100 Best Review from Finland
Matti Copeland from mcreads.com posted a video review of The 100 Best Business Books of All Time
. He reports 13 of The 100 Best have been translated into his native Finnish.
Thanks Matti!
Insights Are Better Than Ideas
DDB Worldwide recently published a “yellow paper” titled Insights that Incite (hat tip:PSFK). The gist of their “brochure” is that it is hard to break through all the clutter and you need to find something unique and unexpected to change how people think about your brand—pretty much what you would expect from an ad agency.
This reference though reminded me how much I love the word insight, something I owe to former BBDO chairman and agency man Phil Dusenberry. He had the best definition I have ever heard for insights in his 2005 book Then We Set His Hair on Fire:
In this book, I have stressed the difference between ideas and insights. Ideas are a dime a dozen; anyone can have them. They can be good or bad ideas, saving your hide in some cases, wasting your time in others. The best thing about a good idea is that it forces you to act. Insight is rarer, and infinitely more precious. A strong insight can fuel a thousand ideas, a thousand reasons to act and make something happen. That, more than anything, should be your reason to fight and persevere for your own insight moment. When you are armed with a powerful insight, the ideas never stop flowing.
Think about the really great business concepts. Porter’s Five Forces Model is an insight. Each one of Covey’s Seven Habits is an insight. Control Your Destiny or Someone Else Will, the title of one of the definitive books on GE, is one of many insights Jack Welch used when he was CEO of the company.
If ideas are intellectual lightbulbs, insights are 10,000 watt searchlights. Insights illuminate a wide range of paths to take. They provide the “why” which lead you to a plenitude of “hows.”
Side note: Then We Set His Hair On Fire didn’t sell well in hardcover and was released in paperback under the title One Great Insight Is Worth a Thousand Good Ideas. Even with the better title, the book has some identity problems. At times, it is a biography and at other times a how-to with case studies. If you can look past those conflicts, you’ll hear the inside stories of brands built like Pepsi, Visa, and FedEx. Dusenberry’s book is one of my favorites of the last five years.
Review: The Core Trilogy by Chris Zook
You are a witness to strategy playing out all around you. When the local newspaper runs its yearly story about which restaurants have closed, it is really reporting on failed strategies. Every one of those restaurants felt they could draw a sufficient number of customers to sustain a business…and they were all wrong. Our publisher, Portfolio, in deciding to publish this book, made a strategic decision, one based on the belief that this book could compete with others on the retail shelves. Strategy is not some arcane methodology limited to discussions around a boardroom table. Strategy is about competition and determining a course of action based on the realities of the market.
There are a nearly infinite number of choices when it comes to determining strategy for a company, department or even PTA. The bad news is that once a leader decides on a course of action, there is only a one-in-four chance that action will be successful. That is a sobering statistic and explains just why so many restaurants close within the first year of business. So, what if you could get a hint about which action might be more apt to succeed? What if there was some trustworthy information that could improve your odds?
Chris Zook, head of Bain’s Global Strategy practice, has been looking at where growth comes from for over seven years and he has written three books that detail his work. The first, Profit from the Core, summarizes ten year’s worth of research and proves that successful growth comes from focusing, not diversifying. Beyond the Core takes the next step, and in it, Zook argues for companies to make adjacent strategic moves leveraging their core for growth. The third book, Unstoppable, explains how the need to redefine a company’s core strategy may be the only option and how to make the transition successfully.
These three books can be read together or individually. A specific problem may lead you to read a specific title. The key insights appear in all of the books, but receive varying degrees of emphasis. Let’s start by getting you excited about what Zook has to say.
The Reality of Growth (Say No to the Status Quo)
Companies have to grow: Competitors are in a constant battle to steal customers and their precious dollars; Inflation eats away at steady profits; Investors expect better-than-bond returns. Growth metrics indicate the health of a business and its strategy.
In Profit from the Core, Zook and his team defined reasonable growth levels (at least 5.5 percent growth rate in both sales and earnings) and analyzed market data to determine how many companies meet the criteria. Only one in eight companies met the growth criteria over a ten-year period. It gets worse: a study of strategic planning processes showed 90% of companies believed they would.
To explain the disconnection between strategic hopes and market realities, Zook examined over 160 reports on the topic of growth and found these sober statistics:
- The success rate for new products is about 30%.
- The success rate for startups is below 10%.
- The success rate for joint ventures is about 20%.
- The success rate for related acquisitions is about 30%.
These numbers could be a strong argument to embrace the status quo, but taking no action at all can be just as dangerous. One-third of the top 500 companies did not survive the 1990’s, disappearing through acquisition or bankruptcy. Of the 350 companies which did survive, nearly one-half changed their primary business strategy. Taken together, six out of ten companies faced significant challenges to their core business and only half of them survived the ordeal.
King of the Hill
Let’s revisit those companies who did manage to grow significantly over that ten-year period. They showed an interesting commonality: almost 80% had a single-focused core business. Zook believes defining and distilling a company’s core is the key to long-term growth.
There was something else interesting in the growth group: these companies were all market leaders in their industries. Market leadership brings with it enviable benefits:
- In a typical multi-firm industry, the top player captures 70 percent of the profits.
- Market leaders earned a return on capital twice that of parity players and three times that of followers.
- Market leaders’ market-to-book values are double that of followers.
Zook calls this phenomenon “leadership economics.” This incredible leverage means that market leaders can reinvest at a rate significantly higher than their competitors. (Zook found a nearly 2X difference.) This strengthens the market leader’s position by lowering costs and further improving margins.
Big Fish in a Big Pond
There is no benefit in market leadership if there is no money to be gained. Industry market size is unimportant, says Zook. Locating and properly estimating the size of profit pools within the industry is the key. These funds are what competitors are really fighting for. These profit pools can shift among competitors, flow amid steps in an industry’s value chain, or even disappear completely with step-function changes in technology.
Profit pools bring clarity to strategic discussions. Does our core exist in a market position that has a sufficient profit pool? Do other potential strategic moves have larger profit pools? Can we use our market leadership to draw profits from other pools along the value chain?
To summarize what we have learned thus far: you want to be a big fish growing in a big pond.
Who Am I? (Who Are We?)
Finding the core of your business is relatively easy—identify the customers and products that generate the most economic profit. From there it gets much more difficult. What about all the product lines that are not making any money? What about the planned distribution center in Omaha? The budding partnership with your material vendor to bring a whole new quality level to the industry?
Defining the boundaries of your core is not made much easier by reading Zook’s work. This is no fault of the author. It is simply the reality of strategic thought. The ever-changing realities of suppliers, competitors, customers, and technologies make this the most difficult part of the process. These boundaries need to be questioned and challenged regularly.
Settling on a definition for the core is followed by a round of action. Executives surveyed said they only exploit 50 percent of the business opportunities within their cores. Every action should be taken to establish and/or maintain market leadership, influence the industry’s reinvestment rate (re: make others not want to enter), and possibly shape and capture a larger portion of the profit from the extended industry (e.g., what Intel and Microsoft do in the PC market).
Right Next Door
Market leadership feels good. The company grows. Shareholders, employees, and shareholders are all happy. It is time to find the next source of growth. This is where most mistakes occur. Look back at those failure rates.
For this reason, Zook spends an entire book, Beyond the Core, discussing business expansion. Zook calls these “adjacencies” and is one of the themes that appears in all three books. His thinking and the data he shares evolves with each book, but the definition never changed. Busine
ss adjacencies are growth opportunities that allow a company to extend the boundaries of its core business through drawing on skills that already exist.
Zook’s research again helps us make better decisions about our strategic future. His research identified five dimensions (customers, competitors, cost structure, distribution and brand) to consider when planning an adjacent move. When a company uses the strengths it already possesses, the odds of success improve and the insight here is to make small moves. Changing only one of the dimensions in an adjacent move showed a 37% of success, better than most failure rates quoted earlier. Changing two dimensions shows a familiar 28% chance of success. With three dimensions changes, the success rate drops to below 10%.
Every adjacent move should be one made toward robust profit pools, and, in those profit pools, companies want to leverage leadership economics. Expansion requires reinvestment and market leadership is the only way to ensure profits needed.
Core Meltdown
Six in ten companies are going to have to redefine their core business in the next ten years because their profit pool is going to shift, be redistributed, or collapse completely. Our company faced a profit pool collapse in 1996 when Amazon entered the book business. Our robust catalog business evaporated and 1/3 of our total business disappeared in six months.
Unstoppable captures Zook’s thoughts on core renewal. The book is the broadest and most ambitious of the three. Starting over isn’t something companies do well, but Zook believes there are hidden assets in all companies that can be the basis for redefining their cores. New customer insights can reveal previously unseen habits and behaviors. New markets can appear when the company’s capabilities are identified and applied differently. Small peripheral businesses can act as a new center for a struggling core. While not all companies have these starting points, Zook stresses the importance of looking for hidden assets before abandoning everything for a new industry.
Some Help and a Head Start
No matter what stage your business is at (defining a core, growing from that core, or needing to find a new core), Zook’s research offers clear direction¬: search for profit pools, market leadership delivers the needed profits, and small, repeatable moves improve odds of success. If you can clearly identify where your organization appears in Zook’s trilogy, certainly pick up the appropriate book for your needs. However, if you are looking for broad-spectrum knowledge, at the end of Unstoppable, Zook provides a road map for how to read the trilogy together, directing the reader to the strongest material in each of the books. I am certain that reading Zook will also improve your odds of success.
Profit Share, Not Market Share
The big news this week was a report from Strategy Analytics on the worldwide smartphone market. In the report, analyst Alexander Spektor estimates that Apple generated $1.6 billion dollars in operating profit from iPhone sales in the third quarter. over the same time period, Nokia made $1.1 billion. There are two comparisons that make those numbers incredible.
Image:neilvaneck
While neither company started off making cellphones, Nokia has a 24 year head start on Apple in the market. Both companies certainly have a command for technology which puts them on equal foot, but we have to be amazed by the speed at which Apple has managed to create all the other parts needed to be successful in the market. Just consider the variety of ways they were able to leverage distribution through the Apple Stores, Apple.com and all of outreach of the AT&T partnership to sell 30 million units since the 2007 introduction.
The second piece is even more amazing. Nokia is the market leader with 35% global share. Apple is able to generate $500 million more in operating profit with 2.5% market share. Two point five percent.
Bain & Company have been huge proponents of looking for profit pools rather than chasing market share. In The Breakthrough Imperative
- Everyday changes in customer preference and behavior (move from soft drinks to water)
- Innovations, both from within your industry and outside it, that drive longer-term customer shifts (shift from indie bookstore’s 20K titles to big box bookstore 200K titles to Amazon’s 3M titles offer more choice for customers)
- Changes in the bargaining power of customers and suppliers (Microsoft and Intel in capture most profits in PC value chain)
- Changes in the business environment (move by competitors to offshore manufacturing)
Apple clearly innovated to produce a device that was a quantum leap better than the competition creating a new profit pool for them. This also ties back to Nicholas Carr’s idea of top-down disruptive innovation, but here we have some numbers to show how powerful that can be.
Books For All – Another Way To Sell Books
John Hodgman (aka PC Guy from the Mac commercials) has been doing events around the country in promotion of the just released, paperback edition of his second book More Information Than You Require
The admission price for Second City event in Chicago was showing up a copy of the book. You could either bring your own or buy one there prior to the show.
This is a brilliant strategy for selling books and what 800-CEO-READ has been telling authors for years. If you are an author doing an event, you must create a way for every person in the audience to leave with a copy of your book.
Many will compromise with selling books in the back of the room. This is a poor alternative and anyone who has done it will tell you the conversation rate is 10% to 30%. If you do the selling, it means the logistics of getting books to (and from) the site, and more importantly, it means that you will be tied up making change for $20 bills when you should be making better connections with the people who came to see you. You can sometimes find a local bookstore who will do the selling, but again the conversion rate is not good for you or the bookstore.
There are a numbers of ways to successfully pull off the books-for-all strategy:
- Start with talking to the event organizer and saying “Do you plan on buying books for all the attendees?” You’d be amazed how often that is already in the works. My experience from 800-CEO-READ is that 30% of events already have plans for books, private events much more often than public ones.
- You can make it a requirement of the group who is hosting you. Many have required the purchase of books ahead of the event. Jackie Huba and Ben McConnell did it on the 40 Cities, 40 Days Tour for Citizen Marketers. Seth Godin did it with the crowd-organized tour for The Dip.
- You can make people buy them at the door. That leaves the decision to the attendee as to whether the cost is worth it. That’s essentially what Hodgman did by making a copy of the book the price of admission. Event organizers are always concerned that this will keep people away. If $15 in exchange for a printed souvenir of the event is going to them away, you should ask the organizer why they are doing the event.
- You can find a sponsor. If you are speaking at a conference, there are all sorts of people who might like your idea next to their concept. This is another spot that 800-CEO-READ can do cool things like custom pages tipped into the front of the book.
- If you are getting a keynote, swap a portion of your speaking fee for the purchase of book. This is certainly the most controversial of what I have suggested and even more so given the currently climate for professional speaking. That said, I think during the first six months after book launch this is an amazingly effective strategy to both sell books and get the word out. You never know where those copies will end up.
Recommendation: Michael Hyatt's Writing a Book Proposal eBook
One of my big projects right now is putting together my next book proposal and I want to give a shout out to Michael Hyatt’s Writing a Book Proposal ebook for helping out with that process.
Hyatt in 30 electronic pages delivers very clear advice on what a book proposal should contain and how best to present it. For the complete novice, you are provided a outline of components you need to develop and the questions publishers are going to be asking when they look at your pitch.
Here were three things I was reminded of:
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“Developing a good premise is one of the most difficult challenges of good writing. It is, however, absolutely vital.” – When Jack and I were starting The 100 Best Business Books of All Time, we knew the value was being able to find out about dozens of books in one place. What we struggled with an aspect of the premise: Who were we writing the reviews for?
Adrian Zackheim, our publisher at Portfolio, suggested we concentrate on the “third book buyer.” That was his description for the person familiar with the business book category, had read one or two of the classics, but got turned off by the run of the mill titles on the market.
That simple image solidified the premise for us and made the writing process much easier.
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Who are the affinity groups for your book? – When I ask an author who their book is for and their answer is “Everyone,” I know there is going to be trouble. A book written for everyone is written for no one. The cliche is true.
My friend Ray Bard always asks, “Where is the felt need? Who is going to cross the street to buy your book?” Remember that books are intellectual choices people make. Authors need to make sure they are writing to a real felt need.
Ray then says “Who is going to tell their friends about the wonderful book they just found?” Natural groups already exist for the books you are going to write. They may read certain magazines (Real Simple or Popular Science). They may attend certain conventions (SXSW or ComicCon). Publishers want to see that those tribes exist and that you (yes, you) have the ability to connect with them.
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What is your competition? – Ridley Scott reportedly pitched Alien with the line “Jaws in Space.” The studio knew exactly what he was talking about in three words.
Publishers want to know if there is a market for the book you are proposing . Like most media, everyone wants to release more of what already worked. But, as Hyatt points out, they also want to know how your book will differ from what is already on the market.
The ebook currently costs $19.97. The material is worth it whether you are writing a book proposal now or need some help in getting organized for the book you want to write.
Making Changes
Please forgive any weirdness this afternoon.
I have decided that I am going to get my templates working the way they should.
There may be some dust.
Update: Everything seems to be working. This is what I intended from the start, but the templates were giving me fits. Hope you’ll come by and see the new layout.
Disruption from Two Directions
The book I have been recommending most over the last year is Clay Christensen’s The Innovator’s Dilemma. This is not a new book as the original hardcover came out in 1997.
The media has also been referencing the book as of late, in particular journalists from Wired Magazine. Clive Thompson also invoked the Dilemma in his article earlier this year on the rise of Netbooks. Robert Capps in his article The Good Enough Revolution for October issue mentions the book in reference to bottom up innovation.
Christensen’s thesis is that established companies are designed to take advantage of “sustaining innovations”, the sorts of ideas and inventions that create incremental improvements, and these improvements provide the inspiration for new products that better meet the needs of their existing customers.
These sorts of companies are ill prepared for “disruptive innovations”–game-changing technology or resource allocation that creates a new paradigm of performance. Disruptive innovations always offer inferior performance and higher cost at the start and incumbents disregard the developments because they meet neither the needs of their customers or demands of their shareholders. This is always the mistake.
Entrant companies, often the innovators themselves, are forced to find a new set of customers who value the innovation for a different set of reasons and this allows newcomers a small beachhead to operate from. As the performance of disruptive innovations improves faster than sustaining innovations, entrants are able to move into established markets, bringing with with them their lower cost structure. Incumbents are forced up market and out of their existing profitable markets.
The examples are numerous. Nucor started with low-quality rebar and went on to disrupt the entire steel industry with electric-arc furnaces. Amazon started with books and has gone on to disrupt retail as a whole using the Internet. Look at any part of the media industry and you’ll find disruptive, bottom up innovation.
Now consider Nicholas Carr’s alternate argument. In May 2005, Carr wrote a piece for Strategy+Business acknowledging Christensen’s work while suggesting another type of disruption–from the top down.
Carr provides equally compelling examples of disruption. Consider FedEx’s move into shipping. Their premium next-day offering bested both UPS and the postal service. This provided them a beachhead into greater package-delivery market. And while Carr’s uses the iPod in his essay, the introduction of the ultra-premium iPhone is an even better example of top-down disruption from Apple.
Here is Carr’s argument:
Innovative, topnotch products are usually very costly to produce. In the early stages of their development, only a small group of power users is able to justify their purchase. But production costs tend to go down quickly, as suppliers gain experience and scale and as the prices of the underlying technologies drop. At the same time, the broader market becomes aware of the benefits of the new product and increasingly open to embracing it. The astute innovator thus is able to use a high-end niche as an outpost for launching a raid on the broader market. The top-down disruptor simply follows the cost curve into the mainstream of buyers. In the process, it redefines the industry — and secures its own competitive dominance.
Christensen and Carr are both worthy of inclusion in your mental toolbox, as disruption from either direction can be a compelling strategy for companies to pursue.
a really short moment
There is going to be a moment and
it is actually going to be a really short moment,
in relationship to all this other
garbage
yougottadotogettothepointyougettomake the stuff.
But that is the thing that I kinda live for.
It is like there is this one moment where
you
figure it out,
and you get it,
and you think it is going to be the best thing you have ever did.And it is really really exciting
and I never get over it
and it hasn’t changed in 34 years
and as long as you can feel that,
you can do it.
-Taken from and inspired by Paula Sher: Type is Image
[hat tip: Signal vs Noise]
Field Trip
My son went on a field trip to the outstanding Betty Brinn Museum today with his first grade classmates.
I am also on a field trip today. I’m taking the train down to Chicago to see Grant McCracken. Grant is an anthropologist who works with companies like Coca-Cola and IKEA to help them see the cultural implications to what they do.
He has authored several books and has another book coming out soon called Chief Culture Officer.
We’re going to talk about complex adaptive systems and the ability for cultural anthropologist to observe the behaviors going on within these systems.
I know, you wish you were here.
I promise this will be helpful for some other things I’ll be talking about soon.
PS I’ll try to squeeze in an interview about the new book.
I co-wrote 
Getting Things Done