere outside of PNG. Now I'm not changing our strategy. Our strategy is still about everyday products, you know, products that improve the everyday lives of ordinary people.

So that hasn't changed and got strict clarity about that. But what I want us to do open up our eyes to opportunities that may be elsewhere. And this was a very clear strategic thing. And out of that came Swiffers, for example, which was a revolutionary thing that originated in one of their Japanese subsidiaries. And what they basically figured out was you could put.

A diaper on a stick and it became the functional equivalent of a mop, but it took, it took the diaper people and the stick people and the instrument people, and then the chemical people came in at the end. And it really took a cross company look. So the specific case that is of interest here is an external product. It was a spinning toothbrush. Which Crest, branded later on and it was so, so you've got that sort of clarity at the executive level.

Now at the level of the venture, this particular innovation, the spin brush was innovated by a serial entrepreneur and named John Osher. And Osher has been an entrepreneur his whole life, right? He's, he builds stuff. He's, his first venture was when he was about eight years old. He invited his school chums up to the attic where his parents had stored paintings of nude ladies that they'd done when they were taking oil painting classes. Now that's not so remarkable.

What's remarkable is he charged his chums for the privilege of looking at them. We had a business mind, like right from the beginning. And he'd launched a venture. It was Uncle John's spin pop and it was a spinning lollipop, which he sold off to Hasbro and then he and a couple of his buddies got, took off some time, but then they got bored and they went around looking for their next business idea and inspiration struck them in aisles of their local Walmart. I think it was.

And what they observed was that the. Electric toothbrushes, we're all like 50 and up and the most expensive manual toothbrushes were in the sort of 10 to 15 range and the light bulb went off because they'd had this experience with the spinning lollipops. Right? So they said, what if we could make technology that was cheap enough? That we can sell the functional equivalent of an electric toothbrush for the price of a high end manual toothbrush. And that was the inspiration. They got going.

They raised some, well, I guess they funded it themselves. They did some development. They shopped a business around. They did market tests. They offered it to Colgate Palmolive, who wanted nothing to do with it. But P& G actually embraced it. So they bring this guy in. Now, just reflect for a moment on what kind of personality somebody like a John Osher is going to have. He's, he's pushy. He's obnoxious. He thinks anybody who's a career lifer at Procter and Gamble has no ambition.

He's not going to come to your weekly update meeting. He's not going to fill out your HR forms. He's got a business to build with. So what I'm, Pointing out here is you've got the executive champion who might be many people. I'm talking about three kind of leadership archetypes, not necessarily specific people, but it makes it real when you can talk about someone specific. So you have Lafley setting the executive tone, being clear about strategy, setting the frame.

You've got Osher, the entrepreneur, building the business. And in between you've got a guy called Darren Yates. Darren Yates is what I call a Sherpa. So just as you would not try to climb Mount Everest without an experienced guy to Sherpa you shouldn't be trying to pilot. Organizational innovations without someone who really understands the territory. And so Darren Yates, like he's the Crest brand manager right now. What's his life like his entire day is spent figuring out the organization.

So, nine o'clock to 10 o'clock soothing over the, hurt feelings of somebody, who sure has offended 10 o'clock to 11 o'clock negotiating with one of his colleagues for a little time 10 o'clock, all day long. He's, he's basically dealing with the organization. And what I find is fascinating about these Sherpas is very often, they're very senior. They've been around a long time. They know where all the bodies are buried. Their motivation is not personal.

They're not doing this for career success or greater glory. They are, in fact, very willing to give away credit. And what their goal is, is to see this beautiful new thing come into the world. And in the case of SpinRush, it was incredibly successful. It was one of the fastest growing products P& G had ever introduced.

Eventually they ended up having to sell it off for Complicated merger and acquisition reasons, but the, the origin story was absolutely fascinating textbook case of a great corporate venture.

Fantastic. And it brings us beautifully to a part you call playing politics, the legitimate way. Because again, it's not what you get into innovation in the corporate. You don't want to be playing politics. Usually the type of corporate explorer, the character of a corporate explorer is very anti politique and very much camaraderie and teamwork, et cetera. So it's quite alien to corporate explorers, but it's so necessary. And one of the things you talk about here, I would love to share.

Is to identify the people in groups likely to fall into various categories so you do this work it's almost deciding what type of character they are so if it's okay with you read i'm gonna share on the screen a graph figure seven nine in the book and maybe you'll take us through it. . Rita McGrath: So, the core idea here is that if you're going to make a change in an organization politics is inevitable.

And when I mentioned the word politics to a room full of corporate innovation types, I get a lot of eye rolling. People don't want to deal with it like, Oh, no, no, no. I don't get involved in politics. I'm apolitical. And my position on that is, is you don't have the option. I'm, I'm sorry. Politics is what you do to get people to take an action that is different than what they would take absent your influence.

And if your cause is just, and you're on the side of the angels, politics is what you have to do to get the organization to move in a direction. Is aligned with your preferences. So the first thing you need to do is figure out who the relevant stakeholders are. So who has a stake in your outcome of this thing? And that could be people inside your organization. It could be groups. It could be individuals, but you make a stakeholder map.

And that's the first place where a lot of corporate innovators mess up because they don't even do that. They don't actually know who their stakeholders are. So you want to do a stakeholder map. And then I like to categorize them along two dimensions. So the first dimension is, do they perceive that this thing is going to be in their best interest? Do they perceive it from benefit or do they perceive it as a threat? Do they perceive it as something that is going to cause them harm in some way?

Or it's not in line with their purposes. And then are they actively engaged either overtly or covertly, or are they just bystanders? Are they not engaged at all? And you need a different political strategy for each of these cells. So if they perceive they're going to benefit and they're actively involved, clearly, these are your heroes, right? These are your champions. These are the people who think you're great.

And where people go wrong with your heroes is we don't, we don't Spend enough time on them. We take them for granted, and what you want to be doing with heroes is arm them with every. tool you can possibly think of to carry the good message, to fight the good fight, to continue with what you're doing. So, so you really want to leverage your heroes. They're, they're like your army. They're your ambassadors. Give them every tool you can think of.

Now, when they're going to benefit, but they're not involved, right? These are allies, but, but they don't know it. They may not know they're going to benefit, they may not be aware they may not have a concept that you're going to be good for them. And very often the reason for that is that they're not in the immediate organization that you're working with. They could be customers they could be people outside the realm of the organization.

They could be, opinion leaders or influencers who just aren't aware of what you're doing and how wonderful it is. So your job there is mobilization. Get them, get them on board. Move them into the hero category is what you want to be doing with them, even if they're outside your organization. And I think this is where we overlook quite often, um, potential beneficiaries who just aren't aware that they're, they're going to benefit from something really good.

Now on the threat side the unfortunate reality of innovation and really of any organizational changes, there are always going to be people who are not going to benefit. They're going to lose a perk or a position, or something's going to be changed. That makes what they're doing less relevant. , but they're not involved yet. I call those sleeping dogs. And the challenge with the sleeping dog is don't wake them up until you're ready.

We've all seen the change agents or innovation leaders who come into a situation, waving a sword and making a lot of noise and making big pronouncements and instantly there's a wall of opposition that emerges because everybody says, Oh no, no, no, no, no. I didn't know. What you meant and we're going to we're going to oppose you, right? So, so try to be judicious about that. Don't wake them up until you're ready. What you want with them is a fate at company.

By the time they realize and start nip, nip, nip, nipping you, you, you want the change to be in place and you want it to be robust enough that they can't undo it anymore. And this is something people hate talking about because it makes them uncomfortable. Everybody likes to live in a world of Pollyanna where everything's good for everybody, but it isn't like that. Yeah. As tests change, it goes through.

Now, we come to the, the most to me, interesting box, which is you're active, either overt or subvert. But these are people who don't want you to succeed. These are your opponents. And with opponents, I recommend a great grade of responses. So the first question to ask is, well, is there some way we can co opt them? So can we find a common enemy? Can we find, can we find a common hero? Can we align around a common vision?

So even if the person or group is not particularly enthusiastic about this, they see it as necessary for some kind of greater cause. Now, if we can't do that, maybe we need to buy them off. And that means giving something up that we would prefer not to. giving up timing, giving people, giving up some resource because we need to get them over on our side. If we get to either of those things, can we get them to neutral?

Like, can we just get them not necessarily supporting us, but getting out of our space enough that we can move forward without that? Now, those options are I'll call them less politically costly. Once you start to escalate into telling your superiors about their opposition or, mobilizing other people against them, that starts to get more politically risky for you. So I try to encourage people to do the less risky things first and see if you can creatively do that.

So, as an example Apple and Google are not big fans of each other, but when it comes to Google paying Apple to be the default search engine on the front page of an iPhone, all of a sudden, they've got a great alignment around the business opportunity. And so, you can see why even rivals can have a support for each other. So that's an example of kind of co opting them around a common enemy, which would be other search engines. Beautiful. That is absolute gold.

I fell that way myself in corporate innovation where I remember one of the guys in the organization that was highly. It had a highly activated corporate immune system. Let's put it that way. And one of the guys, , he was probably a frenemy. He probably kept me close to understand what I was doing, but he told me, he said, your biggest problem McCullen. You don't speak politic and I was like, I don't want to speak politic, man. We got it. We got to introduce new language here, but that was wrong.

I was wrong. And I, I love now learning. And it's one of the reasons I launched into understanding and learning from great people like yourself and going into the back catalogs of work is to, to go. I didn't even have the frameworks to succeed back then. So I need to share this. And I really want to share this to the world to anybody who will listen to us, because I don't want them to experience the same failures ultimately that I had experienced . So thank you for sharing that so brilliantly.

And one of the things you brought to mind was that idea of you may need to give them something. But one of the challenges for people who work in innovation is they don't have much to give. They don't have much bargaining power. Usually, particularly if you're new in an organization, you don't really have budget or people you. The only thing you have is possible success that you can give to people.

It's almost like giving people Share in your organization your startup with the hope that you'll be able to deliver in the future and you address this in a party called begging borrowing and scavenging minimizing the resources you need.

And there's a term that you introduced here, asset parsimony, the systematic approach to operating with sparse resources is called asset parsimony. And you share several ways in which it can be practiced as a corporate entrepreneur, I'd love you to share this.

And so far it's pretty stubbornly resisted doing that. And so what you want to do is operate with as much asset. lightness as you can while you're demonstrating proof of concept. So, the, the sort of catchphrase that we borrowed from Habitual Entrepreneurs was, don't buy it. If you can borrow it, don't borrow it. If you can beg it, don't beg it. If you can scavenge it, and the idea is really to find what resources are. Available in the organization without committing yourself to a big thing.

Now, one of the myths, I think, of corporate innovation, and people will tell you this, that oh, we don't have budget, we don't have resources. Corporations, most of them, are very wealthy. There are resources there. Unlike startups, which really, genuinely don't have a lot of unless they're, ridiculously overfunded by drunk convention capitalists, but that's a whole nother problem.

Most startups have to be very careful with how they spend their resources, because they could run out of money before they've got, good flows of resources from customers. Most corporations have money all over the place in pockets. So part of the challenge of being a corporate entrepreneur is perhaps there are ways you can find those pockets of resources and use them to Move your cause along.

So the other thing I would add is that if you've got something that's small, but highly profitable, you're much less likely to run into political headwinds than if got something that's really big, that's losing money. . Aidan McCullen: And we'll build on that when we talk later about that bad boy up there, discovery driven growth, which goes much more into this and adaptive strategy. We'll touch on a little bit of that today as well, hopefully.

But let's move on because the book, as you can see, caters for every aspect. Rita's told about every aspect of the journey that you'll go through.

One of the things that comes next is evaluation of ideas and as you tell us net present value thinking will inevitably push an organization towards short term investment opportunities at the expense of more ambitious , longer term ideas. However, using real options, reasoning to guide our investment of people and resources in new opportunities can allow us to pursue attractive opportunities without burning your organizations out and without wasting scarce resources.

That's absolutely core concept because many times we'll squander resources and actually taint our record. And then we won't as joe bauer will talk about we won't get those resources again in the future because we've got a tainted record and it's like a colony he didn't really deliver on the last investment we gave him so maybe you'll take us through about this. The net present value versus the real options reasoning Yeah.

So, let's start off with the theory of real options just so people understand what it means. So a real option is a small investment you make today that buys you the right, but not the obligation to continue investing along the same lines. So part of the problem with the net present value rule, at least as it's commonly applied is you Assume that the investment is going to go all the way through to final market release or final introduction.

And so you're assuming a whole series of investments in a, in a given path. And if you're selling something that's very predictable you can actually come up with some interesting decision rules using the present value rule. What options reasoning does though, is it says, wait a minute, no, we're going to break these monolithic decision patterns down into pieces. And at each. point at which we're going to do an evaluation, we can decide to move forward or we can decide to stop.

And so if we see something that looks promising, we do some experiments where we take a, an effort to try something out and the hypothesis isn't supported or the experiment doesn't work at that point, we can stop. So the exposure is not the exposure to the entire program, it's the exposure to a smaller piece of the program, and that allows you to contain risk. So what you're looking for with a real option is the relationship between the upside and the downside.

What you want is a small downside that buys you access to a potentially massive upside. And if you look at many of the innovations that Have gotten very popular and very overhyped the mistake a lot of organizations make, because they go whole, whole hog in on the hypothesis that if I can get a first mover advantage, I'll be able to protect it. So we're seeing this right now with AI. We saw it years ago at the time the book was being written with the internet.

And the, the downside, thinking that way is that you really don't know what you're doing yet. You haven't really resolved a lot of uncertainty. And so, what you want to be doing instead is being very cautious about how you release your resources. And it's a very intuitive idea. We all do things like we go to university, right? We attend conferences. We read articles. We watch innovation podcasts.

And we don't know exactly what we're going to, what the monetary benefit is going to be doing but we do know if we don't invest. Sometime in this sort of optional area that we're not going to learn and we're not going to be able to capture the upside. We don't have that learning.

She's like, you don't have to stay home with him all day and play his drums. But that idea brings us to three types of options that you suggest in the book. And you call these positioning, scouting, and stepping stone options. I'd love you to share these. I love these terms.

I really do. Very typical dimensions. And if you look at the projects that you're working on, the different kinds of projects have a different job to do for you, depending on where they fall. So you're low, low. Box is clearly your core business, right? That's I know who I'm doing it for. I know how to do it. Now it could be very innovative, right? So taking your computing infrastructure and moving it to the cloud, that's a very innovative undertaking, but the technology is mature enough.

We know what we're doing and we know the customers that we're doing moving out a level of uncertainty. You have what I call investment in new platforms and a new platform is a substantial Expansion or addition to your formerly core business. So when Amazon, for example, makes a big play in health care, what they're betting on is that in addition to being a retailer, they can now be a an effective provider in this, massive business. Healthcare space.

It's been something like 18 percent of U. S. GDP and close to that for the rest of the world. Now platforms require commitment, right? You, you can't say, Hey, I want you to invest, co invest with me.

I want you to build this ecosystem. And people say, well, are you going to be here next year? And you say, Oh, I don't know. Maybe not. You have to make a commitment. Now, when you get to the outer levels of uncertainty in any dimension, you what you're in now is the world of what I call options. So these are small investments that buy you the right, but not the obligation to make a bigger investment down the road.

So a positioning option is something you'll invest in when you are fairly confident there's some kind of demand that you can address, but the big uncertainty is how that demand will be manifest itself.

So if you think about what comes after Zoom. What kind of remote telepresence or remote working technology will come next? And we know there's going to be something coming next, right? Because Zoom, magical as it is, has a lot of downsides. So, the dilemma is we don't know what will be next, right? We don't know if it's holography. We don't know if it's, you put a thing on your phone and it beams you into a room as though you were there. It could be movable screens.

It could be immersive avatar type environments. We just don't know. And there are legitimate arguments that could be made for any one of those choices.

So as a firm If you were Cisco or somebody depending on, having, having an option on those kinds of opportunities, you want to invest in a lot of small ones, right? So that could take the form of a small equity investment in a startup. It could take the form of an R and D program where you're really pushing the edge of what's possible. You might belong to an industry association. You might have a small venture that's trying to explore different kinds of technologies.

But the point is they're small. And the other thing that, the positioning options. Is that most of them are not going to work. We, we don't know what the winner will be. And so you have to treat every member of a team that's working on say, next gen telepresence. All of them have to feel that whatever project works, that they all made a contribution. They all help the organization keep its options open. And the reason that's so important is because most of the time they're going to fail.

And that's not bad in an option space. And that's a really hard thing for people to get their heads around because what matters in options is the cost of failing, not the rate of failing. And that's a very different thing than in your core business. And so, if each option costs me five Euro and, and I can do a hundred of them for the budget that I've got, it doesn't really matter if most of them don't work out because the one that works out really takes off.

And that's again, the idea of options, small investment to buy a big upside. So that's positioning options.

Scouting options is a case where I know how to do something, I've got a capability or a technology and what I want to do is introduce it to a new market of some kind. So a new customer segment, new geography, a new delivery mechanism. And so what you want to do there is a lot of experimentation. You want to formulate hypotheses quickly and you want to test them as fast as you can.

And so what, where a lot of people mess up with scouting options is they assume they know, they assume they know what the response of the user is going to be, what the response of the market's going to be. They skip over the experimentation and learning part. And that's almost always dangerous. What you want to try to do is get as much feedback from the market as possible before you make a big commitment.

Now, stepping stones are a case where I haven't got a clue how to do the thing, and I don't know if anybody actually wants it, but the opportunity is so amazing. I think I have to be part of this and autonomous vehicles would be in that space. So what you don't want to do with the stepping stone is invest a huge amount upfront because there's just so much uncertainty. What you do want to do with the stepping stone is figure out.

An early market, early effort that can use the technology that you've got in its current form to do something really interesting.

So, in the, in the book, I talk about a venture we were involved with at Texas Instruments it was part of my dissertation research, and this was in the very, very early days of radio frequency identification technology. So, RFID technology, and TI was one of the very early players in this. And so, the group that was Developing this technology, went to the CEO of TI and said, boss, boss, RFID is about to burst out of the research labs.

And, we, we'd like you to give us, I don't know, it was 50 million to be a first mover in this, because we think we can commercialize it and lock up the market and it'll be great. And they had this list of applications, as long as my arm, it was going to replace airline bag tagging, it was going to completely revolutionize logistics, it was going to do, just all these different applications. So many things you can do with it. Contactless, basically sensors that could identify things.

That was the idea. I remember this is going back decades. So this was before we had the kind of evolved technologies we need today. So I had all these really sexy applications they wanted to go after. And the big boss said, I hear two arguments. I hear RFID is a place we should be making some bets. I, I agree. The second thing I heard was you want me to spend 50 million on this? No, no, no, no, no. I want you to find me somebody, anybody.

Who can actually use this technology to do something productive in the here and now. So go find a market and I'll give you enough money to go after that market. And I notice, right, this is, this is the actual manifestation of option value. A little bit of resource, absolutely, to go find out if something is really real. So anyway, they were very discouraged and they looked high and they looked low. And eventually they found pigs. Pigs as in the animal specifically European pigs.

And what was going on at the time is that the European Union was very concerned about methane pollution in the atmosphere. And it turns out that pigs and other farm animals produce a lot of methane. And so they enacted a regulation that said, if you're going to farm pigs, you have to produce a report that says how many pigs you have and how much land you have them on. And are you in compliance with this new regulation? And it turns out that counting pigs by hand is nobody's idea of a good time.

So what the, what the guys at TI were able to do is create these little ear tags for pigs and we thought equipped with an RFID sensor and to count the pigs, all the farmers had to do once the tag was in the pig's ears, just run them through a sort of an arch that had a. A reader put into it and it could count them. And, and, even better, you could then digitize the report that would be sent to the European commission.

And that was the way that what we now take for granted as a part of everyday life, the RFID got going. It was a stepping stone. It was that first early market where a willing population has a problem that can't be solved by current technologies and that they can use your technology to create a solution.

We're on options evaluation. And one of the things that is so often overlooked is. Your resources, your available resources you have to apply to people. So there's a lack of coordination and it's typical in companies that haven't matched their strategy to those available resources. Peter Drucker famously said to do something new, you have to stop doing something old, but you also have to see, well, what, what are you capable of?

How many hours is this going to take every year, every month, whatever it might be. And you have an exercise that you do with organizations to reveal this. I'd love you to share this because it's so, so helpful.

Who every single project needs and they can't move forward without without that. And then there are others who are perhaps underutilized. Since the book was written, there's there's a couple of software things that might be worth mentioning. So on the opportunity portfolio, that grid with positioning and scouting and so forth. I actually have some software that I've been working on that lets people. Create those maps and let's them do it in a very easy way.

I used to do it with spreadsheets, but now we can actually do it with this software. It's called spark hub. So if anybody's interested in that, they can reach out to me. I'm also working with a company called pro symmetry on the resource allocation part of the time part. And what their software does is it makes it quite visible.

Who's working on what, and you can see the different implications of moving someone from one place to another or stopping a project or freeing up resource somewhere else using their software. So, for the more mature parts of the business, I can highly recommend that.

What we're moving towards now, I think, is a concept of complete teams, which have access, other access to or have within them all the capabilities they need, but operating as cross functional groups. So you've got all the functions that you need.

You're not allocating, so much time for a programmer and so much time for a QA tester and so much time and rather than the Person's time being the thing that you're trying to allocate what you're doing You're saying okay, this whole complete team is working on this feature and that's all they're gonna do for a two or three week sprint And then they're gonna stop and and step back and say, okay, how much progress did we make?

They're gonna take some downtime and then they're gonna move to the next thing So rather than work being spread across different people We're Concentrating people on specific tasks, and I think it flips the logic a bit. So this, I'm not saying allocating resources in terms of times isn't important because it still really is, but we are seeing that different ways of working that are technologically intermediated beginning to emerge.

Yeah. But one of the things you're talking about next is, and we're going to get into the idea of of anticipating the response from competitors as well, which is like the portfolio map of the opponents and supporters of your idea with inside the organization playing that political game.

But before we go there, you talk about competitive insulation. And that competitive insulation is actually another consideration to select a project within a category. And you say here, most small firms are extremely vulnerable to competitive attack and hoping to hide behind barriers to entry, such as superior scope, scale, or cost advantages are unrealistic.

Instead, entrepreneurial thinkers try to determine where they can compete in such a way that they can Enjoy early insulation from competitive attacker. I love how you wrote that, but I love also that concept. I'd love you to share it.

So the concept was Warby Parker in sunglasses or Dollar Shave Club and shaving or glossier and makeup. And the concept was that rather than going through some kind of retail middleman. That these smaller companies could go directly to manufacturers. So they didn't make anything themselves. They just resold them and they could use Facebook to identify customers, customers. They could use YouTube to promote themselves. They didn't have to buy TV ads.

They could get their tech stack from Amazon web services and so forth. And so they, there was just this explosion of firms. You could buy anything from dog food to subscriptions to brick boxes to, whatever you could buy direct to consumer, which is massive, massive. Well, where's the competitive insulation in that? Because the trouble is you're building your business using. Resources anybody can tap into. Anybody can get an Amazon Web Services. Anybody can open up a website.

Anybody can make a YouTube video. And more importantly, anybody can buy Facebook ads. So what starts to happen as entry into that category began to become more and more extreme. The prices of identifying customers. expensive. And of course, now we look back on it. We realized a lot of those ventures were funded by unrealistic levels of venture investment. There's just so much cheap money lying around. These businesses got going, but they didn't have any insulation.

And so now we're seeing headlines that say things like, the direct to consumer movement is crashing and burning. And that's what happens when you don't have insulation. So what constitutes insulation? And I think one of the other realities of the digital revolution, it is, it's neutralized a lot of what were once barriers to entry. So it used to be, if you needed, if you wanted to make something, right, you had to build a plant and unless others had the capital to build a plant.

That gave you competitive installation. Today you can borrow capacity on almost any scale and you can do it globally. So, what was once an advantage can often now be a liability. You're stuck now with all this bricks and mortar and buildings. And you've got to cover the overheads on that. Well, competitors who can just borrow those assets when they need them can compete on a much lighter basis.

And, and, and, and, and, right? A whole set of variables you could look at. And if any of your listeners are interested in those surveys, that's something you have access to. But as, as I've administered those surveys over the years, what is the level of insulation can be created is systemically coming down. which is the end of competitive advantage, which we'll get to in time as well. Transient advantage and other. Term that I learned from you.

So moving on, I thought we'd moved to the idea of adaptive execution. So now I've got my ideas. I'm going to go into execution mode. Maybe you'll take us through the idea of adaptive execution and what that means. This is, this is almost a precursor to discovery driven growth. , Rita McGrath: well, the idea is when you're setting out on a journey and you don't know how exactly how you're going to get there.

So as an example, if, if, if I'm sitting in Galway or something and I want to walk to Dublin, well, I don't know how to get there, but I can figure out how to get to the door to my hotel. So the idea is you, you plan a short trip. executable set of activities. And then when you get there, you stop and you evaluate and you say, okay, now that I'm here, what's the most promising next direction. And so it can be quite iterative. Now you're still heading towards your goal, right?

You haven't given up on the goal, but what you're doing is getting there through a series of shorter easily executable steps and best practice along the way is what are the hypotheses I'm trying to test and what do I need to learn to sensibly take the next step? There was a section in this chapter that you talked about that I thought was absolute gold where you talked about no sales until the first five sales. And that kind of adaptive approach to even finding your customers.

And I just wanted to maybe if you take us through this to also preface the idea that Also how to avoid being held captive to existing customers who might not understand What you're trying to introduce

What I want to know is, do you have photographs of a customer in a compromising position? Now you've got to say, I want to know why Mary's going to buy. I want to know why Doug is going to buy. I want to know why Kim G is going to buy, and and so it was a real way of being very granular in terms of specifically who is going to be.

That, that future customer and what it is they need from you, what specifically will motivate them to dig into their pockets and give money to you rather than something else they might do. So it was a real discipline he used to impose upon his entrepreneurship students. Then the idea of customers yesterday's customers may not be representative of tomorrow's. And there are many, many sectors that struggle with this. So, just as an example, I'm on the board of the local theater here.

An actual in-person performing theater. And, for years now, the traditional customer for regional theaters has been, middle class white people for whom this was a, an outlet, one of the few social pieces. But what I have been telling my fellow members of the board is, the world is different now. We, we have many more options for. what we're doing when we go out. There are many different kinds of people we need to appeal to.

So that customer of the past, and the dilemma that they're dealing with, right, is that customer of the past who would reliably buy a subscription and turn up to every performance and whatnot, that those people were being what's the right word, felt left behind by the new directions some of these more experimental theaters were taking. But the new audiences haven't yet emerged because the new audiences, they're busy. They've got other things they're doing.

It's not that same kind of captive audience that you had when you were Three television stations. And this was the only game in town. It's a really different game. So the whole sector has to really figure out how do we become more relevant in a world which has so many more distractions.

They're the army, they're going to make sure the trains run on time and everything works well and, and, and, and So if you think about the decision making in a large corporation, one of the challenges is the bulk of your personnel are not going to have any clue about that front end process relative to the whole population in your firm, the innovators are relatively small. And I think that's something you really need leadership to understand that in order to manage those tensions.

And one of the great examples, I think I may have mentioned it before, that I think gives Amazon such an interesting set of advantages over many other companies is in living memory. Their leadership has seen things that were tiny grow to be huge. And things that were once really important, remember compact discs go away. And so they've seen that dynamic themselves. They've personally experienced it.

So they don't dismiss the small things and they don't give over emphasis to the big things because they see that they've seen the dynamics in the course of their own careers. Very few companies have given people that developmental experience.

And then the business will hate them because they see them as these troublemakers or these disgruntled employees. But there's a real value and keeping them like you mentioned with amazon keeping this entrepreneurial story with inside the organization where did we come from even like a family business keeping the struggle alive that how we got here in the first place maybe you have some advice on that.

You can't just have everybody making up the accounting system every time they wake up in the morning. So you've got to have the soldiers. That's essential if you're going to have a goal and concern. But you also need the artists, which is, what are the future things? What, what can we change? What do we disrupt? And they need to work for each other and they need to be able to work together.

And I think one of the challenges in synthesis I think one of the mistakes steve Jobs made in his early days at Apple before he got fired from Apple was he totally dismissed the soldiers. He had his own building. He was flying a pirate flag, come with me and change the world. The guys under Scully that were just producing the product. He didn't have much respect for them at all. And I think that was actually one of the, Problems that they had at Apple.

And when he came back he and Tim Cook, who's of course currently the CEO, really fixed that he, he developed enormous respect for the operating people. And that was Tim Cook's world. He, made it happen. And it was considered a miracle, but Apple was so undisciplined in its early stages that, that, people's just said, if they didn't have this awesome product, they'd have disappeared a long time ago.

And so I think the resurgence of Apple has been a function of how well they were able to integrate their soldiers and their artists.

And often on misunderstood or not even considered aspect is actually to understand your potential customers consumption chains and how difficult it will be for them to buy from you, how difficult it might be for them to switch from a good enough alternative that they're, they're used to, and they know that works in central for your experimental one that might save them money over time, but also might not. And they may, nobody gets fired for hiring IBM type mentality. You talk about this as well.

You tell a great story to illustrate this of a college graduate, essentially entrepreneur who had licensed some technology and is trying to sell it and fails initially, but then finds a way to unlock it by understanding consumption chains.

I don't, I don't want to take a risk on your unproven technology. So finally he went to one friendly plant manager who turned out to be a buddy of his. And the look. But he was running a Unilever plant. And so he said to the buddy, look, I'm going to give you this stuff, test it out, like do a beta, I don't need, I don't need you to pay me, but what I would love to get is just an order. Just give me an order. And this was Unilever. Now at the time this was in South Africa.

It was one of my coauthors examples. At the time Unilever was the gold standard. Like it was the equivalent of nobody ever got fired for hiring IBM. And so what he did then was with this order from Unilever, he went to every other plant of that kind and managed to make his sales because what he'd done is he shown them that this was a safe bet. He'd taken the risk away. And I think entrepreneurs don't think about that. So what are people using right now? Is it an intern?

Is it a process where even if it's not brilliant, it's, it's good enough. And this gets to this question of what I call a competence trap. It's known in the literature as a competence trap, which is that when we learn to do anything, We surround those things with our own capabilities. So, you buy a spreadsheet software and, over the course of years of using it, you develop macros and you've got special formats that you use and you've got all this data that's embedded in it.

And somebody comes along and says, Hey, I've got this better solution for this thing. Well, now you've got to face the fact that you're going to lose all of that that knowledge that that's been embedded in this thing. And so even if the new thing genuinely is better. It just as a human being, it's going to take effort. It's going to take energy and those things are in scarce supply.

So as you're thinking about what you're trying to sell to someone, you have to be really thinking through what are they going to have to go through, to buy from you so if I take a typical small consulting project, right. And I don't think our, Small consultants think enough about this for a large company to buy from you. So you've been talking about working with Mars. Well, think about what they've got to do, right? So let's say it's a hundred thousand Euro contract.

They've got to go to procurement. They've got to get legal involved. They've got to get compliance involved. Somebody has to sign a form. For them to do that is a huge undertaking. It's probably costing them 10 percent of the value of the contract to go through all the procurement paperwork. I have a client right now that I'm working with. 42 page contract for a very simple research project. It's unbelievable.

And so, the, the, the, the things that are not actually directly relevant to your product or service can often make a big impact on whether you are successful or not. But you have to think all that through, which is what I call the consumption chain. So this is from the moment you can see, you have a need to something all the way through the thing gets consummated and you have word of mouth or other things going on. What, what actually has to go right before the customer can become a customer.

I had so many more questions for you, Rita. As well, but Rita's preparing now for her fireside chats, which I highly recommend but for now, I think we'll wrap this one. And I was hoping to get to her to anticipate competitive response, but there's so much in there. There's some great graphs that I'm going to share in part four as well, to bring you through that. And we'll touch on some of the other elements. There's a chapter on discovery driven growth.

I think , I'll pass over that and use, and we'll talk about that when we talk about the book there over my shoulder as well at a later stage, Rita, for people who are interested in finding, you mentioned, for example some of your tools that you have available, where's the best place to find you and those tools?

And so you can download you can download resources. You can find articles, videos, again things that are there that might be helpful to you. So those two resources I can definitely recommend.

Yeah. So it's a whole web that go interesting people. There's also a whole archive of them up on YouTube. So if this kind of thing interests readers, there's great access to really pretty famous people. I've had the founder and CEO of Whole Foods. I've had Amy Edmondson rated as the number one management thinker and many, many.

We're going to cover in a little while, the rest of those books, but for now, author of the entrepreneurial mindset, Rita McGrath. Thank you for joining us.