Monday, April 26, 2021

One constant and one big change to consider in your business

 David Bowie sang a song about change called Changes.  He spoke about the need to change - to "face the strange"  - and find a new reality.  Another band - Rush - talked about change as well.  In their song Tom Sawyer, they wrote that "changes aren't permanent, but change is".  What these rock stars and others help us realize is that change is constantly confronting us, as people, as society and as institutions.

For some of us, change is welcome, creating new opportunities and new realities.  For others, change is threatening, upsetting the established order, forcing people and institutions to learn new ways of working or operating.  Whether you are interested or motivated by change, or feel threatened by it, change provokes a response.

So the questions we should be asking ourselves about our businesses are: are we ready for change?  What change are we anticipating?  What change will blindside us and impact our business?  What, if anything, should stay the same about our business in light of all this change?  What should change, and what is permanent?

The reality

In reality, most businesses do not want to change.  Operating on past principles we can more easily predict how the business will perform.  We can more easily control costs and operations if we assume the present and near future will look a lot like the recent past.  In addition, there is organizational inertia to contend with and culture reinforces the way things are done, so change is almost always viewed as a threat to current operations and efficiency.

Yet, as Bowie and Rush remind us, we are constantly bombarded with change, and the pace of change is only increasing and becoming more volatile and uncertain.  

This is NOT a blog about change per se, but about one factor that should not change without strategic consideration, and one factor that absolutely should change but often doesn't. There are many corollaries that we could spend hours on, but we ought to look at two key ideas in particular:

  1. What are the only things that should not change about a business in the midst of all the external change?
  2. What factors or components are more likely to need to change given the acceleration of change?

 The theory of the business

Lawyers have what they call the "theory of the case".  That is, the story they tell themselves, a judge and a jury about the case - how it happened, how it unfolded, the perspectives you need to know and accept in order to understand the case from their perspective, and why their take on the case is the right one.

Similarly, companies need to have a theory of the case about their business.  This is the strategic through line.  What does the business stand for?  Whom does it serve?  What are its differentiators?  Why does it exist?  When I talk to small and medium sized businesses about their business I call this the "through line" - other things may change but this stays constant.

If your business is struggling, it could be because you lack a through line or a theory of the business.  When you lack a theory or through line, you pursue any path at any point in time that seems to promise revenue and profits, abandoning any strategic thinking or purpose, pursuing any promising lead or opportunity.  You are like a dog in a field full of squirrels, chasing one up a tree only to notice another on the ground a short distance away, and then responding by chasing the next squirrel.  There's an awful lot of activity but very little progress.  People feel exhausted, constantly chasing a new shiny object, but it is clear the business is simply spinning its wheels.

This is not to say that businesses should not rethink their strategies or operations, that they should not pivot when pivoting is important.  Of course it makes sense to refocus and pivot when necessary, but only after careful consideration and the creation of a new theory of the business.  For example, look at Instagram.  

Few people remember that Instagram was originally a community focused on sharing information and photos about bourbon.  When the founders realized that the only portion of the software that was attracting customers was the photo sharing, they pivoted to become a general photo sharing application and dropped the focus on bourbon.  They did so in light of reality and with a new intent.

What is the theory of your business?  Does your leadership team know it and agree amongst themselves as to what is core to the business?  Can your employees tell you what is critical to the success of the business, what the unchangeable through line of the business is?  This theory of the business is what doesn't change, and everything else should be built around it.  That is, until a pivot is required and a new theory is developed and communicated.

Business Models

And now for part two - what probably needs to change more than anything else in your business.

We place far too much faith in our thinking and understanding of business models, and as the songs I quoted early on suggest, we probably need to change them.  Business schools do a good job of teaching students about business schools, but I think they convey the idea that business models once defined are permanent and unchangeable.  Given all the change businesses face, perhaps one of the first places they should start to think about change is in the business model.  How and where do we make money?  

Business models are rapidly adapting to new realities.  A good example is the increasing focus on "as a service" where you can obtain products not by purchasing them but by renting them or receiving the product as a service.  This change of course has huge implications on a business model.

If your original business model was to sell a large piece of capital equipment, and now your business model is to provide the piece of capital equipment as a service, you are solving the same problem for a customer (theory of the business or through line) but your business model (how you make money) changes.  A one time sale provides a lot of revenue at once, whereas an as a service model provides recurring revenue over time.  These are two different business models solving the same customer problem.

Business schools have taught, and experience has shown, that business models are somewhat fixed.  But that understanding reflects a time when change was a bit slower and more predictable, when there were still silos of information, when the web was less ubiquitous, when we did not have readily accessible connectivity.  If you are basing your theory of the business or your business model on conditions of the past, or even conditions that exist today, you'll likely find you need to rethink one or both very soon.

An impermanence problem

The problem with business models is that we treat them as if they were permanent, immutable and unchangeable, when in reality it could be that the business model is the only thing that needs to change in order to adapt to new conditions.  GE proved that with their aircraft engines - and in fact will likely be more profitable selling uptime than engines, because they have better information on maintenance, operational issues and also get to collect and analyze all of the data associated with the use of the engine.

Rush may have said it best - but I'll paraphrase it here - business models aren't permanent.  We need to stop treating them as if they are.  A theory of the business is permanent, until another well conceived and well communicated one is necessary as part of a pivot.  

Perhaps rather than think about products or companies, we need to think about needs.  Needs are permanent.  People need food, water, shelter, clothing, entertainment, access to data and so on.  These needs, once established, are ongoing.  Until we can learn to gain sustenance from the air, our needs for food and water are permanent needs.  How companies go about fulfilling those needs, extracting value for serving those needs is not permanent.  Why it does so, and the strategies and theory of the business should be relatively permanent, until a pivot requires a new approach.


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posted by Jeffrey Phillips at 11:42 AM


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