Commentary
Assets or Opportunity: Which Should Drive Your Growth Strategy?
- by Dave Morgan , Featured Contributor, January 27, 2011
Ever wonder why some companies were successfully launched -- and why others failed? Why one idea gets traction and makes billions -- and another struggles and eventually dies? I do.
I've spent the past 20 years working at the intersection of old and new media. In that time, I've watched entrepreneurs launch a lot of great digital companies. Most of them were not offshoots of legacy businesses. I've also watched incumbent companies launch a number of disastrous ventures based on their existing assets and see them miss the opportunity to create or own many, many successful companies.
Why did Larry and Sergey create Google and then launch AdWords? Why didn't a local media company start Groupon? Why did Reed Hastings found NetFlix? Why didn't Sports Illustrated launch or buy ESPN? Why did Steve Case build AOL? Why did the newspaper industry form the New Century Network?
The "new media" landscape has certainly been a dynamic and challenging one over the past two decades. Creating new businesses in this marketplace has been a mixed bag. While it's hard to find a single consistent answer to the question of why some new businesses worked and why others didn't, I do believe that there is a consistent theme that separates the successful from the unsuccessful: were they focused first and foremost on chasing an opportunity or leveraging assets?
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In my experience, those focused on chasing a market opportunity were much more successful than those that chose to leverage existing assets. Here are two big reasons why:
Old assets may have little value in new markets. In markets undergoing technology-driven disruption - like the media and advertising world over the past 15 years - infrastructure and large fixed-cost structures quickly shift from being great assets to being terrible liabilities. Being too in love with printing presses, large, centralized newsrooms and classified ad revenue kept newspapers from helping their readers find the news and information they wanted easily and cheaply, preventing them from providing their advertisers with cheap, efficient digital marketing channels that work.
Playing offense wins in dynamic markets. I've been in literally hundreds of meetings with legacy media and advertising companies talking about their digital futures where the discussion was dominated by questions like: "What should we do?" "How will we compete with them?" "How long will this last?" That's how folks talk when they are protecting assets. That's not how folks talk when they are trying to seize the market opportunity for next-generation local promotion using Web services and a direct sales force to combine the best of flash mobs, e-coupons and social marketing.
What do you think? Chasing opportunity or assets, how do you create growth? (You can't say both.)
That's a great way to think about it Dave. Personally, I also like Don Tapscott's description in Wikinomics of legacy companies struggling to innovate because the are living by what he calls "Tarzan Economics". They are clinging to the vine that they know (legacy business/assets) and not of letting go and grabbing the next vine in front of them (opportunity) for fear of falling to the jungle floor. Meanwhile innovators just starting out are are building businesses that are 2 and 3 vines ahead and aiming for where the market "will be" rather than where it is today. The company that out-Google's Google won't do it in search as we know it... they will be thinking 2-3 vines ahead. At that point, Google may have too much invested in search assets to pursue the opportunity with the necessary vigor to win. Entrepreneurs bet the farm. Legacy businesses milk the cow.
Love the article, but disagree that you can't say both because it's about perspective. Parallel it to theories of war... you have to play to your strengths. If you have assets of value that are worth or in need of protection, you can still navigate new markets to achieve growth, but it's more likely to be based on a defensive strategy that yields incremental growth. If you're a startup, you have an opportunity to take guerilla-like risks in new or emerging markets to spark change, yield massive growth... or go down in flames trying
Game changers like once start-up Netflix (massive growth) wouldn't exist or be able to continue innovating without the deep pocketed studios (healthy incremental growth) with massive back libraries of content.
Also, only considering "game changers" on the opportunity side isn't a complete way to form an opinion. There are more Alta Vistas and Friendsters that have been left on the side of the road than there are Googles and Facebooks paving it. "Old world" public companies have pressures that limit risk taking, and successful game changers almost always become old companies to a newer breed of start-ups.
In the interest of sport, I'll commit to the opportunity side because I'm much more excited by disrupting the way things have been done in the past than I am in the status quo. Perhaps I'd feel differently had I been born into Charles Foster Kane's dynasty.
Sounds like an aspect of the point Christensen made in the now-classic "Innovator's Dilemma". It's very hard for a company that's got a working model to change. I highly recommend the book - many things suddenly make sense.
Detroit is a great example. They - management & labor - saw the Japanese conquer market segments & loyalty since the early 1970's. Detroit only changed 40 years later when bankruptcy made the old model unsustainable.
If a tech vendor tells me, "We're not in that business / it doesn't fit into our product line.." I sometimes cite the Christensen book and ask whether their business plan includes, "Become an extinct dinosaur to facilitate an innovator's success." Silicon Valley swears by the book, so it can help vendors look at the proposition with a fresh perspective.