With most economic indicators suggesting that the Great Recession is coming to an end, it’s tempting for a business that has successfully weathered the storm to breathe a sigh of relief and look forward to business as usual. But experience tells us that complacency is the worst mistake a business -- especially a startup -- can make.
Just ask Digital Equipment Corporation (DEC), the precursor to Microsoft and Apple and creator of the minicomputer. By 1990, DEC was riding high, ranked only behind IBM in the computer industry. But under the leadership of Ken Olsen -- who once famously derided the emerging personal computer, saying, “There is no reason for any individual to have a computer in his home” -- DEC stuck with its original vision and its product lines, which were incompatible with emerging operating systems.
Olsen was removed from the board in 1995 and DEC was purchased by Compaq in 1998. By then, the company had lost money for five of its last seven years.
Complacent companies believe they have figured out the formula to success. In reality, there is no business as usual, no magic formula that leads to sustained high performance and financial success at companies. The long-term and repeated successes of high-performing companies are actually due to constant reinvention -- their agility.
Most entrepreneurs start with a culture of agility and a commitment to be responsive to the changing needs of the clients/customers. But as organizations grow and evolve, much of that entrepreneurial daring is replaced with a dogged fixation on “The Plan” -- or, in the other extreme, thrashing around in the face of crisis and trying to adapt with urgent, costly and often ineffective crisis management and organization restructuring.
An examination of hundreds of businesses over 20 years of operations has shown us that rather than digging in their heels, successful companies do a better job at four things: establishing a climate for revising strategies, perceiving and interpreting environmental (external) trends and disruptions, testing potential responses, and implementing the most promising changes.
They have a culture of continuous agility. In essence, they have “agility routines.”
With recent research suggesting that the expected life of a new American company is about six years, entrepreneurs who have enjoyed some success, but want to take their business to the next level, must adopt a culture of agility to survive.
New business owners must first focus on establishing an aspirational purpose, developing a widely shared strategy and managing the climate and commitment to execution. While it sounds obvious, too many entrepreneurs are focused instead on goals: being number one in the market or meeting threshold monthly financial targets.
An agile organization develops a dynamic strategy with change in mind and has a process for modifying the strategy in the face of change, based on aspirational targets -- beyond profitability -- that unify and inspire stakeholders.
Next comes the process of broadly, deeply and continuously monitoring the environment to sense change and rapidly communicate these perceptions to decision-makers, who interpret and formulate appropriate responses.
Agile organizations use the perceiving routine to assess what is happening in their environment better, faster and more reliably than their competition. Entrepreneurs, in particular, fall in love with their products and ideas, and with the original business plans that back them. But this does not allow organizations to be agile. After all, if you’re producing croissants and the marketplace suddenly wants donuts, you’d better come up with a cronut, and quickly.
In its early years, Capital One, a bank that offers financial products and services, tried an experiment in which the founders offered a specific group of people the opportunity to transfer their balances at no cost to a new credit card with a lower interest rate -- and the balance transfer offer was born. Today, Capital One runs thousands of these “experiments” every year, based on its “test and learn” strategy.
Do all experiments work? Of course not -- and a company that completely moves away from its purpose is foolish. Testing is a sophisticated routine for conceptualizing, resourcing, running and learning from experiments, with a clear notion of what “success” looks like and the ability to pull the plug quickly if it doesn’t pan out. In short, testing is risk and innovation, well managed.
Finally, agile companies focus on the ability and capacity to implement changes, both incremental and discontinuously, as well as the ability to verify the contribution of execution to performance.
Some companies, such as Netflix, learn from their testing phase to implement differently. After a spectacular evolution -- and then an equally spectacular fall from grace following a pricing fiasco -- Netflix recovered and nimbly transformed itself in response to changes in the business and technology environment.
To do so, it chose to embrace a “change capability” that determines what new skills and knowledge and technology are necessary for the future, and builds employee functions, responsibilities and empowerment around those trends. Today, the company’s HR manifesto is considered a work of genius. Sheryl Sandberg, Facebook’s COO, called it “the most important document ever to come out of [Silicon] Valley.”
Agility does more than allow firms to adapt. It makes them adaptable and proactively nimble as part of their culture. Like a cheetah -- which can accelerate, decelerate and change direction faster than anything else on the African savannah, and has evolved into the fastest animal on land and one of the most agile creatures on earth -- entrepreneurs and their organizations must change and adapt repeatedly if they are to maintain their environmental fit and survive -- and stay ahead of the forces that will signal tough times or the company’s demise.