Marina Gorbis's Blog, page 1435

Facebook’s Unbundling Strategy Makes Perfect Sense

Can a company built on the ideas of scale and network effects unbundle its offering into multiple brands and still thrive? Facebook is about to find out.

Unbundling has a compelling strategic and competitive rationale for Facebook. It has implications that extend far beyond the company’s stated goal to design single-purpose apps that fit mobile usage and the bottleneck of screen mobile device real estate. “Facebook is not one thing,” Mark Zuckerberg said in his recent interview in the New York Times. And clearly, the more meaningful things Facebook becomes to its customers, the less chance it has of being felled by a single savvy competitor or by the obsolescence of a single monolithic social network. But what will unbundling do to its sources of competitive advantage?

Observers have quickly labeled the strategy outlined by Zuckerberg, “The Great Unbundling.”  And that captures part of the strategy: standalone, dedicated single-purpose apps will populate Facebook’s stable. They may or may not carry the Facebook brand. But unbundling is only part of the story. More interesting is what the strategy says about Facebook’s understanding of its future competitive advantage.

Today Facebook enjoys three advantages over rivals: technological capabilities, economies of scale in its infrastructure, and most importantly, network effects. Network effects favor Facebook because for those who want to socially network, it makes sense to congregate on Facebook where everybody else is hanging out. There is only one square in the global village, and it is run by Facebook. Being on a different square from everyone else doesn’t get you anywhere — you just miss the party. This makes Facebook’s competitive lead, with over a billion users, a self-reinforcing advantage: the more people that are on Facebook, the less reason newcomers have to not be on Facebook. So what effect does unbundling have on Facebook’s competitive advantage?

Zuckerberg appears to recognize that the Facebook brand as a single monolithic entry point cannot be everything social to all people. Users have different needs, and those needs will be served with separately branded products to deliver different experiences and attract and retain varied customer segments. Each brand, whether it is Facebook, Messenger, WhatsApp, or Instagram marks distinct territory in the social space. The strategic bet here is that a single customer interface is not necessary to maintain or even strengthen Facebook’s technological lead and infrastructure scale. You can have several customer brands and interfaces and still enjoy these back-end advantages. But what of network effects?

Could unbundling dismantle the network effects at the heart of Facebook? Not necessarily. First, brands that Facebook currently operates, Facebook, Messenger, WhatsApp and Instagram, have hundreds of millions of users, and each of them enjoys greater network effects than all but the largest potential rivals. Secondly, Facebook may believe it is worth sacrificing some network effects in order to build distinct brands and pre-emptively occupy social space. For example, more cohesive groups may have stronger inter-relationships, and so members may be less likely to leave to try other social networks. Finally, Facebook’s strategy suggests that it is well on its way to becoming a conglomerate that is in the business of managing businesses that have network effects at their core. Lessons learned from one network effects business translate to other network effects businesses — a benefit few of its rivals possess.

Above all, the new direction is a smart, competitive strategy even if it has been seen more as product and brand strategy. By having multiple brands in the marketplace, by preemptively building or acquiring new types of social space, by serving and defining multiple segments or “use cases,” and by experimenting with products and features such as Paper and Graph Search, the company both hedges competitive risk and stays ahead of customer needs. Get ready for the many faces of Facebook.

Think Differently About Protecting Your Brand

Licensing can generate big business for brands. The top 150 global licensors accounted in total for almost $230 billion, according to License! Global. Disney alone reported $39.3 billion in retail sales of licensed merchandise worldwide in 2012, fueled by the popularity of its Marvel Comics properties.

Brands in categories from apparel to automotive to sporting goods to spirits are licensed.  Even celebrities license their brands – Usher Cologne, anyone?

Licensing’s popularity makes sense. It can boost brand exposure and expansion without significant investment, helping companies enter international markets or play in new product categories without having to incur the usual product development costs and risks. Licensing can also be used to expand a brand’s footprint into adjacencies, as demonstrated by iPad cases, keyboards, and other accessories.

But the benefits of brand exposure and growth through licensing don’t come without risks. Counterfeiting and brand piracy have kept pace with the uptick in licensing. Legitimate companies aren’t the only ones who have benefitted from increasingly borderless commerce and improvements in the quality of manufacturing and materials in emerging markets. According to the Department of Homeland Security, 500 million counterfeit handbags, belts and wallets worth $1 billion were confiscated just last year.

The prevalence of licensed products combined with the sophistication of knock-offs make it more difficult to tell the difference between what’s real and what’s fake.  It’s also easier for branded goods to get into the wrong hands. Anyone can set up shop online and pose as an authorized dealer.  And even offline, the once-underground black market has become quite visible. Inauthentic goods are now sold through unauthorized channels unabashedly, as the discovery of over 20 copycat Apple stores in Kunming, China, a couple of years ago revealed.

Another risk is old-fashioned over-exposure. When products with Nike logos or trademark Burberry plaid can be found everywhere, the exclusive appeal of those brands takes a hit. Market saturation of branded goods, genuine or fake, can lead to brand burnout – or even brand backlash. When Angela Ahrendts took over at Burberry, the brand had become so ubiquitous and watered down, with 23 licensees around the world each making their own versions of everything from dog leashes to polo shirts, that the company faced problems besides declining profits.  Far from being a luxury brand, its famous plaid had become associated with football hooligans and was even banned from some pubs.

However, when managed appropriately, even these downsides can actually benefit brand owners. Authorized or not, brand awareness in a new market is usually a good thing. And increased brand exposure can lead to a migration from counterfeit to original goods when the economic climate of that market improves or discretionary spending increases. Brand piracy can also be considered an indication of a brand’s health; only compelling brands are victims of counterfeiting. On a recent trip to Shanghai, Italian designer Giorgio Armani purchased a fake Armani watch and explained, “It was an identical copy of an Emporio Armani watch…it’s flattering to be copied. If you are copied, you are doing the right thing.”

So companies must balance brand exposure with brand protection.  Your attorneys may advise vigilant trademark monitoring and enforcement — but chasing down unauthorized products and dealers can be time-consuming and expensive — and ultimately, counterproductive. Starbucks seemed to understand this when it refrained from lambasting the comedian who recently set up a “Dumb Starbucks” store in Los Angeles. The city’s Health Department ended up shutting down the store after just a few days, sparing Starbucks the expense and negative press it might have incurred.

Instead, take a different approach to protecting your brand — one that optimizes factors that are directly under your control vs. trying to manage those that aren’t.  Ensure that you set, communicate, and deliver on your brand standards clearly and consistently in everything you do. Even, and especially, licensed products should appropriately reflect your brand promise and shine brightly in the constellation of your brand offerings.

Consistently excellent brand execution will ensure that purchasers of counterfeit products know they are fakes and therefore won’t expect the same performance from it.  If the quality of your brand is so well-known, knock-offs may be compelling but they will never be mistaken for the real thing. Those who know real Rolex watches, for example, can point to at least 10 telltale signs of fake ones, including a magnifying bubble that doesn’t magnify all that well. Fans of the Tiffany & Co. brand know that a Tiffany product for sale anywhere other than in a Tiffany-branded outlet is not real, thanks to the brand’s tightly controlled distribution.

And since your authorized product may not be the only representation of your brand out there, monitor the totality of your brand presence. You may need to temporarily scale back your own licensing or promotional efforts if a market is being flooded by unauthorized product. That’s what Ahrendts did at Burberry by centralizing their product line – even though in this case, the licensees weren’t doing anything illegal. To reassert Burberry as a luxury brand, she decreed that all clothing would be made in Britain; all designs would go through one “Brand Czar;” and that the company would pull back from offering so many types of products to focus on outerwear. It worked.

The best way to enhance and protect your brand at the same time is to extend your brand value beyond the product. When your brand is comprised of a complete customer experience — including service, environment, communications, shopping experience, personality, and values — it is inimitable and far more valuable. A pirated product may mimic your brand but it doesn’t replace it.  It simply whets consumer’s appetites for more of your brand.

Trademarks are some of companies’ most valuable assets and legal actions are sometimes necessary to defend them. But when it comes to brand protection, the adage “the best defense is a good offense” applies — and the best offense is a clear, well-cultivated brand identity.

How GE Applies Lean Startup Practices

We are all lean now — or soon will be. As the world becomes more digitized, generating more information surrounding products and services and speeding up processes, large and small companies in every industry, even manufacturing, are starting to compete more like the software industry, with short product lifecycles and rapid decision-making.

GE has responded to this drive for speed and need to align more closely with customers’ needs by using a new technique called “FastWorks.” It’s a framework for entrepreneurs, building on “The Lean Startup” by Eric Ries. The Lean Startup is an approach to developing new products that came out of “Agile” software development, with “sprints” (quick deliverables) and fast learning. It’s now being tried in manufacturing since GE and others believe that rapid learning cycles with customers will reduce the risk that you build something you can’t sell.

There is a lot at stake here for GE’s operations strategy. As I wrote in a previous post, GE Appliances is on a journey to prove that it can bring manufacturing back to the U.S. and compete successfully. In 2008, GE corporate decided to invest $1 billion in the $5.6 billion manufacturer of kitchen, laundry, and home appliances, and transform everything — launching 11 new product platforms, building or revamping 6 plants, and hiring 3,000 new workers.

GE Appliance’s first attempt to apply FastWorks has been to create a refrigerator with French doors (doors that open from the middle) for their high end “Monogram” line. In January 2013, Chip Blankenship, CEO of GE Appliances issued a challenge to the newly formed team: “You’re going to change every part the customer sees. You won’t have a lot of money. There will be a very small team. There will be a working product in 3 months. And you will have a production product in 11 or 12 months.”

The cross-functional team was thrown into a room together. They became a tight group as they went down to the factory floor and built products together and looked at market research together.

Instead of the traditional approach in which salespeople give design requirements and then leave, customers would be involved throughout. Having the team hear customer feedback firsthand was a big change, especially for the engineers. At their training center in Louisville, they bounced ideas and product prototypes off of retail salespeople who came to learn about GE’s products. They also went to Monogram design centers in New York and Chicago to test products with designers who were visiting to get specifications and information about products for their clients.

The feedback was hard for the engineers to hear, but it made a huge impact on them. In January 2013 the team came out with a “minimum viable product.” They put it out in front of customers, and … the customers didn’t like it. The first feedback they got was that the stainless steel was too dark. So they made it a lighter shade of silver. Then the lighting tested poorly. They revised it and tested it again. They cycled through several product iterations. By August they had version 5, and customers started to like it. They built 75 of version 6 in January 2014 and response so far has been positive. They’re now working on version 8, which they will produce in October, and version 10, with better lighting, and there is a design projected for 2015. They intend to launch new products every year.

Historically, GE revised products every five years, and they would have kept their new products under wraps. But as Kevin Nolan, vice president of technology, said, “With FastWorks we’re learning that speed is our competitive advantage. How do we become much more open and collaborative with the customer base? You can’t do that if you want to be secretive.”

To make FastWorks work, changes have been made in several areas, including supplier relations, finance, and roles and responsibilities:

Supplier relations. The new product team knew they needed to engage their suppliers sooner in the product development process, and also in a more continuously ongoing way. At the end of January 2013, they went to the factory to explain what they were trying to do, and their suppliers were in the room. The suppliers, not surprisingly, were grateful to be asked to be involved, and have provided more flexibility in the development process.

Finance. Vic Roos, Lead Purchasing Program Manager, explained, “We let a finance guy in the room. He helped us challenge the big company mentality. At times we moved much faster than the company would normally allow. At times it drove the materials manager crazy.” David Schofield, Design Manager — Refrigeration, said, “Typically we needed to have a one- or two-year payback. That model doesn’t work when you’re moving fast and when you don’t know what the customer will like. And it’s hard to put a dollar value on that learning. When we first put up our financial numbers, they looked bad. For this year, we’re not going to worry about the product and program costs in calculating the payback. It took a lot of pressure off the team so they could focus on execution and not on cost.” Traditional financial systems are risk mitigation tools, and there is typically no weighting on speed. These systems often don’t calculate how much money is wasted because you don’t get products in front of customers soon enough, or the risk of going out of business.

Leadership roles and responsibilities. Vic Roos explained, “You need to invert the pyramid. There were times when we were moving so fast that people outside our team were concerned. There was a group that was having trouble moving as fast as we wanted. The CEO came to a meeting, and that wall was knocked down. I always felt that we were not put out on an island, the organization worked around and supported us.” Dave Schofield, “The leaders also gave us more autonomy. Normally we would have had to get approval for pivots. They gave us the autonomy to make those decisions ourselves.”

The results GE Appliance has achieved so far are striking: half the program cost, twice the program speed, and currently selling over two times the normal sales rate.

Todd Waterman, GE’s corporate Lean leader, is leveraging GE Appliance’s insights with other GE units. For example, they recently hosted 70-80 young GE high potentials at GE Appliances. And GE appears to be placing a big bet on FastWorks. According to their 2013 Year-in-Review, in the first year, Ries trained 80 coaches exclusively dedicated to FastWorks. Together they introduced almost 1,000 GE executives to Lean Startup principles. GE also launched more than 100 FastWorks projects globally. They range from building disruptive healthcare solutions to designing new gas turbines; they also extend to non-manufacturing disciplines across the business. GE plans to expand the program to 5,000 executives and launch hundreds of new projects this year. “GE is an ideal laboratory for applying Lean practices because of its scale,” Ries says. “This is undoubtedly the largest deployment of Lean Startup ideas in the world.”

To Enhance Your Learning, Take a Few Minutes to Think About What You’ve Learned

Research participants who did an arithmetic brain-teaser and then reflected on their strategies for solving it went on to do 18% better in a second round than their peers who hadn’t set aside time to reflect, according to Giada Di Stefano of HEC Paris, Francesca Gino and Gary Pisano of Harvard Business School, and Bradley Staats of the University of North Carolina. The unconscious learning that happens when you tackle a challenging task can become more effective if you deliberately couple it with controlled, conscious attempts to learn by thinking, the research suggests.

Think Beyond “Mobile” vs. “Desktop” Shoppers

We all know the story of mobility’s meteoric rise in the last several years. From flip-phones to smartphones to an expanding galaxy of different connected screens and devices, we can safely say that access to the world’s information on-demand will be part of our lives now, and for the foreseeable future. We’re at the end of the beginning.

At Google, I meet with companies of all sizes to discuss how connectivity has changed consumer behavior, and what this means for their business. At the core of this shift is customers’ control over their shopping experience. Connectivity gives your customers the ability to engage with your business any time, and the expectation that you’ll be there. Some businesses were ahead of this curve, and some were behind. Regardless of where your company falls, the challenge of getting constant connectivity right is forcing all businesses to rethink some of their most basic practices.

Companies must evolve, but they can’t lose focus of their core value propositions in the process. There are two basic lessons — welcoming your customers and measuring your success — that can help a business understand these new consumer behaviors on devices of all kinds.

Delivering a welcoming in-store experience used to be fairly straightforward. Whether a business had a single location, hundreds of franchises, or something in between, most customers would have a similar experience whenever they walked into a store: they’d be constrained by the same store hours, see the same products and prices, and walk through the same door(s) on the way in and out.

Connected devices have changed this profoundly. Now, many factors shape customers’ experiences with a business, including: location, device software, quality of its website or app, ability to price-compare anytime, and more. To make matters more complex, the ever-increasing variety of connected devices has made distinctions like “mobile” and “desktop” increasingly irrelevant.

Today, businesses can best welcome their customers when they tailor online experiences to their customers’ context — that combination of location, device capabilities, time (of day and of year), user preferences, and other signals that allow you to deliver a welcoming and relevant experience in that moment. This applies to websites and apps. Customers may choose to visit you via one or the other, but will be looking for a high-quality experience in either case. It also applies to sites or apps; certain customers may want to use one instead of another and your business’ understanding of context should be able to guide them toward their preference, or give them the option to choose.

As an example, suppose you own restaurants in a variety of locations. To create a great experience for your connected customers, in your ads, sites, and apps you could use devices’ location awareness to highlight restaurants near your customers, make it easy for customers to call you to place orders from their phones, create a loyalty points program for in-app orders, or provide special in-store offers (free appetizers!) when your best customers visit you frequently.

These opportunities allow you to welcome your customers in a new, useful, relevant way that’s simply not possible offline. Imagine rearranging your restaurant(s), changing your menus, and running different ads for every single one of your customers — it can’t be done, at scale. But online is built for this, and in many ways, is capable of providing an even more welcoming experience than customers already receive. With the right level of effort, technology can do this work so you can welcome each of your customers warmly.

So, connectivity has created new challenges and opportunities to welcome customers in their online context. The same can be said for the subsequent interactions people have with your business — when they click or view an ad, visit your website, download your app, visit a store, and make a purchase.

Evaluating the right business metrics around these interactions is one of the challenges this new world brings. Consumers’ paths to a purchase are more varied and complicated than they’ve ever been. The path of your customers could look something like this: they start with a Google search for your product during their morning commute, click an ad, visit your website, download a separate shopping app, continue their research from their tablet a few days later, and finally visit your physical store to buy. Measuring and understanding the effectiveness of your online ads and properties can seem a daunting task, given this winding path.

These zig-zagging consumer interactions are just beginning to be measurable. Connected device capabilities may also be causing businesses to overlook valuable interactions that are already measurable — online and offline. Phone calls are a good example: We see more than 40 million phone calls driven to businesses directly from Google ads every month. These interactions can be hugely valuable for businesses, but if they are not accounted for, or online properties are not optimized for them, they are silver in the mine.

Companies need to reevaluate their business metrics in terms of today’s consumer behavior and keep consistently learning how their customers get to a sale. Measurement tools need to be ready for a customer that will search for their products and services at a moment’s notice, and then jump from screen to screen, web to app, online to store as they move toward a purchase. Just as technology has enabled new consumer behavior, it is also needed to help businesses operate effectively. We remain at the tip of the iceberg, but new tools from many players (Google’s Estimated Total Conversions in AdWords is among them) are beginning to provide businesses with the opportunity to measure how they are delivering tailored, more useful experiences for their connected customers.

People now expect connectivity wherever they are and on whatever device they choose — this is the new norm. It’s time for businesses to catch up and understand their connected customer.

What Makes the Best Infographics So Convincing

A great infographic is an instant revelation. It can compress time and space. (Good gosh – Usain Bolt is that much faster than all the other 100-meter gold medalists who’ve ever competed?) It can illuminate patterns in massive amounts of data. (Sure, we’re spending much more on health care and education than our grandparents did. But look how much less on housing.) It can make the abstract convincingly concrete. (Which player was ESPN’s SportsCenter most discussed during the 2012 football season? Tim Tebow — and by a colossal margin. Seriously?)

These intriguing revelations come from a short trip around The Best American Infographics, 2013. Spend serious time poring over graphs, pie charts, bar charts, flow charts, timelines, interactive diagrams, maps, cut-away diagrams, and narrative illustrations, as Gareth Cook did to compile the collection, and you’ll come away with more than your share of these mind-bending moments – and a wide-ranging view of what infographics can do. A Pulitzer Prize–winning journalist, Cook is a regular contributor to and Scientific American Mind.

The most compelling infographics, he says, mine relationships among overlooked variables to tell you something unexpected and get you thinking. (Who knew it takes an annual income of $908,000 to break into the top 1% in Stamford, Connecticut, but only $609,000 in New York City — and just $558,000 in pricey San Francisco?) The least effective confuse you (the food pyramid), overwhelm you with data (nutrition labels), or are just plain boring. I recently asked Cook to share his thoughts about what makes an infographic particularly persuasive.

What’s special about the way infographics make their case?

Infographics have an emotional power because they can show you an idea — or a relationship, or how something works — very quickly. People respond to that. A persuasive infographic surprises the viewer. It moves them in some way and makes them want to keep looking at it or show it to other people.

Did you see commonalities in the ones you found most convincing?

First, I’d say, they all have a clear focus. The designer has gone in and removed all the extraneous details so you see just what you need to understand the message behind it. And yet the best ones also have a kind of openness – the person who’s done it is transparent about what data they’re using. That can be tricky because you need to give people a sense of all the data that’s out there, and enough context, without overwhelming them. In the best cases, viewers feel that they are the ones stepping in and making the connection because they can see the bigger pattern naturally emerging from what you’re showing them.

Can you give me an example?

Take a look at the first infographic of the collection. It’s very simple. It starts with a question: “Which Birth Dates Are Most Common?” And what we see is a chart that shows every day of the year in various shades of a single color. The darker the color, the more babies were born on that day in the U.S.

It’s effective because you can see all the data for the entire year, and yet the actual relationship emerges very strongly. You immediately see the dark band running through July, August, September, and into October. It’s very clear that more people are being born then.

Once you’ve seen the main relationship, you can look at other things, as well, which is very satisfying. You can see, for example, on July 4th and 5th there’s a sudden drop-off in people being born, presumably because it’s around the holidays — you can see the same thing around the Christmas holidays. But then if you look over at February 14th there’s a dark island where a lot of babies are being born. So you can see the main relationship, but then you can also do some exploring.

That’s an important part of its persuasiveness: You want to show someone something, but you also want to give them a sense that they’re free to move around and find their own relationships. When they do, they’ll have confidence that you really are giving them the whole story.

In his introduction to the book, David Bryne talks about the power of infographics to let us see the invisible. He’s thinking mainly of cutaway diagrams, as an explanatory tool, but I imagine that can be an effective tool of persuasion as well.

Sometimes people don’t believe you because they can’t relate to your argument or they can’t understand it. Infographics can make an abstract subject concrete – let viewers put their hands around it. One of the 10 interactive infographics in the book does this especially well. It shows carbon emissions in New York City in real time, representing each ton of carbon dioxide as a giant blue sphere.

In 2010, as we’re told in the introduction, New York City added the equivalent of 54 million metric tons of carbon dioxide to the atmosphere. That’s two tons every second. As you watch, the giant spheres emerge from the ground and start to float upward, two every second. You can see how much they build up over time. By the end of a day, the pile has reached the top of the Empire State Building. It’s amazing; you get a visceral sense for how much pollution that is.

Can you give me an example of an infographic that’s good at boiling down a mass of big data?

One is the Better Food Label, which Mark Bittman and a team of designers at the New York Times came up with. Look at the food label on your breakfast cereal in the morning and you see this overwhelming amount of data – vitamin A, vitamin C, calcium, all these percentages, two columns, with and without milk. It’s hard to make sense of it all. Imagine someone at the grocery store trying to decide between two products: Which is going to be better for me and my family? It’s just too hard to get the answer.

So they came up with a chart designed to address just a few basic questions that someone might want to know when trying to decide how good this food is. How healthy is it nutritionally? How free is it from possible contaminants? How safely was it produced, environmentally? And when you look at their label, you can take in all of that information in two or three seconds. (Click to see a larger version of the image below.)

This is something infographics are naturally designed to do – give you the gist of a really big data set. I think this is one of the reasons why we’re seeing infographics used in so many different realms right now.

I know you’re talking to a number of business groups while working on next year’s collection of infographics. What are some of the ways forward-thinking businesses are beginning to use them?

Certainly, businesspeople are working with designers to develop infographics that present ideas. But more broadly, they working with them to help solve problems. People adept at creating visual solutions bring a different basic set of questions to bear. In considering a data set, they may say “Oh, we can look at this unusual variable and see how that changes over time.” Or they may come up with a new way to explain something to a customer who just can’t seem to understand your current pitch.

I was not at all anticipating this when I set out to do this collection, but I’ve definitely heard from readers who use this as a source book. When they have a problem they flip through it and may notice something that gives them an idea they wouldn’t have thought of before.

Many of the infographics in this collection are pretty funny. If you are in the serious business of trying to persuade people of something, do you see a role for humor?

I think it’s often the case that when people are designing something to persuade, they forget the importance of whimsy. Humor opens people up and makes them more willing to hear messages they might not otherwise reject out of hand. When you’re working really hard on designing something or making something clear, it’s very easy to lose that sense of fun yourself, and the work shows it. You want your audience to sense that at a certain level you are enjoying this. A lot of the pieces in this collection just make me smile.

Persuading with Data

An HBR Insight Center




How to Have an Honest Data-Driven Debate
The Quick and Dirty on Data Visualization
To Tell Your Story, Take a Page from Kurt Vonnegut
Don’t Read Infographics When You’re Feeling Anxious

Why I Tell My Employees to Bring Their Kids to Work

I am the CEO of a fast-growing high-tech company. I’m also a mother of three boys, ages 9, 7, and 4, and I pride myself on being very involved in their lives. I have had to juggle kids and career for the last 10 years, and I cannot separate work and home life, as I’ve found that creates too much stress and pressure. Instead, I integrate both, bringing kids to work and work to home as I need to. This has worked so well for me, and Palo Alto Software, that it has become part of our company culture.

No, we don’t bring our children into the office every single day, and by no means have we used this freedom as a daycare replacement. But, when the nanny needs an afternoon off, school is suddenly canceled, or someone’s child is not feeling great, we welcome and encourage them to spend the day in the office. We even have a room designed specifically for children who need to spend time in the office where they can watch TV, play games, work on art projects, read, or do homework.

My employees also aren’t burdened by strict working hours. Regardless of the reason, if parents need to be with their children during “normal” work hours, we understand and support them. We focus on results and achieving goals rather than hours worked in the office, and give employees the freedom to get their work done where and how they need to.

As companies compete for top talent, company benefits and culture are important. We’ve all heard about some of the ridiculous benefits at Silicon Valley firms, like barber shops, coffee carts, game rooms, and free dry cleaning on campus. New employees get the latest tech gadgets as signing bonuses. One COO of a fast-growing Silicon Valley company told me he never thought so much of his job was going focus on how to get the best burritos to the cafeteria to avoid losing employees to the next Internet darling.

But at the end of the day, these types of benefits are pretty superficial. Everyone knows those are focused on keeping you at the office for as long as possible — not about actually making you happy. Providing an environment where an employee can be loyal, work hard, and get rewarded for innovation will bring both better results and more talented people to your company. The best of the best are swayed less by a new iPad or free lattes than by having the opportunity to manage their own hours and focus on results, at a company that respects their home lives and their families.

Research has shown that a person can only be productive for a certain amount of hours each day. Beyond that, employees are just wasting time and producing meager results. Sometimes working too many hours actually produces a negative, not just a neutral or delayed, effect on results and productivity. So why encourage employees to stay at the office for 60, 70, and 80-hour weeks when you may, in fact, get less out of them or even lose them to other companies? The culture that I advocate for allows employees to work hard and gives them the opportunity to de-stress and refresh every night when they go home at 5:30 or 6pm.

Do my employees produce less? Has my company suffered financially for the work style and the benefits I afford my employees? Quite the contrary. We have never grown faster, nor been more financially successful. We have happy employees who love to work for us. Oh, and we also had an office baby boom — there have been 10 babies born in the past year. If that isn’t an indicator of happy, secure, well-paid employees, I don’t know what is!

We believe that to both recruit and retain the best people, we need to provide a culture that gives them room to be creative, take initiative, and excel in their careers. That’s why we recognize the importance of their personal lives — and why we give them flexibility in hours, as well as the flexibility to bring kids and babies to the office as necessary. So let’s forget about the “cheap” perks like foosball and free burritos, and instead provide a culture that respects people as human beings who want more than just work.

How Midsized Companies Can Avoid Fatal Acquisitions

Big-company corporate development departments dream of acquisitions that substantially boost revenue or bring assets that turbo-charge growth. CEOs of midsized companies I’ve come to know over the last 30 years share the same dream. But they are far more cautious, as they should be. Unlike a Fortune 500 company that can casually take a write-down, a midsized firm often can’t recover from a strategic acquisition that goes up in flames. And plenty do.

Acquisitions are more likely to go sour for midsize companies than for bigger firms for two reasons: a smaller financial cushion and fewer internal acquisition experts. The second reason is more important. Most midsize companies lack the breadth and depth of skilled corporate development professionals whose jobs are to source, make, and integrate acquisitions. General Electric’s corporate business development group (about a dozen professionals) is bigger than the entire executive team in many midsized companies.

Yet many midsized companies such as EORM (whose revenue has doubled since 2010, after its first acquisition), Pelican Products (whose revenue has more than quadrupled since 2005 to $360 million) and CRC Health Group (from zero to $450 million thanks to its acquisitions over the course of 20 years) have made excellent acquisitions that accelerated revenue and profit. Through research and my own consulting experience, I’ve found four practices that explain these companies’ mastery of the art of acquisition:

They only buy companies that fit their core strategy. Like a shopper in a flea market, it is quite easy for a CEO at a midsized company to get distracted by sexy deals. Midmarket investment bankers love to shop potential acquisitions to their CEO clients. In fact, a thriving association (the Association for Corporate Growth) exists to provide a venue for North American and European investment bankers and their clients (midsized companies and private equity firms), as well as other M&A service providers to regularly break bread and shop deals. But midsize companies such as EORM shop carefully, making sure the deal is in line with their core strategy. The San Jose, Calif.-based environmental consulting firm shunned acquisitions for its first 20 years, favoring organic growth. But in 2010 (at $13 million in revenue), management decided that to grow, the firm needed to buy other companies. They created explicit criteria. The companies EORM would pursue would have to provide similar consulting services; be small (10-20 employees); and be based in Southern California or the East Coast (two geographies the company knew and had a strong nucleus of potential clients). After a first deal fell through in late 2010, EORM acquired a Southern California firm in 2011. It has since doubled revenue to $26 million.


They have long-term, experienced M&A staff on board. These executives understand the firm’s culture and have working relationships with the key functional and line executives who are crucial to integrating the target company’s team smoothly. Having your own team is far better than relying on accounting and consulting firms, whose rented experts typically don’t get (or care about) the acquirer’s culture or have authority to make crucial acquisition integration decisions (such as who should report to whom). Building internal M&A skills has helped Pelican, a Torrance, Calif., company that makes flashlights and cases for industrial use (military, police,  firefighters, and so on), grow quickly over the last nine years. When Lyndon Faulkner joined as CEO in 2005, he felt the then-$80 million firm had to make  acquisitions to grow. But he was the only one in the company with M&A experience. So he taught his team planning and M&A skills. Then he got personally involved in the acquisition of a small Australian company. By 2009, his team’s M&A skills were strong enough to buy a competitor that was nearly as big as Pelican. Before the deal was done, Faulkner hired an experienced deal integrator to bring the acquisition (Hardigg Industries) into the fold.


They have strong due diligence skills. Some of the midsized companies best at M&A avoid acquisitions of companies under $5 million in revenue. The reason is that conducting due diligence will be costly and arduous because small companies often have poor reporting and accounting systems. The risk of costly surprises is high and the return on such a small acquisition is generally low. But a financial risk is not the only one, especially with larger acquisitions. The more employees the acquired company has, the greater the likelihood there will be people problems. What’s more, larger acquisitions come with greater complexity risk; the company often ends up serving many more customer segments. To get a better handle on these risks, the best midsize company acquirers do in-depth financial modeling, including worst-case scenarios. What if the new products under development strike out? What if the acquired company’s CEO or sales team walks out? How quickly would the acquisition’s revenue and profitability decline? The best acquirers have more than good guesses about those issues. And they are not afraid to walk away from a deal — even when they’re strategically sound — that is just too big to integrate properly.


They focus on integration. Their integration process – which is both the greatest value creator and value destroyer in an acquisition – begins long before the CEOs of two companies sign the merger agreement. And planning goes far beyond the acquirer’s corporate development team. Functional and product line managers who must work well with their counterparts at the acquired firm are brought into the discussions at an early stage. That helps them understand the acquisition’s strategic rationale and get used to the notion that they’ll have new counterparts. CRC Health Group, which by acquiring more than 30 companies since 1995 has become the biggest provider of chemical dependence and behavioral healthcare treatment services in the U.S. (2013 revenue of about $450 million), knows this well. “The likelihood of an acquisition’s failure goes up the less the operating people are involved during deal-making,” Barry Karlin, CRC’s co-founder and former CEO, told me. Getting the operating team into the M&A process early on helps them build good relationships with their counterparts. It also helps the integration team to more accurately size up the target company’s capabilities and systems.

Midsized companies that excel at these practices aren’t flummoxed by smaller deals, and can make some very lucrative big deals — even acquiring firms that are bigger than they are.

Forget the Strategy PowerPoint

I have for decades watched CEOs and other executives try to explain a corporate strategy to a small group of senior managers or to a much larger group of staff. For the most part, it has not been a pretty sight. In the case of senior managers, I usually hear 3 or 4 different interpretations of what the boss said, or disagreements about what they thought he or she said. In either case, no alignment at the top. In the case of a larger group of staff, often many people look on blankly during the presentation. They may appreciate a CEO’s willingness to share crucial plans. But because they don’t have the context or experience, they can’t even begin to understand what is being thrown at them in a thick PowerPoint deck. And what they do see certainly doesn’t make them want to get up in the morning and come to work.

I have watched CEOs have better success communicating a good vision. It is much shorter, easier to see (literally), at best emotionally compelling. It is the place that a strategy is trying to drive the enterprise. But better success communicating the vision only goes so far. To truly help an enterprise succeed, this needs to be tightly connected to the actual strategy, and often is not. Worse, the vision can come out sounding as if it has no real content, or antiseptic or foggy.

My colleagues and I have found an alternative that is easier to communicate, more effectively aligns people, and generates and sustains energy better and for longer. We call it “The Big Opportunity” and I devote an entire chapter to it in my new book Accelerate. We have been using this in all our field work with different kinds of companies and organizations.  I have been impressed with the power of this simple, clear concept.

Briefly, here is the idea: a Big Opportunity articulates in language that is analytically accurate and emotionally compelling an opportunity that will move an organization forward in a substantial way. It is that exciting possibility which, if you can capitalize on it, will place you into a prosperous, winning future. It is related to vision and strategy in a very straightforward way: a strategy shows you what you need to get to a vision; a vision shows you what you will be doing if you get to, and are able to capitalize on, a big opportunity.

A written statement of a Big Opportunity can be a very useful tool. It is short, like a vision statement, and unlike a strategy description which is often much longer. “Short” usually means about half a page long. The crisp clarity of it is one of its advantages. Another is its tone. Both strategies and visions can sound like: OK, this is what top management has decided and now you will go do it. Effective Big Opportunity statements direct attention to an inspiring rainbow outside; they don’t feel like a finger pointing out what the managerial and employee children should be doing inside the organization.

Big Opportunity statements, as we have used them, have real rational content (like any good strategy) and are emotionally compelling (like any good vision). Here are the basic characteristics of an effective Big Opportunity statement:

Short. Written on less than a page, often just a quarter of a page. Short length makes it easier to share with others and to create a sense of urgency among large groups of people.

Rational. It makes sense in light of real happenings inside and outside an organization. A good statement concisely addresses issues of what, why, why us, why now, and why bother.

Compelling. It is not all head. There is heart in it. And it speaks to the emotions of all relevant audiences — not just to select people and groups, excluding others.

Positive. Because it is about an opportunity, it has a positive tone. It is less like a statement about a “burning platform,” which seeks to scare us out of our complacency, and more like a statement of a “burning desire.”

Authentic. It feels real. It is not just “good messaging” to motivate the troops. The senior leadership team that puts it together, or at least signs off on it, must genuinely believe in it and feel excited about it.

Clear. You can create a statement that is short, rational, emotionally compelling… but still unclear. A great statement makes people rush off in the same direction — not different directions.

Aligned. The statement is aligned with any important existing statements of strategy in the group or organization. Or at the least, it is aware of any non-alignment and the stresses and strains that will create, so leaders are prepared for it.

In our experience, we have found that that you can get 75% of a large employee population to understand, believe in, and be energized by a good Big Opportunity statement in a way that just doesn’t happen with a larger description of a business strategy or a vision. In an increasingly fast-moving world, this achievement can can be hugely helpful in dealing with rapid-fire strategic challenges.

If You’re Thinking of Soliciting Donations in Bulgaria…

People living in cultures that are more accepting of inequality in power or wealth are less likely to donate money to charitable causes or help the needy, according to research by Karen Page Winterich of Pennsylvania State University and Yinlong Zhang of the University of Texas at San Antonio. The finding may help explain why the most generous countries—Australia, Canada, Ireland, New Zealand, and the United States—have relatively low scores on a measure of inequality acceptance, while the least generous—Bulgaria, China, India, Russia, and Serbia—score higher. Acceptance of inequality may reduce people’s perceived responsibility to aid others, the researchers say.