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10. What Makes it Hard for Some Companies to Come Up with Their Next Act?

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Some companies can’t seem to figure out how to reinvest cash in a new business while others have wave after wave of market-creating growth.

Why is it so hard for some great companies to have second (or third) acts?  Why can some companies do it, while others can’t?

What do you think makes it difficult?  How would you address those challenges?

4 thoughts on “10. What Makes it Hard for Some Companies to Come Up with Their Next Act?

  1. A CEO needs to have a strong backing from the Board in order to execute a second or third act.
    Without a strong backing from the Board, the CEO is unlikely to take a high-risk act to reinvest the cash in market-creating growth. He will be spending his money on share buyback or beating other ratios set for him.

    A founder who has risen to the position of CEO will have proven to the Board that he has the ability and credential to make market-creating growth. The Board will afford such a CEO with greater flexibilities and patience. Thus, he is more likely to take up market-creating growth strategy which is perceived to have a higher risk.

    Would Larry Page be able to do his moonshot projects if he is an appointed CEO from another company instead of the founder?
    Would Steve Jobs be able to develop a phone in a company that sells personal computers or open retail stores when personal computers were traditionally sold through electronic retailers?

    CEOs who did not rose from the founder position were good managers. They were hired for their ability to manage the existing companies and likely to depend on sustaining innovation to grow. They probably lack the product/service development experience which a founder has.

    When hiring a CEO, it will be good to give a greater weight on R&D or product development components as compared to the traditional sales and operation components.

  2. In the late 1970s the home-grown band Boston topped the record charts with their simply named album “Boston.” Everyone bought the album. Radio stations saturated the airwaves with their hit songs. Concerts sold out. And the public clamored for their next album.

    Almost two years later they released their second album and it was a huge disappointment. The common criticism: It sounds just like the first one. Therein lies the problem businesses face today. Go with the safe. Stick to what works. Keep the markets you have. In a sense, businesses are like Hollywood: living on sequels.

    So how do businesses break this cycle?

    Companies need–an “expanding view” of their products and services. This means that they not only actively look for new opportunities, but seek to develop complementary and bundled products that create brand loyalty. So a tool company doesn’t just compete on battery size and price. They sell a family of products to meet their customer’s needs.

    Another limitation to growth is a failure to understand the social aspect of your products and services. Professor Christensen calls it the social, emotional, and economic aspects of a product. Professor Anand (HBS), in his book “The Content Trap” warns us about the perils of falling into the “best practices” trap and simply becoming your competition. Taken together, it is clear that if businesses are run by looking at sales levels for a particular product or service, and then pouring their effort into the winners, they will lose in the end.

    Companies that “hit it out of the park” innovate to build network effects around the job to be done. They sell complementary products. They bundle. They are unique. And they strive to make customers happy.

    1. Jim, the Boston band analogy is terrific. And agreed – when companies solely focus on cutting costs in their core business via sustaining and efficiency innovations, and neglect funding R&D for new product/service development, or as Professor Christensen terms it, a new Market Creating Innovation (MCI), there’s no conversion of non-consumers to new customers. They’re just pruning and harvesting the same fruit tree (not as good as your analogy, I know).

      To seed new growth, it’s essential for companies to find their next act. Apple and Amazon have been particularly apt at doing just that. Amazon, originally just an online bookstore, expanded into all facets of retail, then pivoted into businesses such as web services with its cloud computing and storage service, AWS. And now AWS has become the biggest cloud service company in the world – bigger than its next 14 competitors combined. Amazon’s AWS is growing at 40% a year and on track to make $16 billion this year, dwarfing its online retail business. Many analysts reported that despite robust sales from their online retail business, Amazon would have actually posted huge losses were it not for AWS.

      So, you’re definitely right that companies have to adopt an “expanding view” of their products and services if they hope to thrive and not just try to survive.

      1. Thanks for the feedback, Farsh. Hope I didn’t Carbon-14 date myself with the Boston story.
        You raise a good point: Winning companies pivot to new opportunities. They have vision at the top and talent to make it happen.
        Which brings me to a follow-up point as well: Companies–or organizations that win probably stress initiative & timing among their people.

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