Debunking Five Common Myths About 80/20
Dear 80/20 Mentor,
In our business, the profitability is good, and our growth comes in at a point or two above the market rate. We have a traditional sales organization who have been rewarded for incremental growth. Most sales wins have been opportunistic gains rather than a result of our growth strategy. The sales team’s mantra is, “Under-Promise and Over-Deliver,” and I am so tired of hearing that.
Any advice to drive more aggressive growth?
Comfy & Complacent
Dear Comfy & Complacent,
There are a lot of businesses out there that perform "a few strokes better than par,” and the culture embraces the comfort of that. No one gets fired for that; everyone makes a living; customers are satisfied…and on it goes. Thus, this question is largely a matter of mindset and culture.
Successful businesses must answer a fundamental question: how good could this business be if it stretched itself?
Typically, the business could be a lot better, but it entails taking some calculated risk, making changes, and inspiring people to operate outside their comfort zones. The culture, fearing its very survival, fights those things. The culture believes, falsely and dangerously, that pushing for "more" will be the business's demise—this insular view neglects where the true threats are. Those threats are twofold: from competitors (the big one!) and from those who will see a real investment opportunity if they were to purchase the business and manage it with a more appropriate level of risk/reward.
Under-promising and over-delivering is "boring!"
THE BIG THREAT: VULNERABLE TO COMPETITION
Hungry competitors are typically much more attuned to tomorrow's opportunities than the successes of the past. They are often more able to, in the words of Wayne Gretzky, "skate to where the puck will be" versus where the puck is. Aggressive competitors gobble up opportunities that the comfortable business will not pursue due to the level of investment and change required. The result is that, over time, the comfortable business ends up simply having the largest slice of an ever-shrinking pie, all the way to irrelevance.
Take Kodak who was unwilling to invest in digital photography because of their large share of the traditional film business. This is a classic example of "cannibalizing your own business before someone else eats you."
THREAT TWO: VULNERABLE TO TAKE-OVER
The other common result is the take-over because savvy investors can and will spot hidden value in a complacent company. Smart investors don’t see a business for what it is, but for what it can be: managed with calculated risk. Current shareholders and investors in the business who are often less concerned about culture than return on investment will very often be moved by the value proposition conceived by the takeover team. This result is far less dangerous to the company itself than when the competitors "take it over,” but the result is the same for existing management: loss of control.
NO RISK IT, NO BISCUIT
Hence, injecting the appropriate level of risk and stretch is always essential to a business. Calculated risk must be part of the calculus of existing management. An appropriate counter to "under-promise and over-deliver" is that we should "over-promise and get close.” In my experience in driving a culture shift of this magnitude, I’ve found that it is helpful to make clear that under-promising and over-delivering is "boring!" People say, "No risk it, no biscuit,” and that is accurate.
80/20 allows this line of thinking to be injected almost perfectly. By focusing on the most critical aspects of business (or what we at Strategex call “the 80s”), we keep the business very safe and secure. This approach allows us plenty of extra resources to make a few well-defined bets. An 80/20 focus strengthens our ability to hold our lead. It enables us to give the proper amount of attention to those "good bets” and ensures that we stretch our lead. Now, all that remains is to ensure that we compensate people appropriately for winning big on those bets, and we've created a culture of winning.