The Chicago Cubs are my idea of a quasi-family business - a businesses founded by multiple people who weren’t related by blood or marriage, yet whose children grew up calling each of the other partners "uncle."
Just before my mother’s 90th birthday, I went to the drugstore to find a card for her. Alas, there was no “Happy 90th Birthday” card. How could that be, I wondered, at a time when centenarians have become so common in the US that the NBC TV's Today Show no longer features Willard Scott’s celebration of 100th birthdays (Scott himself retired from the show in December 2015)? What I did find in the card section, however, was a broad selection of cards for celebrating one’s “special birthday.” Now I understood: The use of “special birthday” designations made good business sense, as it eliminated the need to maintain inventory of cards for every possible adult age. In fact, “special” birthdays, as I’d come to understand them even before that drugstore visit, are often used to describe birthdays ending with a five or a zero. This custom began as a politically correct way to avoid specifying the exact birthday of people who might be sensitive about their age.
More recently, it has become customary to wish someone a “happy special birthday,” regardless of their age shyness. But doing so can have multiple negative consequences in certain situations. In general, after one reaches a certain age, say 60 or 65, every year becomes more precious, making the five and zero “special birthday” designations less meaningful—and less appropriate.
More specifically, my observation is that this innocent custom can have an adverse effect on leadership successions within family businesses. An impending “special birthday,” for instance, often prompts related thoughts among the birthday-holder and the wisher. The phrase may connote: “I know a secret about you—your exact age,” or “I’m not getting any younger,” or even “You’re a ‘has-been’ and it’s time to step down.” In this context, a family business leader may feel that it is too late for him or her to initiate new programs within the firm and thus might assume a posture as a steward or placeholder seeking preservation of status quo until a successor assumes the leadership position.
Here’s an example. I consulted with a family firm whose founder had built a spectacularly successful business that seemed capable of running forever on auto-pilot. His eldest son had worked in the business for over two decades and was the natural choice as successor CEO. When he ascended to the role, his four siblings were not actively involved in the business, as two were practicing attorneys, one was an investment banker, and the fourth was a high school English teacher. The second-generation CEO grew the business even more than his father had. Then, in his 60s, he suddenly became highly conservative about business strategy and finances. The shift was likely prompted by a combination of his age and respect for his siblings, who owned 80% of the company’s stock and had three children working there as executives. The CEO himself had no children. Late in his tenure, he simply stopped being a leader and positioned himself as a placeholder, waiting for one of the third-generation family executives to take the helm.
When family business leaders take that stance, no one wins. One effect is that the business becomes less able to make innovative changes under the current leader. Then, when a successor is selected and ultimately given power, it may take them years to create an environment that once again fosters innovation. Their struggles could have been eliminated and their prospects enhanced had their predecessor continued positioning the company for meaningful reinvention, including through:
- Spending more on R&D to identify the best new opportunities and the challenges to avoid;
- Enhancing governance, such that the board is better able to set and influence long-term strategy, regardless of who is CEO; and
- Improving communications among shareholders such that family voice is as unified as possible and amplified, to be better heard by all stakeholders.
It would be ideal if wishes of “happy special birthday”could create a clarion call signaling it’s time for the family business leader to prepare for succession. There is so much planning and effort that goes into effecting a successful transition to next generation leadership, so an early wakeup call could be extremely helpful. Such wishes needn’t be a threat.
Of course, ultimately it takes more than a simple birthday wish to create a positive or negative leadership situation in a family business. But little things can reflect and influence familial, business, and cultural dynamics like those discussed here.
So the next time you are tempted to wish a family business leader a “happy special birthday,” think carefully about all the possible implications.
September 20, 2014 For those of you whose businesses are owned by you and your family, have you ever asked yourself the question: "Would continuity of the business as a family business be wise?" Truth is, that's only part of the question that must be asked. When considering succession in a family business, the question must be expanded to define which area(s) of succession you are referring to - e.g., succession in management, succession in governance, or succession in ownership.
If you cannot see passing the CEO baton to a family member because there is no candidate who is both capable and interested or because selecting one of several candidates could result in jealousy or worse, it may still be possible to arrange for successful succession of family governance, by having family member representation on (or control of) the Board of Directors. Even if directorships are unsuitable or unwelcomed by family members, continuity can be geared to family ownership.
All those positions require training and education. Being a director of any company requires new knowledge and skills - business operations, finance, competition, personnel, etc. - in order to accomplish appropriate oversight. Education and training is especially critical in a highly regulated industry such as banking. It may seem that ownership succession is a no-brainer in that you've covered it by using trusts and trustees. That may solve legal issues, but isn't totally dispositive. Even ownership, direct or indirect (as through trusts) should be preceded by an understanding of certain business and governance matters. Generally, for successful succession, this requires planning and preparation starting years before transitions take place.
In my forthcoming book, tentatively titled INVENT, REINVENT AND THRIVE, The Key to Entrepreneurs Success and Family Business Continuity (to be published by McGraw-Hill next year), I will deal with the need for continual reinvention of self and business for entrepreneurial and multi-generational businesses to succeed. In it I share stories about famous and fabulously successful family businesses.
Entrepreneurs tend to be so busy doing things that are visible in the external world—conceiving and developing products, lining up suppliers, acquiring customers—that they may overlook some of the more invisible, interior work that is part of success. I’m talking specifically about introspection, or the observation and examination of one’s own mental and emotional state and its implications. “I don’t have time for that kind of thing,” many an entrepreneur or family business leader has told me when I raise this issue. I always counter that it’s important to make time for meaningful introspection—and then to apply what you learn—as it can have a huge impact on your business, family, and well-being.
The story of the Bronfman business family is a clear example of the power of introspection and its application—or lack thereof. As detailed at length in my book Invent Reinvent Thrive (McGraw-Hill, 2014), the three Bronfman generations faced multiple challenges that would have been mitigated by careful introspection and consequent action.
Sam Bronfman built Seagram into a highly successful business including spirits and other consumer products; based in Canada, it was once the world’s largest distillery. But the father cast a long and dominant shadow on his son Edgar, who had also joined the business. Had Sam been able to introspect and understand the danger of his approach to Edgar, he may have helped his son develop a more sound and effective internal state himself.
This became especially important when Edgar had to assess the judgment of his son (Sam’s grandson), Edgar Jr., who succeeded his father as CEO. Though Edgar Sr. probably recognized that his son was making questionable business decisions, especially with regard to considering sale of Seagram’s core business, he was overly careful about dominating the next generation. He wished to avoid doing to Edgar Jr. what his father had done to him. Had Edgar Sr. used introspection to understand more fully the source of his reluctance to act, he may have been able to separate the personal from the professional and stepped in to intervene on the deal Edgar Jr. ultimately made with Vivendi—a transaction that ultimately cost the family billions, halving their wealth.
Introspection and its application also figured into the role of Edgar Sr.’s younger brother Charles in this situation. Charles clearly observed what was going wrong with the Vivendi deal and had serious doubts about ending the Bronfman Family’s control of Seagram. However, his “younger brother syndrome” prevented him from saying what needed to be said to Edgar Sr. He understood the business problem but, like his brother, failed to understand fully the role of his internal state in preventing his intervention. Deeper introspection would have helped. Thus Sam, Edgar Sr., and Charles all would have benefited from more thoughtful introspection, which would in turn have helped the business and the family assets that depended on it.
In fact, Charles proved he was fully capable of engaging in the necessary introspection and then applying it effectively when he did so with Michael Steinhart with respect to the charitable foundation they formed, Operation Birthright. The organization aimed to enable any young Jewish person to visit Israel at no cost. Though Charles and Michael agreed on the big picture, they clashed over details (e.g., whether it had to be the person’s first trip to Israel). Charles’s wife gave him simple but profound advice about having a frank discussion with Michael: “You have everything to gain and nothing to lose” was the essence of what she said. Charles followed her advice, and the better understanding he achieved with Michael helped make Operation Birthright immensely successful.
Had Charles followed the same advice in dealing with Edgar Sr., his brother, the family’s wealth might still be fully intact. Here, however, deep emotional issues made it seem there was indeed much to lose. With introspection, that could have been gauged more realistically. Eventually, after serious and difficult introspection, Charles did have a conversation with Edgar. Though it was too late to save the fortune, it was a well-timed interaction, happening shortly before Edgar Sr.’s death.
Introspection and application are obviously easier in a non-family situation such as the one related to Operation Birthright—although even that one was facilitated by Charles's wife’s advice. Overall, anyone in business—entrepreneurship, family business, or otherwise—can benefit deeply from introspection. Open your mind for exploration, assess your motives and their potential sources, then develop a thoughtful plan to put what you’ve learned into action. You won’t regret it.
Most students complain about homework. When my MBA students at the Kellogg School of Management grumble about assignments, I tell them that what they’ve called “homework” from elementary school through graduate school isn’t actually homework. It was merely practice to develop tools for them to learn to do real homework. Real homework is the work you do when no one gives you the assignment, tells you how much work is enough, or establishes a deadline. Ultimately real homework is what you have to do yourself to succeed. Real homework really counts.
Successful businesspeople—entrepreneurs, family business founders and managers, and corporate managers—all do high-quality, appropriate amounts of homework. When they stop short on the homework, they almost always come up short on results. If you’re not sure how to do real homework, take a look at my recent book, Invent Reinvent Thrive (McGraw-Hill 2014), which has many excellent examples of the kind of homework that breeds success. In this three-part blog, I present multiple stories of real homework from the book, grouped by the principle they exemplify best.
Learn From Your Customers Starbucks founder Howard Schultz never even worked in a coffeehouse. He was inspired to start Starbucks by the European coffeehouses he observed when working as a coffeemaker salesman. He studied the stores and their practices carefully and saw how much consumers enjoyed premium coffee in a “third place” between home and work. Everything he learned convinced Shultz to persist in finding investors for Starbucks, even when no one, including coffee experts, seemed interested. Later, when highly successful Starbucks faltered amidst the 2008 recession, Schultz again did his homework, this time visiting stores and observing everything they were doing from the customers’ points of view (and ignoring Wall Street’s and analysts’ gloomy opinions). What he saw convinced him the company had lost touch with its original values—its “soul,” according to an internal memo Schultz wrote that was leaked to the press—and he took steps to recapture that spirit, including closing their thousands of stores for a day to replace equipment and to retrain all store employees. All the homework paid off as Starbucks regained strong growth and stock value.
Learn From Your Competitors Charles Schwab reinvented the stock brokerage industry by doing away with unnecessary product/service bundling and sky-high commissions. By studying the competition from the point of view of customers, Schwab was able to introduce highly valuable features through his namesake firm, including simplified transactions and more affordable pricing. The homework Schwab did with his customers, especially those in Silicon Valley, wound up changing the industry and making Chuck Schwab a billionaire. Early in the new millennium, when the company suffered from mounting competition, Chuck returned as CEO and observed the competitors, copycats who decreased commissions and service offerings at the same time that Schwab & Co. was raising commissions to cover increased numbers of managers. Schwab understood that his company had become the type of firm he’d once outmaneuvered: one that offered overpriced services to justify its bloated structure and workforce. He agreed when I likened this situation to Pogo’s lament: “We have met the enemy and he is us.” Schwab used what he learned to cut costs dramatically, improving the pricing he could offer customers and turning the company around.
These are just two of the homework-related principles I’ve observed in my many interactions with successful entrepreneurs, including the ones featured in Invent Reinvent Thrive. In the second and third parts of the post I will present additional lessons, including how homework helps you learn from mentors, previous associates, naysayers, and your team, as well as the importance of applying your homework-based learning across domains.
© Lloyd Shefsky
Success is often interpreted as an indication of intelligence. It brings to mind the lyrics of “If I were a Rich Man” from Fiddler on the Roof: “When you’re rich, they think you really know.” Highly successful entrepreneurs tend to be quite smart. Some have a good sense of self-approval; others less so. It turns out that the quality of self-approval is likely an important factor for success. Being able to gauge your capabilities, including raw intellectual horsepower, and understanding that while you may not be the smartest person in the room, there are things you can do about that, namely, get smarter and/or change rooms. Rather than bemoaning deficits, the most successful entrepreneurs learn to focus on areas in which they do show more aptitude and interest, and to take steps to shore up their capabilities in other areas, whether by building new skills or the right team.
Below I present several lessons related to understanding your intelligence and how to use it. I illustrate the lessons with stories of entrepreneurs from my recent book Invent Reinvent Thrive (McGraw-Hill, 2014).
Find the right “classroom”—and the right brains to pick. Mike Krasny did both. “I wasn’t one of the smartest kids on the block,” he told me during our interview for the book. “I was not a good student, I was a C student, probably in the lower quartile.” Had Mike continued to use academic grades as the only measure of his talent, he may not have discovered and indulged his deep interest in computers, at a time when most of his peers knew nothing about the field. He took his first computer class in 1971 at the University of Illinois and—though it took him some time to get over the lack of confidence bred largely by his early academic experience—eventually launched computer distributor CDW. As an entrepreneur he learned as much as he could from businesses he admired and the people behind them—including HP, IBM, Microsoft, Intel, Fel-Pro, and Walmart. As head of CDW, he found the right people for his management team, further building the firm’s capabilities. By stepping into the right “classroom” in which to excel and identifying the right brains to pick, the former C-student earned an A+ in creating shareholder value.
Don’t put them on a pedestal. Everyone establishes their own standards for “smart,” generally pointing to someone else whom they consider very smart. It’s fine to have business mentors or others you admire for their intelligence. But some entrepreneurs make the mistake of putting their sources of inspiration on sky-high pedestals, which may diminish their sense of their own capabilities. This was the case with Jim Sinegal, founder of Costco. Prior to starting Costco, Jim worked for Price Club for over two decades, He always revered that company’s founder, Sol Price. “He taught me everything I know,” Sinegal said of Sol. Jim truly believed that Sol was the smartest man he'd ever met, and as a result Jim never presumed to be able to do what Sol had done, even as Costco grew steadily. Of course, at the time Jim launched Costco, Sol’s experience was infinitely greater than Jim’s, who started at Price Club “schlepping mattresses out to the customers’ cars’ rooftops.” Twenty five years later, as Price Club’s second in command, Jim felt Sol remained far smarter and more capable than Jim. It wasn't until years later, after Costco had been operating for a while, when Jim found that Price Club was having problems, that he began to believe in his own capabilities more deeply, and made strategic moves including expanding Costco’s product lines significantly. Ultimately, Jim motivated Costco’s purchase of Price Club. Sol and Jim remained friends until Sol’s death. And while Jim still reveres Sol, the former mentee’s story illustrates that sometimes actual results displace pedestals. Removing his longtime mentor from the pedestal helped Jim make Costco into the $100 billion business it is today.
Recognize your blind-spots, Although he is not an entrepreneur but a leader of a prominent family business, Tom Pritzker’s situation is worth noting. Unlike CDW’s Mike Krasny, Tom was an excellent student, and he rose to become a third-generation leader of the highly successful Pritzker family, which held assets including the Hyatt hotel chain. Tom learned a great deal both within the classroom and outside it, especially from his father, Jay, whom I consider one of the smartest people I’ve known, and Jay’s father, A.N. Observing them helped Tom understand how to find, select, motivate and defer to strong professional managers for the family’s many businesses. But Tom also inherited a large blind-spot: While the previous generations had excellent business acumen and skills, they had failed to prepare for the “cousins stage” of the business; the many protective measures they had implemented—including granting decision-making rights and knowledge about the family business to very few family members—backfired when the business passed into the third generation’s hands. Tom was a smart businessman, but he tried to play the hand he was dealt instead of replacing a few cards. He continued with all that his ancestors had invented, instead of reinventing it to fit the family/business situation. The ensuing legal battles made the highly private Pritzkers front-page news for years. Being the smartest businesspeople in the room had made the family blind to the governance/ownership measures they needed to take. Eventually, Tom recognized the shortcoming and took steps to remedy the problems, but only after significant, undesirable public exposure of family discord.
Be honest with yourself. Honesty and self-awareness don’t always accompany intelligence, as the Pritzker story illustrates. Tom Stemberg, founder of office-supply giant Staples, provides a nice counter-example. Upon arriving at Harvard, Stemberg found himself somewhat unprepared, in part because he had completed high school in Austria after his mother moved him there following his father’s death. Speaking of Harvard, Stemberg told me, “You had to accept the fact that you’re not only not the smartest person in the room, you may not be in the top ten. You have to get comfortable with that and move forward.”That attitude helped him move forward in a big way, as he sharpened his idea of a large-scale office-supply chain, learning by observing local stationery stores and companies such as United Stationers and Quill, always admitting when he lacked knowledge, but also feeling comfortable when he thought he was right. Stemberg’s healthy self-awareness helped him build Staples into a multibillion-dollar retail chain with over 2000 stores in 26 countries.
Intelligence is only one factor in success, and certainly not the most important one in many cases. The “smartest” entrepreneurs may not be the smartest people in the room, but they have found the right space in which to compete (like Krasny), worked hard to be honest with themselves about what they don’t know (like Stemberg), avoided being intimidated by successful peers and mentors (like Sinegal did eventually), and assessed their blind-spots carefully (like the Pritzkers eventually did). I hope you can do the same.
“A tolerance for ambiguity” or even the ability to thrive amidst ambiguity is on everyone’s list of key traits for entrepreneurs. So how do successful entrepreneurs develop that trait? One might develop a tolerance for pain by continually enduring pain; but there must be a better way. Successful entrepreneurs don’t just strengthen their tolerance—they reduce the ambiguity. In many instances, founders gain insights and learn best practices by observing people and practices carefully across sectors, applying what they learn to great effect. The entrepreneurs below, all profiled extensively in my book Invent Reinvent Thrive (McGraw-Hill, 2014), are excellent examples of the power of watching and listening. Maxine Clark expanded her vision of a store where people could customize teddy bears into the 400 Build-a-Bear Workshops in existence today. Part of Maxine’s early success was her ability to negotiate leases in malls on behalf of her start-up in an unproven business. To succeed, she used what she’d learned previously as president of mall staple Payless Shoes. “Even though I’d never negotiated a lease before . . . I had listened to our legal department talking about them,” she told me in our interview for the book. “I didn’t have to know everything about them, but I did need to know enough not to be dangerous.” The insights Maxine gained from observing lease negotiations helped Build-a-Bear thrive.
Howard Schultz, founder of Starbucks, used what he’d observed in Europe while working as a coffeemaker salesman to help generate the vision of a coffeehouse with a different kind of atmosphere, one that could become an appealing “third place” between home and work. Even though everyone—including the original owners of the Starbucks Coffee company, who employed Howard in sales—thought his idea for an upscale US coffeehouse was terrible, he persisted, eventually convincing others to invest. Starbucks wouldn’t be the business giant it is today if Howard hadn’t kept believing in his vision, fueled by what he’d observed across the Atlantic.
Mike Krasny, founder of computer distribution giant CDW, also encountered many naysayers. But while he was a self-admitted poor student with no business training, Mike had a skill many other would-be entrepreneurs lacked: learning by observation. Initially, that meant using what he’d learned working in his father’s auto dealership to place his first ad for computer sales. After he launched CDW, he continued to learn by observing, including watching the practices of and listening to advice from leaders of businesses he admired, from computer industry peers (Microsoft, Intel, IBM) to those in other sectors (Fel-Pro, Walmart, Quill). As CDW matured, Mike delegated key functional matters to professional managers, and learned from them and multiple mentors. Listening to his “teachers” helped transform a former C-student into an extraordinary business success.
Jim Sinegal grew discount retail warehouse Costco into over 670 stores representing over $100 billion in annual revenue today. Before launching Costco, Jim worked for Price Club for 23 years, learning a great deal from founder Sol Price. “He taught me everything that I know,” Jim told me during our interview, pointing out how much Price emphasized the need for strong leadership and careful planning. Jim also learned a great deal by observing the brokers who sold products to Price Club, identifying their strengths and weaknesses. That knowledge enabled Jim to work as a highly successful broker himself. After he left Price Club, his plan to open Costco went on hold due to a recession. While waiting for economic conditions to improve sufficiently to launch his own business, he worked as a broker. His listening paid off, enabling him to be ready to open Costco when economic conditions improved.
David Axelrod, former campaign manager and senior advisor for President Barack Obama and current director of the University of Chicago’s Institute of Politics, exemplifies the theme of learning by observation. David learned a great deal as a young journalist, first with a small Greenwich Village newspaper (The Villager) during college then as a Chicago Tribune reporter. He paid especially close attention to the political campaigns he covered, particularly the strategies of the media consultants for three Chicago mayoral candidates. A dinner with Bill Zimmerman, media consultant for one of those candidates (Harold Washington), gave David further insights into campaign-management skills/strategies, and soon he was able to make the leap from journalism to campaign director, eventually making history by helping the US’s first African American president get elected.
While it’s easy to think of entrepreneurs as all about action, the best ones are both observers and doers, learning from watching and listening to others, then putting their new-found knowledge into action. That means sometimes the best course at any stage of a business—from pre-launch to maturity—is stepping back to see what you can learn from people, practices, and other companies, then formulating new ideas and strategies for success. As it says on one of my favorite T-shirts:
“Silent” and “Listen” have the same letters. Coincidence?
So listen up and learn what you need to reinvent and get ahead.
Entrepreneurs, especially those in early stages of building a business, focus sharply on finding investors. They do so with good reason: without initial and ongoing capital, many businesses would die on the vine. But I’ve observed that some investors fail to take into account prospective investors’ compatibility with and suitability for their businesses and their own styles, practices, and preferences. In other words, they consider funding from any source—self-funding, angel, VC, other institutional investors—as having the same value. Money is fungible, right? Wrong. Money is fungible, but capital sources are not. Beyond money, the fit between investor and entrepreneur is crucial to sustainable business success on several dimensions. The separate entrepreneurial efforts of Sam Popeil and John Osher, as discussed in my book Invent Reinvent Thrive (McGraw-Hill, 2014), illustrate the importance of alignment with your investors.
Starting in the 1970s, Sam Popeil (with the help of his son, eventual infomercial king Ron Popeil) built an empire on the backs of quirky consumer products like the Chop-o-Matic, Veg-o-Matic, and Pocket Fisherman. Similarly, serial entrepreneur John Osher has made a fortune as what I call a “reinventrepreneur,” adapting his and his team’s skills to make and market everything from earrings (at a 96% markup) to baby toys to spinning toothbrushes.
Popeil’s and Osher’s success was based partly on the compatibility of their styles with their investors’ expectations—both relied on self-funding and/or individual investors, rather than larger institutional or VC sources —related to two major areas: product and price.
Osher and Popeil made product-related decisions based on their growing experience and intuition, along with their ability to ask good questions. Osher’s wide range of inventions and products is particularly impressive, and included the Rainbow Toy Bar (for baby cribs), Stretch Armstrong action figure, Spin Pop lollipop (over 100 million sold), and Dr. John’s Spin Brush (P&G bought it and marketed it as the Crest Spin Brush). He’s still at work on new items today, including a high-tech B2B product.
Both men decided on new products without deep research or consumer testing. Instead of focus groups, Osher used “fast-and-dirty” research at local drugstores to develop his idea for the Spin Brush. Instead of relying on a brain trust of R&D experts, he used years of experience and transferred knowledge across domains, such as building the Rainbow Toy Bar out of material he’d become familiar with while working as a plumber.
Institutional investors would have expected much more conventional market research to approve such product ideas, slowing down the process and potentially preventing what became high-margin offerings from making it out of the gate.
Pricing is another important domain for investor compatibility. As Sam Popeil was preparing to debut his Pocket Fisherman—a collapsible fishing rod—in the early 1970s, his patent lawyer met him at a Chicago-area facility with trout-fishing practice ponds and asked him what the price of the product would be. As there was no comparable product, Sam said “$14.95,” based on the infomercial-industry practice of pricing at seven times product-manufacturing costs. But when the lawyer had his then-5-year-old daughter take an informal poll of people fishing the ponds, she came back saying they would pay about $20. Popeil increased the price to $19.95 on the spot, and the product went on to sell millions of units, with the extra premium helping to fund subsequent products
Similarly, Osher priced his Dr. John’s Spin Brush around $20, much closer to manual toothbrushes than electric ones. He made the decision based largely on intuition, after seeing what was offered in drugstores and talking to friends at major retail chains about sales patterns. In doing so, he created a new category of cheaper but effective electric brushes.
Again, larger investors would have expected reams of research to back up the pricing decisions, rather than what seemed like a whim based on inconclusive evidence. Entire books have been written on pricing, and mistakes can cost millions or even doom a product. But Osher’s and Popeil’s intuition—based on years of experience (see Malcolm Gladwell’s Blink for discussion of this phenomenon)—allowed them to “reinvent” price for success. As I mention in Invent Reinvent Thrive, such decisions “can only be made in certain environments . . . It’s almost impossible to do so if you have institutional investors . . . who will want to understand the risks and balance them against possible rewards.”
Of course, not every entrepreneur has the experience-based intuition of a Ron Popeil or John Osher. Some less experienced or savvy business-builders may in fact need and benefit from the experience and discipline of institutional investors (and their contacts). Every entrepreneur, regardless of experience, does need to take their choice of investors seriously, recognizing that compatibility on this dimension is often as or more important than the money on the table.
That's what Alyson points out so well in the article, The Case For Embracing Lateral Career Moves, published by FastCompany. If you assume, as so many do, that exponential or total change of your skill set is required, then the prospect of reinvention is daunting. During the worst of the recent great recession, many who lost their jobs appeared to be like a deer in headlights, because they didn't understand those possibilities. If, however, you understand that reinvention can be incremental, by changing perhaps a few skills, with the result that a new skill set is created, then the prospect seems more readily achievable. There are numerous people who have done just that.
In my book Invent Reinvent Thrive (McGraw Hill, 2014), I relate some of their stories and explain why such reinvention is critical and how incremental reinvention is readily achievable. The stories include (i) a soldier, who became a businessman, then a venture capitalist and a philanthropist and ultimately the Mayor of Jerusalem; (ii) a grocer who understood retail but not the office products industry but who sharpened a few skills to fit that industry and founded Staples; (iii) a solo practicing physician who ultimately became the president of the largest group of physicians in Illinois; (iv) a man who considers himself a failure in school, who first toyed with using computers in his father's car dealership, who then tried his hand at selling computers and related products that he obtained at reasonable cost from others who didn't know what to do with such inventory, finally founding CDW which he sold for billions.
As Alyson points out in her article, it doesn't matter whether you adjust your skills through multiple jobs at different employers or by lateral shifts within the same company. Either way, refining your skill set by refining or changing just a few skills generally is sufficient to achieve a meaningful reinvention.
Someone recently said to me, “the concept of reinvention of you or your business is fine in certain occupations, industries and businesses, but it could not be applied across the board.” I strongly disagreed and for a somewhat ironic example, took the title of John le Carre’s famous book, Tinker, Tailor, Soldier, Spy, and applied reinvention to each of those businesses. Tinker In my recent book, In my book Invent Reinvent Thrive (McGraw Hill, 2014), I tell the story of Sam Popiel and his famous invention, the Pocket Fisherman. Sam was on one of his excursions to a practice fishing farm, where he would tinker with his invention until he solved the pending problem. That day he also tinkered with the price that he would charge for the Pocket Fisherman. As a result, he brought millions of additional dollars to the bottom line. The methodology for reinventing his business through this tinkering process is a fascinating, fun-filled story.
Tailor Tom Stemberg, the founder of staples and subsequently a venture capitalist who has invested in companies such as Lululemon and a chain of cleaning stores. While those businesses were more like tailors, the best stories of Tom’s career relate to Staples and especially his use of good homework to overcome naysayers.
Soldier One of the people I interviewed for my book was Nir Barkat, currently the mayor of Jerusalem but previously an entrepreneur and venture capitalist. Prior to all of that Nir was a soldier in the Israel Defense Forces. The story -- how he was wounded as his commanding officer, standing next to Nir, was killed during military activities -- is an exciting read. More important is how Nir took the lessons from the military training and activities and applied them to every phase of his continually reinvented life. He is proof that a soldiers reinvention of himself and later in his businesses can be a remarkably successful and profitable journey.
I was fascinated to read, earlier this year, of a soldier reinventing himself as an entrepreneur as a result of reading my earlier book, Entrepreneurs Are Made Not Born. Civilian Warriors, is a book written by Erik Prince, the founder of Blackwater, a private company that conducted military operations in Iraq. In it, Erik said that Entrepreneurs Are Made Not Born inspired his own entrepreneurship.
Spy Recent news events show that the spy agencies, from the CIA to the NSA, are constantly being reinvented. I do not have any personal knowledge about the spy business. Besides, even if I did and told you, I would have to kill you. :)
Brigid Sweeney, in her insightful article, "Please Don't Call Them Stores: Modern Retailers Aim to be Hangouts,” appearing in Crain’s Chicago Business, provides local examples of how retailers are focusing on providing "a place in-between" and customer entertainment, such as including experiential happenings. Nowhere is the importance of a place in-between laid out more clearly than in the story of Starbucks, both at its inception and later, during its reinvention in 2008. Even when I first met Howard Schultz and interviewed him for my first book, Entrepreneurs Are Made Not Born, I referred to Starbucks as a club, much like the bar on "Cheers," where the opening song proclaimed "a place where everybody knows your name," reminiscent of the way Starbucks taught baristas to know frequent customers’ names and even their favorite beverages. In my latest book Invent Reinvent Thrive (McGraw Hill, 2014) I explain how Howard's clear understanding of that essence of the business (what he refers to as "the company’s soul”) enabled him to avoid the near catastrophe in 2008.
Similarly, in Invent Reinvent Thrive, I tell the stories of Jim Sinegal, founder Costco, and Maxine Clark, founder of Build-a-Bear, both of whom believed in customer entertainment and experiential events in their retail businesses, much as those mentioned in Brigid Sweeney 's article.
As I said in Invent Reinvent Thrive, “Jim Sinegal decided he’d better reinvent Costco, at least partially from time to time, lest his stores…become uninteresting. He decided to add new items periodically. He constantly reminded himself and his colleagues, ‘There’s no annuity [here]. You’ve got to continually add stuff that’s new and exciting. Otherwise you become boring.’” Likewise, I quote Maxine Clark in Invent Reinvent Thrive: “At the May Company, she was fortunate enough to make a presentation to Stanley Goodman, May’s chairman. He told her that ‘retailing is entertainment and the store is a stage. When the customers have fun, they spend more money.’ His words made an indelible impression on Maxine.”
Brigid is right on!
Years ago, I wrote Entrepreneurs Are Made Not Born, a best-selling book now in eight languages. There I found that nurture was a far greater factor than nature. My new book, Invent Reinvent Thrive (McGraw-Hill, 2014), deals with both entrepreneurs and family businesses. Most people would say successful family businesses, those that make it successfully into the third generation, beating 9:1 odds, should thank their gene pool. After all, they'd say, they wouldn't have inherited the business if they hadn't had the right genes. I agree that inheritance is inherently different than starting your own business. So clearly, succession to family businesses are due to nature, but successors to leadership of successful family businesses may owe as much to nurture as to nature. Most entrepreneurs must search the world for role models, that search in itself being an entrepreneurial quest. Family business successors are dealt their business role models at birth, but how the family deck is shuffled and re-dealt has an extraordinary effect. For most, the deck they inherit is tempered or leveraged by lifetime, or even daily influences by parents, grandparents, etc. Here I'd like to explore how and where ancestors transfer their most important legacy, the values and principles that make up the infrastructure of their family's enterprise. The common allegories tell us that such principles are obtained: by visiting the office or factory on vacations or weekends; at the dinner table (every day or on holidays); and attending business dinners or events. What really happens in each of those places and experiences? Is it formal lessons, observing the ancestors, or experiencing under the ancestor's wing? How important are stories, and does it matter when (e.g. when the next generation is young and impressionable) or where (office, dinner table, etc.) the stories are passed along? The point of this blog post is that when it comes to ancestral family business stories, what matters most is how they are communicated. Many different times and places can work, but the nature of the transmission often is what has the greatest impactpositive or negative. Moreover, how stories are communicated depends heavily on the nature of the family, its business, and specific circumstances. That's what's suggested by the examples below, taken from by book Invent Reinvent Thrive.
Col. Henry Crown founded the vastly successful Material Service Corp. with his brothers after World War I. His son, Lester, used to bring his two sons, Steve and James, with him to the office on Saturday mornings. Usually he sent them down the hall to the colonel's office to spend time with their grandpa. Henry was a great storyteller, with extraordinary stories to share, including how he came to secure the Empire State building for his portfolio and why he failed to acquire the land where the U.N. now sits. The principles inherent in those stories, including those relating to strategy, philanthropy, and Judaism-based values, are still part of the company's compass. James, the firm's current leader, remembers the stories well, as does his brother, Steve, and they continue to share them with the next generation.
Tom Pritzker - of the Chicago family that owns Hyatt hotels and many other assets - heard stories from his father, Jay, and his grandfather, A.N. The most impactful may well have been those told after Tom had come to work at the company. He and others in his generation learned about business, investment, and structure at home but Tom's most important lessons were those experienced at the office. He watched how Jay and A.N. treated non-family founders and CEOs of the businesses the Pritzkers invested in and controlled, with an emphasis on A.N.'s legacy of integrity, reputation, and fairness. Such observations were reinforced by explanations and concrete lessons from Dad and Grandpa. This on-the-job learning became an important way to transmit the Pritzker family values and culture.
Unfortunately, fellow third-generation member and successful venture capitalist, J.B. Pritzker lost his father, Don, before the elder Pritzker could communicate many stories. Grandfather A.N. and uncles Jay and Bob tried to help, but they were in Chicago, over 2000 miles from J.B.'s California home. So when J.B was old enough, he talked with his parents' friends and pieced together what he could, suggesting that it's usually not too late to learn from family lore and that family lore can be transmitted by non-family.
From an early age, Linda Johnson Rice sat at the dinner table with her parents John Johnson and his wife Eunice, who in the 1940s founded Ebony and Jet, the first magazines targeted at African Americans. The magazines and subsequent Johnson holdings, including cosmetics and travel products, were highly successful, and among the Johnsons' dinner guests were high-profile people from the business, political, social, and entertainment worlds. That meant Linda learned, at the table, how to deal with people of fame and power, as well as the importance of diversity and collaboration. She also worked, first part-time and later full-time, and observed how her father handled complicated and sensitive business matters. He was also a communicative father/manager. She gained insight into why he wanted things done, and he was able to watch her and gain comfort that she understood and could accede to her father's wishes. He also knew that she had the wisdom and judgment to do things differently than he would, in ways more consistent with and necessary in the "new world." He made clear to her, in his own way, that she was authorized to do so, and he paved the way with key employees to better enable Linda to lead the company. His style was nurturing to the nth degree.
Marilyn Carlson Nelson, like Linda Johnson Rice, learned from both the dinner table and her time at her family's business, which often intersected, such as the lessons she learned from father (founder Curt) at Sunday dinner at Carlson's hotel restaurants. He regaled family with stories of his autocratic style, but seemingly contradicted those with his urging his family to vote on particular family expenditures. He clearly communicated to Marilyn that his goal of creating a business that would last 100 years would and should take precedence over his style choices. What Marilyn learned was especially important when she took over leadership of the family's business's including Radisson hotels, TGI Friday's restaurants, and Carlson Wagonlit Travel in 1998, one year before Curt's death.
The second-generation Bronfmans, Charles and Edgar, became co-chairmen of Seagrams producer of spirits and other consumer productsafter their father Samuel's death because those were Sam's orders. But the non-communicative relationships among Samuel, Edgar, and Charles, left little space for the transmission of stories and values, and the second generation was particularly resistant to their father's style, as they had seen it lead to multiple outbursts and estrangement from others. This history contributed to a particular absence of lesson-teaching on Edgar's side, with disastrous results. His son Edgar Jr. incurred a multibillion-dollar loss for the family when he sold Seagram to Vivendi, an act that is directly related to Sam's failure to communicate properly with his sons, as I explain in Invent Reinvent Thrive.
As the examples here suggest, ancestral family business stories are important vehicles for communicating principles, values, and practices across generations. But where and when they are transmittedwhether at the dinner table or in the conference room, whether during childhood or much lateris much less important than how it is done: with a priority on communicating them in the first place and, ideally, doing so in a supportive, constructive manner. Lastly, the use of stories- - from earlier days or even as lessons from concurrent events- - can be powerful.
The interview with Ford Motor Company Chairman, William Clay Ford, Jr, in the October 2014 McKinsey Quarterly, describes the sort of reinvention family enterprises need to stay relevant into the future. Bill Ford gets it. While his great grandfather, Henry Ford, may have invented their family business with its then unique method of mass assembly of cars, the company has been reinvented numerous times under the guidance of successive family leaders, which is why it continues as one of our great, successful and enduring family (controlled) businesses. Numerous more recent reinventions are directly attributable to the influence and leadership of Bill Ford. Now, he suggests that Ford redefine its mindset to be a "mobility" company, which is broader than only cars and trucks. Bill's prediction of driverless Fords within a decade may be accurate, but the Ford company's continuous reinvention will require a driver, with leadership like Bill's, for the company to continue as a successful family business. Here is the interview from the October 2014 McKinsey Quarterly:
William Clay Ford Jr. is known for taking the long view. The great-grandson of Henry Ford and the executive chairman of Ford Motor Company, Bill Ford was an early advocate for sustainability at the company, which earned the number-one spot on Interbrand's list of Best Global Green Brands in 2014 and also has been improving its competitive position. But to navigate through the coming years, Ford must travel in uncharted territory. Today's automakers confront developments that will affect the industry for decades: swelling megacities, self-driving vehicles, new technology challengers, and digitally connected carsamong others.
In September 2014, Ford sat down with Hans-Werner Kaas, a director in McKinsey's Detroit office and a leader of the firm's Automotive & Assembly Practice, and shared his views on disruptive trends throughout the automotive industry, his perspectives on leadership, and the opportunities he sees for the city of Detroit. The interview took place in Ford's office at the company's headquarters, in Dearborn, Michigan.
The Quarterly: There are a lot of forces converging in the auto industry right now, including urbanization in emerging markets, powertrain electrification, emissions concerns, and trends toward active safety systems, semiautonomous driving, and vehicle connectivity. Is it an understatement to call this an interesting time?
Bill Ford: The pace of change is accelerating and I love it. I think it's the most interesting time in my 35 years at Ford. It used to be that the auto industry, and the car itself, were part of a self-contained ecosystem. If there were breakthroughs, they were developed within the industry. It was a much more controlled environment and not nearly as dynamic as today's. In fact, I think we ended up being rather insular as an industry, and on balance it was not a good thing.
That's all been turned on its head; we now have disruption coming from every angle, from the potential ways we fuel our vehicles to the ownership model. We have a whole generation that just wants access to vehicles as opposed to ownershipfor example, through services such as Uber, Zipcar, and RelayRides. Even the dealership model is changing, with Tesla selling directly to consumers.
In terms of connectivity, so much of the technology is being developed outside the auto industry. Whether it's vehicle-to-vehicle and vehicle-to-infrastructure communication, semiautonomous and fully autonomous driving, or connecting to the cloudthese are all major trends coming at us fast and furiously.
The Quarterly: How do the changes, and especially their disruptive nature and simultaneous appearance, affect automakers?
Bill Ford: The reality is that we will not own, or develop, most of these technologies. So we have to be a thoughtful integrator of other peoples' technologies and understand where we add value. Because if we're not careful, we could become like some mobile-handset makers, where all the value is added by someone else.
One way to distinguish ourselves will be in how we present these technologies to customers, so that they find them appealing and not intimidating. There will be a lot of new technologies that help enhance the driving and safety experience, but some people won't be comfortable with themthey don't want their data uploaded in the cloud, for example. So we'll need to have levels of opt-in/opt-out in our offerings.
Ultimately, we can make the driving experience safer, more intuitive, and more fun. Actually, "fun" isn't something that people talk about when they talk about all this technology. But fun is something that should always be a part of the driving equation.
The Quarterly: Speaking of fun, semiautonomous cars are an increasingly important development today, heading toward self-driving cars in the future. Will that affect our love affair with the car?
Bill Ford: Well, I think we are already seeing a different type of love affair. When I was a child, people could work on their own cars easily. They would wax them in their driveways. It was a very personal, hands-on relationship. That's evolved over the last 15 years or so as more technology has come into vehicles and cars have gotten more sophisticated. But the fun of driving is still there. And as we look forward to autonomous driving, it certainlyif done correctlycan have profound safety implications. The elderly wouldn't have to give up their driver's licenses as early as they do today. Drunk driving could be a thing of the past. There are a lot of really positive things that come with it, and I'm excited by it. Still, I am also a little bit nostalgic, because I love to drive. I even like a manual transmission, though I may be a throwback.
The Quarterly: When should we expect those transformations to happen?
Bill Ford: There are a lot of bold, singular predictions. I take a more relaxed and holistic view. I think a lot of the required elements will go into vehicles over the next two, three, or perhaps five years. Yet by the time we actually get to full autonomy, it will almost feel like an anticlimax because we'll have been 95 percent of the way there already. That last 5 percent, though, will be interesting, and no one really can predict when it will happen. We'll need a lot more certainty than we have today before cars can be fully autonomous, and we'll need redundancies in these systems.
There are elements already in place. I recently drove up to northern Michigan on Interstate Highway 75. I put on the adaptive cruise control, comfortable knowing that if the car in front of me decelerated quickly, my car would act immediately to keep the gap I'd set. I found that a really useful tool. We'll keep adding more of these features, so that the final steps to full autonomy will feel almost uneventful. I think the technology will be ready before society and lawmakers are.
The Quarterly: How will connectivity affect the equation? Will there be a battle between our mobile devices and what is embedded in the vehicle?
Bill Ford: It's true that people want to bring their livesin the form of their phones and their iPads and whatever else they carryinto vehicles in a seamless way. And that's happening to some extent now. But we can't distract the driver with too much going on. Those are the kinds of things we're thinking through and must think through as an industry. It's the same with vehicle-to-vehicle communication: it doesn't do any good if Ford vehicles can talk only to other Fords. Even though we have a lot of competitive issues, we have to have a standard, and that's something we are working on as an industry.
I think all vehicles have to be part of an integrated network, and every form of transportation has to be talking to the others, so that we can optimize our way of moving around. For example, very soon our cars will be ablethrough sensors and technologyto be notified when a parking space opens up and then to pre-reserve it for us and have us billed directly, through an app. Things like this will start to redefine what urban mobility means.
The Quarterly: What's the right balance between individual mobility and more holistic transportation systems, especially in light of accelerating urbanization and the development of megacities?
Bill Ford: I talked about this a few years ago at a TED conference,1 where I used the phrase "global gridlock," which is exactly where we're headed. It's a fallacy to look at the GDP growth in emerging markets and say, "Wow, isn't this great?" and then to extrapolate some absurd number of vehicle sales ten years out, with no thought of "Really? Where are these cars going to go?" The roads already are impassable in some emerging markets, and they don't have the proper infrastructure. You're not going to put two cars in every garage in Mumbai, for example, even if residents there can afford it. Given how disproportionately quickly the world is urbanizing, we are going to hit the limits of our ability to provide mobility unless we adopt a very different profile going forward.
It's already happening. In most cities, if people have a car, they love their car and hate everybody else's. And they are paying a fortune to just keep the car. In many cases, they have to pay a fee to get into a city center or can only go in on odd or even days, depending on the license plate. Lots of cities are trying to deal with this in different fashions, but those aren't long-term solutions. Those are Band-Aids. Today, 30 percent of all fuel burned in cities comes from cars looking for a parking spot. And that's not only fuel. That's time, that's aggravation.
When I gave my TED talk, people were shocked. They said, "Wait a minute. What I just heard you say is you're going to be, potentially, selling fewer cars in the future." And I told them that's exactly what's going to happen unless we start doing something differently and redefine ourselves as a mobility company and not just as a car and truck manufacturer.
The Quarterly: What does it mean to be a mobility company?
Bill Ford: The role of a traditional automaker changes dramatically. We become a piece of the mobility ecosystem. In this new world, we need to figure out what we have to own and what we don't and to be a great integrator of technologies and services. We need to figure out who are friends, who are foes, and how do we turn our foes into friends.
I was speaking at a conference, several years ago, where I met Scott Griffith, then-CEO of Zipcar, which was relatively new at the time. I told Scott that I'd love to talk to him, and he said to me, "Didn't you hear my talk about taking cars off the road?" And I said, "Yes, but it's going to happen with or without us, and I'd like to have it happen with us." So we've now gone together to over 250 college campusesFord and Zipcarand it's been a great partnership because students are influenced by what they drive in Zipcar, so when they leave school, we become a car of choice. It's a winwin.
The Quarterly: Do you regard new or nontraditional playerssuch as Tesla, Google, or Apple as welcome disruptors, partners, or foes?
Bill Ford: We have to make them all our friends at some point, and they may not all start out that way. But we need to be exceptionally curious as a company. We have to know how to interact with those companies because they speak a different language; they're on a different cadence. They often have a different customer experience. Another big challenge is just keeping abreast of who these players are. The disruptors are being disrupted themselves on a regular basis. We need to be accessible, so that all these companies feel comfortable approaching us. It's not a muscle that we've developed over the years, but we are doing that now and we need to continue to do it.
The Quarterly: How do you foster curiosity and accessibility while also focusing on your core business?
Bill Ford: There's an interesting balance that has to take place, because we need to be open to and excited by the disruption happening everywhere. But we can't be distracted by it, because we have a daily business to run. We have to deliver a quality product, which requires attention to detail; we have to meet all the regulatory requirements. And so what Mark Fields2 and I are talking about is the appropriate level of distraction. I think companies and their leadership need to understand the intensity of the disruption that's taking place in our industry. We need to have an initial point of view on these disruptions. We need at least enough knowledge internally to be able to interact with these companies externally. I'm sure these very questions that we're grappling with are being grappled with throughout our industry. But I think our family ownership and the way we're organized allow us to take a longer view.
The Quarterly: You have been both an executive chairman and a CEO. What are the benefits of separating the roles?
Bill Ford: I've actually had three jobs. I've been nonexecutive chairman, I've been CEO, and then I've been executive chairman, so I've really lived the spectrum. And I love this construct because it allows me to use my knowledge of this company to think about where it can and should go in the future in a way that I could never do as CEO.
Just by definition, Mark's share of mind has to be more focused on the immediate pressures of being a CEO and running the day-to-day business. A problem arises this morning; it's got to be solved immediately. Still, this separation has to be a partnership. I can't be off in an ivory tower with a stack of books thinking about the future, and Mark can't be completely disengaged from what I'm doing. We spend a lot of time just talking and making sure we're on the same page and moving forward in lockstep, although at times concentrating on different issues.
The Quarterly: How do you view a leader's role with respect to engaging the company on broader societal issues?
Bill Ford: I think you've got several roles. You have to be an advocate for positive societal change within your company. I've pushed the environmental movement for 35 years within Ford. I met with tremendous resistance, both within the industry and my company; even the environmental community initially thought I was a wolf in sheep's clothing. But I continued pushing.
Leaders also have an important role in their communities. People are very busy, and we can all find reasons not to get involved, but our communities need us. As leaders, we have, hopefully, some brain power, we have connections, we have resources. And we should bring those to bear to make our communities better placeswhether that's schools or hospitals or helping with social issues like homelessness and hunger. Find the thing that resonates mostbut whatever it is, do it and set the example. And, usually, what comes back to you in terms of goodwill is ten times what you put into it.
The Quarterly: What is your outlook for the community of Detroit?
Bill Ford: I remember the 1967 riots in Detroit. I was ten years old, and I remember the city in flames. We had many years of decline: population decline, economic decline. And nowit seems strange to say as we sit here today with the city in bankruptcyI've never been more optimistic. The economic equation taking place in this city is unlike anything I've seen, whether it's start-ups coming into the city, established companies moving back to the city, or young people wanting to live in the city. I believe that when we do exit bankruptcy, there's something to build on now. Lots and lots of work to do still, but I'm the most hopeful I've been in my adult lifetime.
About the authors: This interview was conducted by Hans-Werner Kaas, a director in McKinsey's Detroit office, and Thomas Fleming, a former member of McKinsey Publishing
In my last blog I discussed “Describers,” or entrepreneurs who are able to sell their visions to investors and others by describing what they see in great detail, using words and graphics. That is, they convince people to invest by describing the picture on the puzzle-box cover, without assembling any of the puzzle. Some entrepreneurs choose not even to try articulating the vision and opt instead to demonstrate it—whether that’s their natural preference or tendency, or because a description isn’t sufficient to paint the vision clearly.
I call this type of entrepreneur a “Demonstrator” (but not the kind holding a protest sign!). Here I present two examples of consummate Demonstrators, using examples from my book, Invent, Reinvent, Thrive (McGraw-Hill, 2014).
Maxine Clark, founder of Build-a-Bear Workshop, is an excellent Demonstrator. Executive stints at May Company and Payless Shoes (where she was president) helped fuel her vision of a store offering a “stuff-your-own-bear experiences.” But the manufacturers she approached initially about the idea didn’t get it; they couldn’t see the fully assembled jigsaw puzzle—an experiential entertainment venue, not a mere toy store—as she did so it wouldn’t make sense asking them to invest. (This was symptomatic of my old saying, “If you’re not up on it, then you must be down on it.”) In fact, the only people who consistently understood Maxine’s idea were children, who could invest only with their hearts, not their piggy banks. Rather than trying to force suppliers, investors, and others to believe her, Clark decided to assemble the puzzle herself. She funded her first Build-a-Bear store in St. Louis out of her savings. (She could afford to do that; many can’t.) Despite friends’ warnings to “start small,” she built the store the way she envisioned it, with ample space for customers to explore and interact. An angel investor came to see the first store immediately after it opened and on the spot offered to back the business’s expansion. Today there are over 400 Build-a-Bear stores worldwide.
James Freeman had a passion for coffee; it motivated him to found Blue Bottle Coffee. Much like Maxine Clark, James’s vision involved process, the experiential element. He had a special way of preparing the coffee--one cup at a time. In his case, the completed puzzle was the coffee quality resulting from the unique brewing process, rather than the atmosphere that Starbucks offered. He had to overcome doubt that customers would be willing to wait an extra few minutes for an individually brewed coffee. Rather than just talking about it or asking focus groups what they thought, Freeman demonstrated his idea would work by offering the fresh-roast coffee at farmers’ markets. It was a big hit there, but customers strolling through farmers markets aren't as time-sensitive as commuters. With his own meager funds, James opened a small coffee kiosk in a smelly San Francisco alley; the outlet grew quickly in popularity, including with commuters, proving what he couldn’t with words alone. Having proven the concept, Freeman later opened more stores in San Francisco and New York, where they continue to succeed today.
Of course, many entrepreneurs, including those profiled here, are good at both describing and demonstrating. As I explain in Invent Reinvent Thrive, some business ideas lend themselves better to one approach or the other. But the bigger point is to understand the value of each way of sharing a vision, and to harness describing and demonstrating in service of your own ideas, however big or small they may be.
Great business leaders have a knack for sharing their visions—whether related to a new venture, strategy, or product—in a way that gets investors, employees, and potential customers excited. In start-ups, especially those creating something new and unique, that skill is even more critical. I have observed that entrepreneurs fall mainly into two camps when it comes to how they share their vision: (1) Describers, or those who articulate the vision they see so clearly, using words and graphics to paint a full, rich picture for others to see and understand; and (2) Demonstrators, or those who demonstrate the value of their ideas by building models or prototypes to provide others a more tangible sense of their vision.
In this blog I’ll talk about the first group—Describers—using examples from my book, Invent, Reinvent, Thrive (McGraw-Hill, 2014).
Howard Schultz, founder of Starbucks as we know it today, is a master describer. Among the people skills that make him a remarkable salesman and leader is an exceptional ability to communicate. But early on, when he communicated his vision for a new kind of coffeehouse, he was rejected by hundreds of potential investors. Part of the problem was that Howard’s original pitch was focused mainly on the coffee. In fact, that was just a part of his vision, and arguably not even the most important part. It was as though he gave potential investors 1000 piece jigsaw-puzzle, but never showed them the box cover with the picture of the completed puzzle!
The picture on the box would have revealed his full vision: what I have referred to for decades as a "club" like the bar of the TV-show "Cheers," a place “where everybody knows your name.” Howard rejected my word, “club,” probably because it bore elitist connotations. He now refers to it as a place to stop between work and home—a “third place” that happened to serve premium coffee. Describing the picture of the vision isn't easy. But eventually, Howard raised the funds, partly because he got better at painting the full picture in words for investors—he was able, orally, to “show” them the puzzle-box cover—and partly because people had deep confidence in him.
In the long run, it worked of course, and by 2013, Starbucks had over 21,000 stores and revenue of $15 billion. Howard’s description had become a reality. Of course, those who didn’t see the full vision may be drinking something stronger than coffee whenever they think about how an investment of $10,000 in the Starbucks IPO would be worth 1$64 million today!
Tom Stemberg is another successful entrepreneur I interviewed for Invent Reinvent Thrive. Tom’s vision wasn’t about coffee, but ballpoint pens—and paper, and typewriter ribbon, and other office supplies. In the 1980s, he saw the need for a more accessible store that carried large quantities of the most-needed office supplies—or the staples—at more affordable prices. Tom eventually transformed that vision into Staples, the original big-box office-supply store. But first Tom had to convince others of the vision’s merit.
That wasn’t easy. The stationery industry was already seen as mature at the time, and many new entrants had failed. “Don’t do it,” people warned Tom. The CEO of United Stationers called the idea “horrible.” But Tom persisted, telling potential investors about the benefits of a large office supply store, drawing parallels to wholesale clubs like Costco and Sam’s Club, based on his extensive homework (including relentless questions about how much potential customers like law firms spent annually on office supplies and insights about how little they understood about their own expenditures and needs). Without building a single store, Tom was able to obtain financing from Bain Capital by convincing its head, Mitt Romney—later, the 2012 US presidential candidate—of his vision’s value.
The bet paid off, and Staples grew to 2000 stores and 50,000 employees worldwide, with almost $25B revenues in 2013, representing about 40% of the office-supply market, despite the presence of many competitors.
Howard Schultz and Tom Stemberg were able to get others to believe in their visions through description. (Their stories are told more completely in Invent Reinvent Thrive). Sometimes, that may not be enough. In the next blog, I’ll discuss how some entrepreneurs have succeeded by demonstrating the value of their vision to investors, customers, and others.
Ernst & Young Family Business Center publishes a 3-part blog series inspired by the book's author, Lloyd Shefsky. The first installment of the 3-part series, A Grave Matter for Family Businesses, initially appeared on Aug. 18, 2014.
The recent WSJ article, "How Do You Fire a Family Member?" by Veronica Dagher, made some useful suggestions, e.g., have private conversations with the problematic family member ("PFM") and don't create any scenes in front of non-family employees. The article had an intentional limitation, as it was focused on events after-the-fact, i.e., after whatever might precipitate a firing. I would urge that such problems can be avoided, or at least minimized, with proper preparation, i.e., taking the right steps before-the-fact. A few such steps are:
- Establish standards and rules of behavior. If all family employees are fully apprised, before they are hired, of the expectations and the consequences of errant behavior, it reduces the likelihood of there being PFMs, as well as the occurrence of adverse reactions. Similarly othersnamely, non-employee family members and non-family employeeswho are often affected by PFM problems, will be more accepting of outcomes if informed in advance of expectations and consequences of misbehavior.
- Develop the infrastructure and procedures to help prevent family member employees becoming PFMs and to deal with problems at the first signs of trouble and continually thereafter. This may include internal assistance from non-family executives, who should be trained to deal effectively, and where appropriate, outside coaches and consultants.
- Establish procedures, up front, for dealing with problems when they arise, to assure actual and perceived fairness and to reduce embarrassment.
The above is but a partial list, intended as examples.
Some may feel that doing the right things before-the-fact may constitute a waste of precious time and money. In the long run, however, they help prevent and reduce otherwise exorbitant costs of solving problems. And those costs are not just monetary. They include negative impacts on non-family employees, with resulting inefficiencies and loss of good people, as well as complications in and even destruction of family relationships.