I’ll speculate a little bit here. I think every single organization on the planet hopes to grow. Not necessarily in size, or even in the number of employees. But in sales, for certain. Income, without a doubt. Impact, usually.
These days, however, I’d say that longevity is nearly as important as growth. Remember MySpace? How about Words with Friends? Those were huge…for a minute. The better example, though, is Kodak. The younger among us might even need to Google “Kodak” to get up to speed.
Kodak was the absolute behemoth of the photography world. With roots dating back to the 1880’s, I’m sure there were plenty of “experts” throughout history who believed Kodak would never die. Then along came the beautiful world of digital, and Kodak found itself in need of retooling. There’s a reason large ships like the Titanic need(ed) tugboats to move them around the narrow ports of call. They’re just too large to turn when necessary. Kodak was too large to turn quickly enough, and crashed on the shores of technology. Acknowledge it or not, it sank.
In business, expansion is often the result of meticulous streamlining.
Yes, there may be dozens of reasons for growth, but I’m focusing in on one area specifically, at least for this article. The area occupied by streamlining. To help give context, if one organization operates on the backs of five human workers, and another operates on the back of one human worker and one computer, the cost of scaling is lower for the second organization. For the first organization to double its output, it would, in theory, require five additional human workers (and five accompanying salaries). The second company, however, may only need one additional worker and one additional computer. The expenses associated with the second company’s growth would theoretically be lower than the first organization’s, thereby enabling the second company to grow further, faster (with more resources available, all things being equal).
Growth becomes the inevitable byproduct of an organization streamlining its efforts.
I can’t think of a better historical example of streamlining than Henry Ford’s “assembly line.” He turned a twelve-hour, complicated mess into a manageable, two-hour process. That process became known as the assembly line and it was used to build cars as early as 1913.
Imagine cutting your organization’s expenses by 80%. Imagine reducing your delivery time the same amount. You’d be famous, right? If you weren’t running the company up to that point, you’d probably be running it after, right? That type of impact on an organization would be almost indescribable, enabling the organization to profit and prosper for years to come.
Or so you would think.
There is a Cost to Acquisition
Let’s look at it a different way. What if you launched your business five years ago, and during that time, spent tens of thousands of dollars developing a proprietary communications app to allow your team to communicate effectively with each other? Let’s go a step further and say that you created it because such a tool did not then exist. On the launch day for your communication app, you jump on Twitter and discover a few things: (1) this thing called, “Slack” was just launched, and it sounds like it does everything your proprietary system does, and more; (2) it costs about 1/1,000th of the amount you spent on your system (use costs, not development costs, but both are “acquisition costs”), and already has bugs worked out; (3) you also have a new competitor in your space; and (4) the new competitor uses Slack to communicate with its team.
All things being equal, it would appear that the new competitor has a leg up on the business that’s been around for five years, simply by virtue of the fact that it had no acquisition cost associated with its communication tool.
But let’s spice things up a bit. Let’s just say that Slack is a better app than what the first company developed. Now that company has a decision to make: Keep using its own app, or switch to a better, cheaper alternative and throw away everything it invested over the past five years. Guess what the first company is most likely to do.
Stick with its own system.
Because the investment (rather, the need to recoup the investment) in streamlining becomes the jail in which organizations imprisons itself. In other words, it becomes a greater cost to the organization to ditch its own app in favor of a newer, more functional, smarter app like Slack than to simply hold on to the anchor, which is its own app.
So company #2 gets to the party five years late, but without a $50,000 — $100,000 investment to recoup, and is able to move quicker than company #1 towards profitability. That’s the game we’re playing in 2015 and beyond.
Efficiency comes with a multifaceted price tag.
I’m speculating, but I’m certain there were costs involved in Henry Ford devising and implementing the assembly line. Reworking the physical layout of the factory. New equipment. Retraining workers. A business can’t typically implement efficient change without some form of up-front investment in devising that change. Let’s call that the “cost of development.”
But there’s another cost I believe most businesses inevitably ignore. In fact, I believe it’s an intentional ignorance, because the alternative could likely yield depression. Let’s call this one the “cost of commitment.”
See, when an organization invests in streamlining, it becomes necessary for the organization to commit to the streamlining by building a support structure around the streamlining. A simple example would be requiring everyone in a company to use a communication tool developed by the company simply because the company developed it.
Can you imagine someone working at 37 Signals using Podio at the office? Probably not. The efficiency of having Basecamp, for example, is partly found in having everyone use Basecamp. Otherwise, I think we’d all agree that it defeats the purpose to “streamline” project management with a new tool, only to allow workers to use whatever tool they feel like.
Organizations, thus, tend to become married to their own advances, because the uncertainty associated with freedom to choose is untenable. “If I spend $50,000 developing a proprietary communications tool for my organization, I better not catch one of my workers using Slack or any other app! They better use what I invested in!”
A competitor walks onto the playing field without that particular restriction and is able to leap ahead without the weight of a commitment to a particular app, tool, protocol, system, or whatever. That is, until the competitor perceives an opportunity to “streamline” something it is doing, and later finds itself in the exact same scenario as the first company- stuck in a marriage with the “cost of commitment,” unable to achieve a divorce from its investment in progress.
What am I getting at here? Something quite simple, actually. If you and/or your organization want to achieve growth and longevity, you better seriously evaluate the way you interact with your progress, and your commitment to it. Not the achievement of progress, but the specific protocol you’ve established to achieve it.
Don’t marry your assembly line.
Ever wonder why Apple developed the iPod only to develop the iPhone knowing full well the iPhone would cannibalize iPod sales? Or why Apple started selling the massive iPhone 6+ knowing full well it would cannibalize sales of iPads? Because progress is only good if you can maintain it.
The cost of Apple’s current “reinvention” is ditching its last reinvention. Every time.
Smart Steps for Reinventing Your Company
How can you — an entrepreneur, startup, small business, large business or who/whatever — do it? Here are three steps:
1) Envision your next iteration as being more profitable than your current iteration;
2) Time your transition from the “old” standard to the “new” standard before it’s easy and while it will hurt a little bit (which will almost certainly guarantee that your “new” standard won’t already be outdated); and
3) Never become so married to a particular method, product, service, system, app, ______, that you’re not ready to ditch it for a more effective and efficient method, product, service, system, app, _____.
Let Go To Grasp
One of the scariest things in business is letting go of something profitable/effective to go after something that’s potentially more profitable/effective. It’s no problem letting go of failed ideas, but letting go of something that’s working in order to grasp something potentially better? That takes guts. That’s also what distinguishes successful businesses that grow and thrive over the long haul from ones that remain stagnant or disappear.
Take the risk. Reach for what’s next by letting go of what’s here. It’s the only real way to grow.
By Brock Shinen, Esq.
© 2016 Brock Shinen. All rights reserved.