New to Big - Book Summary

Unlock your business potential: Innovate like a start-up.

Imagine this scenario: You're the leader of a prosperous business that has held a strong reputation for years. Your brand name has been a beacon for customer loyalty. Suddenly, the winds of the market change. Competitors are nipping at your heels and the threat of an audacious new player upstaging your entire product line is a harsh reality. So, what's your move?

You could sit it out, hoping to stumble upon a fresh market niche. But realistically, radical action is what's called for — no more idly floating, it's time to dive in and swim against the tide. In our discussion ahead, we'll delve into how large, established companies can cultivate a sustainable growth mindset at the core of their operations, mirroring the dynamism and nimbleness of start-ups. It might be hard to believe, but even age-old organizations that seem set in their ways can discover the vigour and flexibility of fledgling entrepreneurs.

In this journey of transformation, you will uncover:

- The point at which cracks began to appear in the edifice of American capitalism;

- The radical changes Microsoft's new CEO had to bring about in the company; and

- The riveting tale behind the creation of Bubble Wrap.

The mid-twentieth century: The turning point for corporate practices

Let's rewind the hands of time back to the early beginnings of American capitalism in the late 19th century — the era of Rockefellers and Carnegies, of noble moustaches and sleek top hats. Businesses during this period were steeped in civic responsibility and patriotism, devoted to serving their customers and the country alike. They were single-minded in their purpose, dedicated to providing quality products — be it a robust whiskey or a reliable tricycle — and maintained a strong bond with their consumer base.

However, the mid-twentieth century heralded a paradigm shift.

By the 1960s, a new focus prevailed among American corporations: they were more invested in amassing wealth than meeting the needs of their customers. Their attentions had shifted from resolving customer issues to ensuring colossal paycheques for corporate executives. Economist John Kenneth Galbraith depicted this predicament in his book "The New Industrial State", accusing big corporations of prioritizing monstrous profits over societal progress.

In counterpoint to Galbraith's views, two economists — Michael C. Jensen and William H. Meckling — published a pivotal paper titled "Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure." They agreed that American capitalism had strayed off course but proposed a different solution: instead of urging companies to enhance customer service, they advocated prioritizing shareholders. With the late 1960s business downturn, shareholders had slid down the priority list and their dissatisfaction threatened economic stability. Consequently, many businesses heeded Jensen and Meckling's advice, choosing to prioritize shareholders above all else.

This shift towards shareholder satisfaction marked a disconnect between businesses and their consumer or public obligations. Many companies became increasingly preoccupied with placating shareholders, abandoning any activities that didn't inflate stock prices. As a result, the focus shifted from investing capital in innovative products, like a cutting-edge car or a trendy clothing line, to cost-cutting strategies. Businesses endeavoured to ramp up efficiency, subsequently improving their appeal to shareholders.

Consider this fitting metaphor: A mother bird neglects her own chicks to feed an oversized cuckoo chick in her nest. As the cuckoo continues to grow, her own offspring are forgotten. Similarly, businesses — once dedicated to serving their customers and expanding their ventures — became fixated on attending to their shareholders. Consequently, their innovative drive waned, and growth came to a grinding halt.

The dynamism of start-ups: A fresh approach to business

Consider the great white shark — if it ceases to swim, oxygen stops passing through its gills, causing it to sink and perish. This principle is eerily similar to the fate of big businesses when they halt innovation. Complacency either leads to a slow descent into obsolescence or a swift downfall. However, modern start-ups recognize this peril and foster a markedly different mindset compared to their established counterparts.

Shunning the shareholder-first approach of traditional businesses, start-ups aim to address consumer issues with innovative solutions. Their objective is to pinpoint the 'pain points' or 'friction points' that plague consumers. Take, for instance, the social media behemoth, Facebook. In its early days, nestled in Mark Zuckerberg's dorm room, he identified a global pain point. He understood that countless people would appreciate a platform to connect with loved ones, share photos, and exchange stories from around the world. The rest, as we know, is history—Facebook evolved into one of the world's most successful enterprises.

Consider another example: Deliveroo, the food delivery service. Their 'pain point'? A dearth of delivery options for restaurant-quality meals. Deliveroo's founder, Will Shu, stumbled upon this pain point during his late-night stints at Morgan Stanley's London office.

Rather than settling for incremental adjustments, start-ups espouse a culture of innovation geared towards long-term growth. This mindset goes beyond merely tweaking existing products or refining processes—it's about embracing risk, anticipating the future, and venturing into the unknown.

Even though it may seem counterintuitive, in the hyper-paced world of commerce today, this approach is the only sure-fire route to sustainable growth. By continuously solving a diverse array of customer problems, companies with a start-up mindset can achieve expansion. This pattern is evident in the top five companies based on market capitalization in 2018—Apple, Amazon, Alphabet, Microsoft, and Facebook. They all share this start-up ethos and relentlessly innovate to devise new solutions for customers.

This is the core of the 'New to Big' philosophy—the secret to transforming a promising idea into a rapidly scaling venture. Next, we'll explore how one long-established company harnessed some of these strategies to reinvent itself.

Microsoft's rebirth: A legacy corporation reinvents itself

Microsoft is undeniably a titan in the corporate world. As we previously discussed, it ranked among the top five companies in terms of market capitalization in 2018. Interestingly, Microsoft also made the list in 2001, sharing space with giants like General Electric, ExxonMobil, Citigroup, and Walmart. However, between 2001 and 2018, Microsoft briefly fell out of this prestigious group. The reason? A gradual loss of its innovative spirit.

When Bill Gates relinquished his role as CEO in 2000, Microsoft hit a rough patch. Steve Ballmer, Gates' successor, strayed from the trail-blazing path set by the founder, opting for a more conservative, incremental approach. As competitors like Google and Apple surged ahead with groundbreaking advancements, Microsoft found itself stuck in a rut, churning out lacklustre products that merely mirrored those of its rivals.

However, in 2014, a new CEO took the helm and shifted the tide — Satya Nadella. Despite stepping into a 44-year-old legacy company, Nadella approached his role at Microsoft as if he were leading a fresh start-up.

Nadella brought a refreshing perspective to his position, something he eloquently expressed in a 2015 interview. He stated, "We no longer talk about lagging indicators of success — revenue, profit. What are the leading indicators of success? Customer love." Nadella's book, "Hit Refresh: The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone", expounds his philosophy of encouraging audacious ideas, creating an environment where employees can experiment and occasionally fail, and maintaining a long-term perspective, rather than obsessing over quarterly returns.

Nadella has successfully transformed Microsoft into a unique hybrid — a large-scale corporation that harmoniously blends the resourcefulness, capital, and brand recognition of an industry giant with the risk-taking spirit of a start-up. This strategic gamble has paid off, evident in the company's consistent double-digit profit margin growth each quarter. One might even say that Nadella has revitalized Microsoft — breathing new life into an established entity.

So, what insights can we glean from Microsoft's journey? Not just the notion that legacy companies can reinvent themselves, but the compelling argument that such reinvention is vital to their survival. Much like how we must constantly embrace new challenges in life to stay agile, big companies need to keep evolving, innovating, and moving forward to maintain their relevance and vigor.

The shift from Total Addressable Market to Total Addressable Problem

What sets apart the corporate juggernauts from the agile newcomers? It boils down to a divergence in mindset that permeates their respective organizational structures. We're contrasting two distinct models here: The Total Addressable Market versus the Total Addressable Problem.

First, let's delve into the Total Addressable Market or TAM. This model is a tried-and-true corporate staple that has reigned supreme for decades. Encoded in the DNA of established businesses, the TAM strategy seeks to answer how expansive a market is and how large a slice of it a company can reasonably capture. This approach thrives on what is ascertainable and often finds itself locked in combat with rivals for market dominance, offering modifications on existing products or services.

Rather than prioritizing the discovery of new customer pain points, these companies focus predominantly on their own concerns — like stock prices and short-term financial gains. As we've learned, businesses that adhere strictly to this approach risk stagnation and, in the worst-case scenarios, obsolescence in today's dynamic marketplace.

It's not that the TAM model is entirely flawed. Suppose you're in the cosmetics industry and planning to launch a new line of lip glosses. In that case, the TAM model could help gauge the market size you could potentially tap into. However, beyond these basic applications, the model's utility is rather limited. It's akin to attempting to understand the exotic flora of a new planet using an Earthly guidebook.

In contrast, the Total Addressable Problem or TAP model unlocks the doors to exponential growth. Rooted in the principle of identifying novel customer issues or needs, the TAP model is capable of unearthing untapped markets. These untouched markets, rather than saturated ones teeming with competitors, hold the promise of growth.

Let's consider the journey of the mobile phone. Initially introduced as a bulky gadget catered mainly to high-ranking executives, the Total Addressable Problem seemed quite narrow. However, as mobiles evolved to become lighter, compact, and more affordable, demand soared. The product designers recognized that mobiles were addressing a much larger issue — providing mobile communication for everyone. This uncovered market held the potential for enormous returns for the pioneering mobile phone manufacturers.

Revolutionizing market research in response to customer problems

Switching to the Total Addressable Problem (TAP) model means adopting a fresh perspective on all business facets, beginning with understanding customer desires.

Instead of merely refining an existing product or idea to appeal to the customer more, those operating under the growth mind-set need to approach from the customers' standpoint. The focus should be on observing actual customer behavior instead of relying on their stated intentions.

Consider the popular 'voice of the customer' method, where businesses solicit customer feedback. It's common for customers to respond with what they perceive as 'expected' answers. Suppose a leading tech company is researching for a new app that identifies local fine-dining options. During their market research, they enquire people's opinions on the app and how much they'd be willing to spend on it. A significant number of potential users reportedly appreciate the app and would shell out fifteen dollars monthly to use it.

A company entrenched in the old-fashioned TAM mind-set would conclude that the app garnered a "positive response" and that customers "would spend fifteen dollars." On the other hand, a company embracing a growth mind-set would extend their market research with an additional query — "Will you commit to subscribing to it right now?" If the responses veer towards ambivalence or negativity, they'd infer that the app possibly doesn't offer such a lucrative opportunity.

Being prepared to abandon your initial idea and start from scratch if customer research indicates a different direction is crucial.

For instance, imagine you're a business that produces chewable sweets, and you're considering a new product. However, you're conscious of the detrimental perception towards processed sugar. Your goal would then be to genuinely understand your customers and their genuine sentiments. You discover that both your die-hard fans and casual buyers associate consuming your candy with "indulging themselves." Consequently, instead of the new sugar-free chewable candy concept you began with, you find yourself in the "treats" industry. Now, instead of crafting chewable candy, you can explore other means by which people enjoy "pampering themselves," such as carob treats, cosmetics, or lush houseplants.

The takeaway here is the necessity to evolve from the rigid focus-group researchers of the past into dynamic, adaptable observers.

Embracing the beauty of productive failures is key for real innovators and growth leaders

Every email dispatched by venture capitalist Esther Dyson carries a unique footer – "Always make new mistakes!" Intriguing, isn't it? Let's delve into what this could imply.

Examples of fruitful failures are interwoven into our everyday lives. Consider WD-40, the well-known lubricant. Ever wondered why the number "40" follows "WD", an abbreviation for Water Displacement? The creators underwent 40 trials before they finally nailed the formula. Or take Bubble Wrap, initially visualized as a chic, textured wallpaper for the future. The idea crashed and burned, destined for oblivion, until IBM decided to use it to cushion computer parts during transportation.

Unfortunately, the fear of admitting mistakes is deeply ingrained in the executive culture, to its own disadvantage. Established firms detest failure — it's not in their nature to embrace it. Their leadership is typically constituted of fierce competitors who take pride in their triumphs. The priceless learning opportunities that failures bring are alien to them. This fear of failure trickles down, influencing all the company's employees who would rather walk on eggshells around the leadership than express their doubts about the company's trajectory. Consequently, projects doomed for failure may be artificially kept alive for an extended period, leading to massive squandering of resources and precious company time.

Thus, promoting productive failure is vital. If you're a large corporation aspiring to foster a climate where employees are free to experiment and 'fail interestingly,' you need to establish an environment where it's acceptable to make mistakes. This entails permitting multiple small, quick, and affordable failures from which innovators can derive valuable lessons. It also requires encouraging leaders to abandon doomed projects and endorsing a culture where subordinates feel comfortable challenging their superiors with the truth.

Failure is inherently intertwined with innovation. In the following section, we'll explore how companies can craft a structure that integrates this innovative spirit.

Building the perfect team is the first step to implementing the New to Big philosophy

As a business leader, if you're planning to transition from the traditional TAM mindset to the dynamic TAP approach, your first step is to assemble an exceptional team.

Odds are, your organization already houses the necessary talent. However, those who've climbed up the corporate ladder may not be the most suitable for the task of spearheading innovative entrepreneurship. These high-flyers are typically conditioned to operate within the confines of established company norms — a system that is characteristically cautious and prefers incremental changes. Instead, you should be scouting for the mavericks, the independent thinkers, the individuals who dance to their own beat. These unique personalities, often overlooked during promotions due to their non-conformist nature, could be the precise catalysts your innovation agenda needs.

There are certain qualities to seek in your potential recruits. Adaptability tops the list. They should be quick on their feet, capable of formulating new strategies when conventional methods fall flat. For instance, they should be able to seamlessly shift gears if a project's journey deviates significantly from the initial path, just like the candy company that discarded its original idea and delved into marketing "treats."

Curiosity is another vital trait — an innate ability to connect the dots across disparate sources and trends, piecing together innovative business concepts. They should also exhibit humility, a critical attribute for fostering collaborative innovation. The goal here isn't promoting individual glory; it's about channeling collective strengths to achieve shared success.

Lastly, an absolute passion for experimentation is non-negotiable. The ideal candidate should demonstrate an insatiable appetite for experimentation, embodying the spirit of a mad scientist, hell-bent on decoding the mysterious labyrinth of innovation.

In the final part of this segment, we'll examine how you can secure the funds for these exciting ventures without jeopardizing the company's financial stability.

Investing in new ideas demands a fine balance between calculated risk and dynamism

"The lottery can't be won without buying a ticket." While this saying applies to many aspects of life, it becomes far more nuanced when it comes to investing in new business ventures. The essence of risk remains, but it is how you handle this risk that can boost your chances of success.

Companies must ease the process of securing approval for investing in novel ideas. It's a common misconception that risk-taking is confined to groundbreaking start-ups. In reality, it's often a Herculean task to get the green light for innovative ideas within established companies, which are typically set in their ways and more focused on improving existing models. One hurdle is the rigid annual budgeting cycle, which can make the funding process exceedingly bureaucratic and burdensome, causing many budding ideas to perish before they even reach the senior leadership's ears.

A practical solution to channel funding to new projects is to set up a Growth Board. This small team of top-level executives is tasked with rapidly evaluating the potential of fresh ideas, allocating the necessary resources, and tracking the progress of each initiative. Unlike the traditional approach of pumping substantial funds into a project at the get-go, the Growth Board operates on a stepwise investment model. They infuse smaller sums at the project's inception, and as it evolves, the funding can be scaled up proportionately based on its success.

This progressive approach mimics the very survival instinct that drives start-ups — a palpable sense of competitiveness and urgency. Crucially, it provides an effective mechanism for minimizing risk. The Growth Board can quickly halt funding if a project begins to falter, thereby nipping potential disasters in the bud.

Given the high risk of failure associated with new business ideas, the smart strategy is to spread your bets. The Growth Board model enables companies to juggle multiple projects simultaneously. Just like the stock market, a majority of fresh business concepts may not prove profitable. They can serve as interesting lessons, but not viable enterprises. However, by supporting a diversified portfolio of ideas, companies increase their odds of hitting upon a truly disruptive idea, akin to Uber or Airbnb.

Adopting this approach of consistent risk-taking and innovation, termed the 'always-on mindset,' can yield astonishing outcomes.

Wrapping it up

Here's what we've learned:

For established companies to continue growing, they need to embody the agility and adaptability typical of start-ups, or else they risk stagnation or irrelevance. Their path to growth lies in addressing customer pain points with innovative solutions, which can only be achieved by paying close attention to market trends and customer feedback. To integrate this growth-centric model into a sizable organization, it's essential to onboard a team of non-conformist innovators who are willing to challenge the status quo.