Smart Focus or Pivot Later?, with Marc GRUBER (#15)

Smart Focus of Pivot Later?,
w/ Marc GRUBER

According to our guest, Dr. Marc Gruber, Vice President for Innovation at the Swiss Federal Institute of Technology — EPFL — you can’t win if you don’t know where to play. Instead of a just-do-it mentality and pivot later if it doesn’t work, Marc speaks with our host, Ben Robinson, about how true entrepreneurs and innovators are reflective and flexible and how they think about what they’re doing and in what market to play in. By the end of this episode, you are also going to understand what’s a good market to be in and you will learn about the Attractiveness Matrix and the Social Identity Theory of three kinds of entrepreneurs.

Marc holds the Chair of Entrepreneurship and Technology Commercialization at EPFL, and he is a world-leading researcher in this area. He is also a Deputy Editor for the number one empirical research journal in management, the Academy of Management Journal — so a very talented fellow. We are very happy to have him on this podcast. Now, onto our conversation with Ben and Marc!

Full podcast transcript:

 

Ben: We are at EPFL and we are with Marc Gruber. I think where we wanted to start with you, Marc, was to talk a bit about Switzerland. So, anybody who listens to this podcast probably knows that Switzerland tops lots and lots of innovation league tables. And so, as a nation, it’s really good at coming up with innovation, but it doesn’t really have any sort of leading top-of-the-food-chain tech companies. Do you think that Switzerland is good enough at commercializing its tech?

Marc: First, let me say I’m very pleased to be here. Thank you for inviting me to the show! It’s a true pleasure to discuss with you all the topics around innovation and entrepreneurship. There’s some exciting stuff, I think, we can get to discuss and it starts with your first question. I think it’s a very pertinent question. If you look at the tables, we are extremely good at generating invention, and we see this in all the patent tables per capita. We’re extremely good on these fronts. Where we still have a lot of room for improvement is the commercialization side.

So, if you look at the definitions, innovation is invention plus commercialization. Moving them from the invention phase to the innovation phase where you have a commercialized product or service, this requires very different skills. This requires skills about understanding customers, understanding markets, figuring out good markets, about testing your products, about understanding whether the customer likes the features of the product. This is very different in terms of the activities — it’s the inventive phase. You might be inspired, as an inventor, by some real-world problem, and that’s often the case, but it’s still something different to test it with human beings, to understand what the response of a human being means — and not only one, but multiple or hundreds or thousands, if you want to do serious market testing.

So, everything that has to do with invention, and then everything that has to do with the innovation step, the commercialization step requires distinct capabilities, activities that engage with this, and from that perspective it’s quite normal to expect that in the league tables we can be good in one dimension — like in the inventive dimension, with patents — and we might not be so good at the other ones.

Ben: So you are saying that Switzerland should be top of the league table for invention, but somewhere way lower down the list for commercialization, then?

Marc: Ideally, we should be high on both. The invention is fantastic! That’s a great outcome, that’s intellectual effort, but the financial returns, the ecological returns, the sustainability returns — if we talk maybe later on in the show, about the broadening of our concept of returns — if we look at all these returns in society, those come up only in the next step, the commercialization step, where you create the impact, where you scale it up. If we are not good at the second step, the impact remains more limited.

Ben: And why is there that discrepancy between invention and commercialization? Is it because of the size of the domestic market or is it more about the skill sets?

Marc: It starts with the skill sets. It starts with the skill sets and then, it’s something that I see in my practical life, when I work with the startups, when I work with large companies, but that’s also part of the research I do. It clearly shows the skills and the inclinations to do these things also differ between people. You have some people who like to do technology, others like to do commercialization, and few people actually like to do both or are able to do both. If you look out there, there are few great leaders of companies that can do both. Think about Steve Jobs — he was good on the tech front, and he was a fantastic marketing person; maybe even a more marketing person than a tech person. I think it’s the skills, it’s the attitude and we are extremely good on the mental front, and I think we can be better on the commercialization front.

Ben: Do you think that those skills will appear just by themselves as companies have more success?

Marc: These initial skills to invent, I think we are solid with this, with the technical universities in Switzerland, and I think the amount of money we’ve spent in educating our population over the last 30–40 years, was extremely smart because we have really, really, really good technologists. What we have been starting about 20 years ago is to get into programs that support entrepreneurship, innovations, the second step, and educate people on this front. And we see it here, at EPFL, very concretely, where we have now a multitude of programs where students don’t only learn about the concepts, but apply the concepts so that they understand what it means to bring technology to market.

I think that’s where we are investing now. What we try to teach them, which is not the easy part, is this mentality issue of going out there, being more extrovert, talking to people, being able to convince other people to buy a product. These are very interesting skills and an important skill set, but it’s something that might not be so close to the culture that we see here, in Germany, in Austria, and in neighboring countries. In the United States, Americans are much better on these fronts.

Ben: So, you could argue that they’re better just because innately they’re better, but clearly one of the differences is that there have been so many successful companies, and success begets success. If you’ve commercialized one product and you know how to do it, then the likelihood is you stand a much better chance of doing it again versus somebody who’s coming at it fresh. So, isn’t that the bit that’s missing in the Swiss ecosystem?

Marc: Yeah, we have these reference models that are now popping up — we have quite some successful unicorns now in Switzerland, we have a few very good successes, but this is why we bring the students also into other ecosystems where they see the more advanced companies. What they realize is, I think, two things: First, they are inspired, but second, they see that water boils at 100 degrees Celsius. They come back and say if these guys over there can do it — and over the means students in Silicon Valley, and we send students over there for trips, for stays, for four to eight weeks, we have a desk at the Swissnex where they could go. Once they come back, they say, “Actually, we have all the ingredients here in Switzerland as well, to be successful.” Let’s take the smallest of our market, even, as an advantage because we are born in a small country that makes us much more open, if we want to conquer markets, towards other European markets by birth.” Either we are open-minded and start internationalizing early or we are staying small in the canton of Zurich. Let’s put it this way, that’s not a really strong impact you could have.

Ben: It’s almost like that maxim, which is you should be global from day one. It’s almost like, “Hey, you have no choice.”

Marc: You don’t have any choice. And what we also see, from the research side is quite interesting that there’s always this imprinting of the nationalities that you have on the management team, that foreshadows the internationalization strategy. So, if you have three nationalities on the team, the likelihood that this team will internationalize earlier is much greater than if you have only one country nationality represented on the founder team. That’s quite promising, as well, because we are a country that is quite diverse, the startups that are created here at EPFL are quite diverse in terms of the background of its founders, and that makes it more likely that they internationalize and I think that’s not only good for the country, that’s extremely important for the company.

Ben: Perfect! So, I want to talk a bit about your book, “Where to Play.” So, it’s a book and it’s a website, so you don’t have to buy the book necessarily to get access to some of the methodology.

Marc: Absolutely, no! Actually, all the tools are available for free and if you want to learn more, you can even get a free online course. If you want to buy the book, of course, buy the book! It’s a lovely book, we spent a lot of time working on it, and I think it gives you additional value, but the core of the method is out there for free.

Ben: It is a lovely book! It’s a book that I first came across thanks to Steve Blank, who wrote a very nice review, and the way he positions it — and I guess this is the way you position it as well — it’s like a very nice complement to some of the other tools, the business model canvas and so on. But the key difference being that it comes before, it’s like a precursor to doing the latest stuff, because until you’ve figured out which are your most attractive markets to operate in, then it’s premature to think about product-market fit. So, can you just explain to us a bit the concept, the importance of “Where to Play” and how people have maybe underestimated that until now?

Marc: Yeah. So it’s very correct what you say. Steve Blank wrote an extremely nice blog post about the book and the method that is behind it.

Ben: We’ll share the link to that, for the listeners.

Marc: Excellent! And what you said is, basically, the tools that were in the Lean startup up to that point were mostly focused on being successful once you know your domain — figuring product-market fit and developing a business model within that market. But these tools didn’t really help you to figure out where to start. What is a good market to be in, in the first place? And then he said that’s why he’s adopting the tool actually, for his Lean toolset, which is a wonderful badge of honor for us because it’s one of the most important, if not the most important innovation tool that was developed in the last 20 years, two decades — and to be adopted by the person at the origin of this is just a fantastic recognition.

So, me and Sharon — my co-author of the book and co-creator of the method — of course, we had big smiles when we got that badge of honor from Steve. But generally, the book is about trying the method that is underlying this, it’s trying to figure out what are good markets to be in because you could be in a very lousy domain and do all the stuff — you can develop a business model, you can do market testing — but then realize only after a while that actually, “Hey, that domain was not so great and I need to pivot to another one.” I still have to find the first venture team or corporate innovation group that likes to pivot. So, if you can somehow be a bit more foresightful — and I don’t want to say that you can predict the future, that’s not at all my thesis — but if you can be somehow a bit more foresightful and say, “Hey, there’s a better market here than there. Let’s first go into this turf before we try the other one.” I think then, you’re actually significantly more successful.

the question, “Where to play?” is always a sibling of the “How to Win?” question. If you are lousy in the “Where to play?” question, you will be inferior in the “How to win?” question because if you’re winning a super small battle in a small market, great! You have won! But you have missed out the big other alternatives, and that’s where I think they nearly need to go hand in hand.

Ben: So, I was going to ask you that. It’s almost like we’re given to believe that the pivoting is almost a natural part of the course, but what you’re saying is that actually, it doesn’t necessarily need to be because if you spend a bit more time understanding your market opportunities, then the likelihood of pivoting is decreasing. Do you have evidence to prove that those really unpleasant 180-degree pivots happen less frequently if you use that method?

Marc: I have done 15 years of research before I wrote the book. As a researcher, I said I’m going to write something where I know that all the empirical results point to some method that makes me more successful. And what it does is, I think, twofold, and let me describe this with an example. Flyability is a company that is here at EPFL, they are producing drones, and they have drones in a cage. And with this type of company, the question, really, is where do we apply this? They had the idea to say, “Okay, we go to nuclear disaster sites, atomic reactors, and the drone can go in there and get a good idea of the debris and of the casualties that might be there, as bad as it is.” But there are many other domains where they could inspect: electric landlines, pipelines, indoors, outdoors. So, it’s really about figuring out a good starting position. And if you think about it, yes, this company, once it sees more opportunities, there are some that are better, markets that are growing quicker with less competition, where the customer demand is stronger, where the development costs are smaller than other domains.

We’re living in an age where the industry boundaries are imagined boundaries

The first element that they learn is, “Well, we can actually start with a better, more fertile ground.” The second element — and that’s equally important — is that yes, but we still don’t 100% know if this works out. Once you have this wider lens, you become more sensitive to many decisions in your company and don’t dig yourself into a ditch so quickly by saying, “Hey, I’ll call my company now dronesfornucleardisastersiteinspection.com

Ben: Yeah.

Marc: They called themselves Flyability, and that gives you a lot of flexibility in case you have to pivot. Also, you have a double benefit out of applying the method. Number one, figuring out where a better market is, and number two, actually figuring out that you can be a bit more agile because you make decisions that put agility into the DNA of your business. So, even if you have to pivot, it’s much less painful than if you are just moving into one direction and see that as your one and only goal, and then realize after half a year, that this doesn’t work out. By the way, the statistics say that 73% of all companies need to pivot before they actually apply the method.

Ben: And do you know what it is now, post hoc?

Marc: No, we haven’t done that yet. But we see that the companies are created very differently. People have an opportunity set — that’s a portfolio of growth options. They go out there, pitch this portfolio of growth options to the venture capitalists and business angels, by saying, “That’s our first market. If this one works out, that’s our future growth market. If this first one doesn’t work out, this is our plan B.” And this is a super interesting storyline for any VC because a venture capitalist knows that they know the market and number two, they are de-risking the project by saying there’s a plan B, in case the first one doesn’t work out, and they have a future growth option in-store, which means more value creation; or they might even have two-three more growth options in-store. So, in that sense, all the feedback we’re getting from the financial community is they are super excited, they would wish that every company would apply that when it actually comes to their turf and seeks for funding.

Ben: So, I just want to test, slightly, the premise on which the book is built and the methodology is built. So, the premise is that every product doesn’t have just a single potential application. There are many potential customer groups and markets for any given product. And I was just reading this thing from Bain, and they basically take the same premise that you do, and they say what becomes important is not just to identify exactly where to play, but instead to focus on how to win because we’ve seen that the commercial world isn’t tightly grouped into industries anymore, but arenas — which I think this the terminology that you use as well — then what’s most important is having a sort of a competitive edge and having an execution edge to be able to win across large arenas now. How do you see that sitting alongside?

Marc: I think that this perfectly matches. I think the question is how to win, but you want to win in a good market.

Ben: Yeah, that’s right!

Marc: That’s why the question, “Where to play?” is always a sibling of the “How to Win?” question. If you are lousy in the “Where to play?” question, you will be inferior in the “How to win?” question because if you’re winning a super small battle in a small market, great! You have won! But you have missed out the big other alternatives, and that’s where I think they nearly need to go hand in hand. And what you’re saying is quite important, let me emphasize this. This question that we just started to discuss for the startups is of equal importance for the large companies.

We’re living in an age where the industry boundaries are imagined boundaries; we have the most successful companies actually moving to across industry boundaries — Rita McGrath calls this competing in arenas — and this is super important for large companies, too. Think about Daimler. Daimler is not worried about BMW’s competition. They are worried about the computer manufacturers, the Apple’s, the Google’s coming into the world of car manufacturing. If you look at Uber, Uber was born as a taxi service, but Uber moved into food delivery, Uber moved from food delivery now into tourism by offering tourism to vineyards, which is a smart idea if you’re trying to taste wine, that you actually have someone driving you. But they don’t care about the industry, they go wherever they can grow.

And look at Google, what they are doing, look at all their different businesses — they go wherever they can grow with their competencies. So what you said earlier with products, you need to look one step below and say, “We have competencies that generate these products” and if you maybe add from a large company’s perspective, AI or drones to the mix of competence, maybe you can do even something else, maybe you can offer new service.

Think about maybe one of the most traditional businesses — construction businesses. If they add drones to their mix of competences, they can offer everything from construction site inspection toward inspection of the fully-furnished site later on because they have all the knowledge about the construction process. In the second step, they will have the advantage to say, “We are actually better able than other companies to monitor the sites and to monitor the degradation of the site over time.”

And also, the logic that is out there is one where you very much now look for growth turf based on your competencies, and the initial question is actually where to play, and once you’ve figured it out, it’s how to win — and then it’s about figuring out a good business model, it’s about figuring out a good customer fit, etc.

Ben: Geoffrey Moore’s “Crossing the Chasm”, talks about leaving the relative safety of your first market to then get into the mainstream and how that’s almost like a trial and error type person. So, are you saying that if you employ the “Where to play?” from the very beginning, crossing the chasm is that much easier because you’ve sort of already identified the stepping stones? I think you actually used the term of building blocks. So, you’re saying that you’d almost build the tower that gets you to cross the chasm.

Marc: Exactly! And if you look at a Geoffrey Moore, he has this analogy with the pins that are falling — you focus on one and then it’s the other. But, in a way, it’s the same logic or a similar logic, where you say, okay, we need to figure out the first one to hit, and which is the most fertile ground that we can foresee, somehow. Then, when we enter there and are successful and go through the diffusion curve — we start, of course, with the people who are highly engaged in this market, there might be opinion leaders who talk about our product, so that we get into this most fertile ground, grow our tree there, to use another analogy, become strong there and then we can say, okay, now we branch out into the other domains that are related.

But what Geoffrey Moore has not explained so well in his book, but what’s basically then, in “Where to Play”, is the logic where you say, what could be this first pin? What are the other domains that we could get in? How can we structure a company or a project so that we actually have the capabilities that are more flexible, so that you can more quickly and more efficiently enter these other domains? This is in a time where everything goes much quicker. These are very important considerations. So, in that sense, I am a big fan of Geoffrey Moore’s book and I think we are perfectly complementary with the thought world.

Ben: Yeah, exactly, it’s complementary because you know that diagram where you sort of jump off one side and hope to get to the other side. You build the stepping stones.

Marc: Exactly!

Ben: Yeah. I think probably it’s natural now to talk about the attractiveness matrix that’s central to the book. So, there are two axes: one is challenges and one is potential, right? So, the first question is, could you talk us through that matrix? And then, maybe, I suppose, as a follow-on, how do you arrive at some sort of objective score for those two matrices?

Many entrepreneurs say, “Okay, yes, we have an idea about the market attractiveness and the challenges” but they typically only take one or two dimensions. They say, “Oh, it’s a big market! This must be good!” Or “Oh, we can make a quick entry. That must be good.” And they don’t see the full picture of what shapes a good market.

Marc: Absolutely! Let me briefly give you an overview, for the listeners. So, the method has three parts. The first part is about understanding the opportunity set, being creative, understanding — like in the Flyability case — where we can apply our drone to everything from inspection of bridges, up to the inspection of avalanche sites — so we have an opportunity portfolio.

When you look just at the description of a few of these examples that I’ve given with Flyability, somehow is almost obvious that not all markets are equally good entry points. Also, you need to have, in a second step, an evaluation, and that’s exactly where you can come in with the matrix. This matrix has two dimensions: it’s a challenge dimension and it’s a potential dimension. And we, Sharon and myself, we screened about 40 to 50 years of venture capital research to understand what type of features are of high importance to make sure that you are able to evaluate early-stage opportunities. And just look at a couple of these features: it’s, for instance, market size, it’s the strength of the customer needs, the ability to pay, it’s about the time that you need to develop the product, the time you need to make the sale, it’s about external risks that you cannot control, etc.

There are a couple of factors that are the main factors that you can get out of looking at these 40 to 50 years of venture capital research, and that’s, of course, not practical for the entrepreneur to go through thousands and thousands of pages. So, what we did is, within that matrix, we have two dimensions: the potential and the challenge — and behind it is a worksheet that helps you to score each opportunity. Sometimes you don’t know how to score it maybe on the market size front, so you would have to do some backup research to understand, is this a small market? How many bridges are there in Switzerland, in France, and in Germany, to understand what is the potential market size.

So, based on the worksheet that has a potential dimension, as well, and a challenge dimension to score, you come up with a summary score that you put, then, in the matrix. This matrix has four quadrants, and also, if you add the potential and challenge, we have the Moon Shot quadrant. This is high potential — high challenge. As a joke, this is the Elon Musk quadrant; everything he likes to do is in the Moon Shot quadrant.

You have low potential — low challenge: these are the Quick Wins; basically, it’s the lower-left corner. You can say, “Hey, I can go in there, I can make an easy living, I can make a first hit.” This might be the first hit that then gives you a stepping stone option towards something else.

You have the Questionable with a high challenge — low potential, where you might wonder if this is a good idea to do. If you feel suicidal, maybe you should do this, but we don’t recommend it.

And then, you have another quadrant, which is high potential — low challenge, which is the Gold Mine; those actually exist. It’s just that it’s low competitiveness, high market growth, strong customer demand, quick sales cycles, etc. And those actually exist, you have to look at them and try to rate them.

What we see with many entrepreneurs before they apply this method is that they say, “Okay, yes, we have an idea about the market attractiveness and the challenges” but they typically only take one or two dimensions. They say, “Oh, it’s a big market! This must be good!” Or “Oh, we can make a quick entry. That must be good.” And they don’t see the full picture of what shapes a good market.

Ben: Yeah. And I think, also, doing it this way removes the subjectivity because we tend to see things from our own prism. That’s a challenge I’ve seen personally.

Marc: Absolutely! You’re completely right! It’s like, either you rely completely on a gut feeling or you are subjective in scoring. But we designed the tool so that it’s a wonderful tool to work in teams with. So, you can say, “Okay, there’s Ben, there’s Marc, there’s Roger, there’s Henry and Fabiola, and we sit together and we are scoring together, and let’s see where we end up.” And at the end of the day, it brings the team together, and they say, “Hey, we did this together. We figured out this is the best point to enter” and I think, in that sense, we didn’t put this to the forefront, but when we observe the teams that apply it — it bonds the team because they discuss and decide the strategic questions together.

Ben: I think is implicit in what you said earlier on, but what you’re recommending is a portfolio approach, right? Which is to say, if there’s a Moon Shot, maybe pick a Quick Win to ally with the Moon Shot.

Marc: I think what you’re describing is very important because if you think about having a portfolio, it gives you additional abilities as a founder or innovator in a large company. Why? Because you actually can say, “Hey, I start here, here or here, and if I want to do the Moon Shot, I’m now more sensitive to the fact that I have to have much more resources, and it takes probably much more time than I expected.” So, you’re a bit more careful. That’s what we typically get as feedback from the people who say, “Okay, we have a Moon Shot, we want to do this. We thought we only needed to raise 200,000 from the VC, but we actually need 5 million.”

But we are not prescriptive at all by saying, “Hey, you need to do this or that.” We leave that up to the entrepreneur or the innovator. Sure, if you want to do a Questionable, go ahead and do a Questionable. If you want to do a Quick Win that is small, and that’s your domain, just do this. But be aware that these are the growth possibilities — and they differ — and be aware that maybe if the Moon Shot or the Quick Win or the Gold Mine should not work out, that there’s a plan B so that you don’t waste all your resources. If you’re more successful, yes, you can start in the first one, and then you’ll move to another one. An entrepreneur is a bit more of a reflective person, which is countering this can-do attitude, the just-do-it attitude — which bothers by now many people. Within the business domain, there’s this mantra of, “Oh, just do it, and then you pivot.” I think that in no part of life, we have this mantra. We tend, as human beings, to reflect a bit before we actually do it. I think, ultimately, what the book is about, is getting a bit more reflection on the whole process.

Ben: Yeah, and having worked with a lot of startups, I think that’s one of the friction points — the founding team suddenly needs to raise money, and then, the venture capitalists or whoever the external investor is, starts to ask all these kinds of questions, and it’s obvious that these were not thought about in ex-ante, right? And instead, they’re retrospectively trying to add this lens of, “This is where we’ll go next.” And so, I think is extremely helpful to have been through this process when you’re trying to raise money, for example.

Marc: Absolutely! What we see is that, from the venture capitalist side, they say, “Okay, if all the companies that apply for funding would be so explicit and so transparent of what they want to do, it would not only help us to judge the venture, but it would also signal to us that these people understand what they do.”

Ben: And you said, also, earlier on, this idea that once you appreciate that you’ve got your first market and you don’t have to do these really harsh pivots because you know where the next landing point would be if it doesn’t work out — you said that that determines things like what you call the company. But there is a whole list of things in the book about the sorts of things that you would want to be mindful of, when you start, given that you are likely to pursue multiple markets given that you’re operating in an arena.

You create a path and that path gets more fortified, stronger with each and every decision that builds on this. You go for a market, you choose your suppliers, you choose the brand name for that market, you develop the distribution network for that domain, etc. So, with each subsequent decision, you are more constrained and locking yourself in, which when you think about it, of course, it focuses you a lot, but it’s also something which with each step, it becomes more expensive, less efficient, more cumbersome to change.

Marc: Yeah. What we advocate is, as a small team, as a small venture — three or four people — to focus on one market, but if you are a large company with 50 people working in innovation, you can pursue multiple markets at once. But, especially when you’re extremely resource-constrained, what you need to do is to say, “Okay, I need to put a lot of agility into my project so that every change that I need to make is less cumbersome, not consuming a lot of resources” because your resources are not endless. And when you think about this, once you have this portfolio view of what you can potentially do, just go back to the Flyability example — once you understand that you can actually go from construction site to rescue missions in the Alps, what you are picking is a brand name that is different, that allows you to do many more things. Number two, what you’re trying, probably, to do is to say, I develop a product — the drone, in our case — which is within a few steps amenable to all these different markets, it doesn’t cost a lot to actually change the product so that it can be applied in all these different domains. So you might want to hire people who have a bit more generalist expertise to understand, “Okay, if this one is a great domain, maybe these people can also work on this other domain later on. It’s how you write your patents, the applications of your technology in there.

So, it has a range of implications that are very profound. And this goes down to the nuts and bolts of the company you create, the project you pursue, and that’s why I think this mindfulness at the beginning is then imprinted into the DNA of the company, of the project you’re creating, and I think that, over time, you’re creating a company that is more agile, has the agility in the DNA, has an outlook on growth that is quite different.

And if you think about the earlier example that I mentioned with Uber — Uber has exactly that mindset. They say, “Okay, we grow in this taxi domain, but that’s not all we do.” No one mandated Uber to just stay in this domain — they could grow in all kinds of different domains.

Now, think about the banking sector, which is quite important for Switzerland. The banking sector, they have this idea of saying, “We have financial services”, but if you move out of this logic, and say, “Actually, they could be about trust services.” And once you’re about trust services, finance is one leg that we could have and maybe there are two or three other legs that we can develop wherever trust is needed among human beings. Maybe blockchain is a key part of the skills we need to acquire and build, in order to be a viable player in trust services. This would be the Uber logic to the financial industry.

the zooming in — zooming out is a prerequisite towards seeing a portfolio of opportunities

Ben: I won’t ask you about blockchain because we’ve made that mistake on previous podcasts. It’s a bit of a rabbit hole.

Marc: They can listen to the other podcasts.

Ben: So, if you set up your company with the notion that it’s a portfolio play from the beginning, you’re saying that it’s almost in the DNA, this idea that you will be agile. So I accept that that’s true, but there’s still the temptation to always double-down on a market that’s working. And so, what else would you recommend to companies to make sure they’re agile, and they don’t become, in the Clayton Christensen sense, they don’t go so deep that they, then, become disruptors for somebody else?

Marc: Look, they can go deep as long as they are realizing that these decisions are creating these deep ditches of past — we call this, in research, “Path Creation”. You create a path and that path gets more fortified, stronger with each and every decision that builds on this. Let me give you an example. You go for a market, you choose your suppliers, you choose the brand name for that market, you develop the distribution network for that domain, etc. So, with each subsequent decision, you are more constrained and locking yourself in, which when you think about it, of course, it focuses you a lot, but it’s also something which with each step, it becomes more expensive, less efficient, more cumbersome to change.

That’s why we call the third step in our method, “The Agile Focus” because you should focus, yes, but keep in mind that once you do these decisions — like with the brand name — maybe you can make this decision in a bit more open-minded manner so that in case it doesn’t work out — and in innovation, oftentimes it doesn’t work out — in case it doesn’t work out, you are able to not fall into this big ditch that you have been shuffling, and don’t die from that.

Ben: And the other thing too, in the book, is “zooming in and zooming out.” So, we’ve come across zooming in — zooming out in the John Hagel context of having multiple time horizons for our strategic planning, but you use it more as in like, when you’re identifying target markets, you want to look at the highest level of what’s the massive group that you could target versus what’s the sub-segment of this industry that could potentially be addressable by the product. Again, what’s the repeatable methodology for doing that?

The rules of the growth game have changed and with it, the applicability of the frameworks and the need for frameworks. If we accept the idea that we are competing in arenas and no longer in industries, all the tools that would constrain you to think within an industry are not as meaningful anymore.

Marc: I think this has very deep roots because, in our research with Ian MacMillan from the Wharton School, we have continuously seen this into an entrepreneurial mindset. The true entrepreneurs and innovators are able to flexibly think about what they are doing — they’re not like a hamster in a wheel and say, “Okay, we have to run, and run.” They have this reflective capability.

Let me give you a simple example. One of the inventors here, at EPFL, one of the professors, developed a stent. This stent is basically for preventing your heart disease. But at the same time, he said, “Look, this is heart disease prevention, but we can apply this in the whole body.” Then it’s about blood flow technology. And if you zoom out one step more, it’s about flow technology — then, you think about pipelines, etc. So it’s like, you have from the very small narrow application within the heart towards everything blood flow technology, to flow technology. And that’s what a good entrepreneur should be able to say: I move out and I move in. The best application might be the heart, I don’t want to challenge that, but it’s like, “Hey, where else could we grow? What is our company about?” This a very profound definition.

And once you think about this zooming in zooming out, you can say, “Hey, that actually doesn’t cost me anything to reflect on this. This costs me a bit of time but makes me understand better what type of animal company I’m creating. So, in that sense, the zooming in — zooming out is a prerequisite towards seeing a portfolio of opportunities.

Ben: So, as I’m understanding, your value proposition is, at its most granular level, and then being able to zoom right from there to what’s the largest possible application. So as you said, with financial services, it’s understanding that we do trade finance and invoice finance, right through to which we’re about trust.

Marc: Exactly! But what I’m describing is only a cognitive process. It is purely how you allow yourself to think about it and then it relates back to what’s the makeup of the founding team or the management team. We have, since 30 or 40 years ago, a lot of super exciting research in the management domain where we see clearly that the makeup of the board, the type of experiences they have, their education is basically foreshadowing what the board will be able to do. So, if you have four people who have studied finance on the board, of course, the likelihood that this company does more finance and has that lens is much higher than them going into another domain.

If you make the same analogy now and say, “Hey, we have four people in finance, and three that have actually a blockchain experience”, guess how this company will redefine where it plays? So it’s a lot about the makeup of the founders or any management board of a company that basically, somehow is able to foreshadow what this company sees in your growth pattern. This insight is not from me. I’ve shown it empirically with my research, but from a conceptual perspective, there’s this late 1950s, Edith Penrose’s “The Theory of the Growth of the Firm” — a wonderful book; I think one of the most fascinating books that one can still read and it’s so current as probably has never been before.

Ben: One application, clearly, of the “Where to Play”, is when you’re starting out. You’re saying it’s also extremely useful for strategy teams and executives in an established company to provide answers about where to go next.

Marc: Absolutely!

Ben: That being the case, do you think it replaces some of the tools that the strategists are using today? For example, the BCG Growth Matrix. Do you think some of these things have become a bit antiquated or obsolete given the way the world has changed, both in terms of the nature of competitive advantage, i.e. that it’s more about the demand side, economy’s at scale, and also, the fact that we don’t have these narrow boundaries of what’s in an industry and what’s not?

Marc: I think that the rules of the games have changed. The rules of the growth game have changed and with it, the applicability of the frameworks and the need for frameworks. If we accept the idea that we are competing in an arena and no longer in an industry, all the tools that would constrain you to think within an industry are not as meaningful anymore. Think about Porter’s Five Forces — it’s a fabulous tool to understand the industry, but it doesn’t help you to understand the growth space beyond the industry — this arena.

That’s where, “Where to Play” comes in play because it actually gives you an idea of what is the growth turf that might be available for you, so it enlarges your perspective. And when you come to the large companies, they are in dire need of this type of perspective, and partly owing to the fact that most of the leaders running these companies were educated in the ’80s and ’90s. They know, of course, from the MBA programs that Porter’s Five Forces is the thing to do — but implicitly this constraints you to the industry. Once you come with an arena perspective, for the large companies this opens up very exciting new growth options. If you look at the interviews that Daimler is giving, the large companies are waking up to that very quickly. They have adopted not fully this mindset that there’s an arena out there, but they are starting to realize that competition comes actually from places they would never have expected.

That’s where they learn through the backdoor that actually there’s an arena, “A computer manufacturer suddenly competes with us. Whoops! We thought it would only be the car manufacturers.” So, they learn through the backdoor that actually there’s an arena to play in, and secondly, what they are realizing as well, is they have this set of competencies, “What else can we do if we now put AI to the mix?” If we put drones to the mix, like this construction company that I was referencing early on, it’s like, yes, you have your constant competence that has been around for 50 years, but now take drones into the mix. What else could you do? You can become a service business that is quite successful.

So, it’s about understanding how, as an established company, you can employ the latest technology, increase the scope of your product offering, service offering, etc. And I think there should not be a threat to any company. This is a wonderful process because it relies on creativity, imagining new frontiers where you can grow, and this is, I think, applied in the right way. It’s a truly exciting process that should energize everyone on the team. I know that the companies are worried because they see there’s competition coming from left to right.

Ben: The other thing that’s, I think, good about it, is it looks from a capability point of view, which is some of the tools that strategists use, and assume that the customer is captive, in a way; because you control distribution, you can just upsell. You know, like the Ansoff Matrix — keep the customer, the customer is fixed and you can sell them more stuff. I think that that’s been deeply challenged as distribution has opened up. And so, again, it doesn’t look at it through that distribution prism, it looks at it through capability prism.

Marc: Yeah. Or you can look at it through a distribution prism as well and say, “What other products could this customer need?” And then you evaluate these types of markets or options with a matrix tool. Our framework is, in that sense, quite flexible.

Ben: So, in other words, it sort of fits around. So, if you’ve got a matrix or a methodology you’re comfortable with, this tends to be always complementary?

Marc: So we are, in a way, highly complementary even to the Porter Frameworks, to the Ansoff Matrix, or to the BCG Matrix. You mentioned the BCG Matrix early on; the underlying question is, where do your new growth options come from? There’s no answer given in the BCG Matrix. It’s just like, “Oh, they’re rising stars!” Where were they born? Someone must have had the idea for this rising star. That’s where, “Where to Play” comes in with its method because it helps you to understand there could be a growth opportunity, a rising star, how rising and is it really a star or is it a dot, and it helps you to understand in the first place what you’re developing.

Ben: Another piece of research you wrote, which is about the characteristics of founders. You used the terms Darwinians, communitarians, and missionaries. Could you elaborate on what you mean by those terms?

The times are over where financial profit and job creation are the only two factors that matter. They are a long over. I think the companies who haven’t realized this are soon in the cemetery of companies.

Marc: With pleasure! It’s actually, one of the research studies that I learned most about entrepreneurship from, or innovation, or life — this is a big term, but I’ll explain in a minute why. We have done this study where we tried to understand entrepreneurs within one sector, to keep the heterogeneity low — it was all kinds of sports-related equipment, and there were entrepreneurs that actually were like the normal brands, very competitive. We said, “Okay, we need to develop something that gives us a lot of return.”

There were other entrepreneurs that were more the thinkers, they developed something for themselves, went on the slopes, for instance, others observed what they did and said, “Can you do this snowboard for me? Can you do this bike for me?” And then, you have a third type where you realize, “Well, these guys are not caring so much about the market, the producers, because they want to sell something, but they want to change the world to a better place.” They are about ethical production, etc.

We started off this project by interviewing these people on why do they actually have these different outlooks of what a company could be? Why would some of them give their invention for free to others, while others would patent protect it? And then, that gave us quite a lot of hard thinking to do.

And with my colleague, Emmanuelle Fauchart, at some point, we had discussions when I said, “Okay, I’ve done this study once, about identity.” And then, identity was basically the key that opened up this puzzle for us, because identity theory allows you to understand on a very deep level, why people do things. And what we did then, is to say, hey, there’s a more generalizable framework within our data, which by now has been applied by many other researchers and what we basically saw is that there are three types of entrepreneurs, pure types, and you can mix and match them at the end of the day.

The pure types would be the Darwinians who say, “I fight for my business, I’m the leader! If others in my market die that’s good because I have a better market share.” That’s one very typical way of viewing business. The others were the communitarians, who say, “Oh, we are within a community, we openly share. We are trying to make the community a better place.” And the third type was the missionaries where it’s about the whole world, “We want to make the world a better place.”

And from an identity perspective, that’s where it becomes interesting in two ways. From the identity perspective, this goes from the “me” to the “known other” to the “unknown other”. How you behave and act depends a lot if you do it for you, if you do it for known people, or if you do it for unknown others. What you expect as a return is quite different, too. If you do it for you, at the end of the day, your bank statement would be bigger. If you do it for the known others, maybe it’s love, it’s admiration, but if you do it for the unknown others, what is it that you’re getting out of there? Maybe you have a better conscience or maybe you’d like to be admired, maybe you want to be invited to talk shows. The motivators are very different, and if we are living in a world where people are soul searching and trying to understand who they are, what they want to do, these types of questions are extremely pertinent. They are relating back and that’s what we found after doing all these interviews, they are relating back to some very exciting parallels in philosophy — you have these three types described, repeatedly.

So, what we basically could show is that within entrepreneurship, we have types that have been for the last 2000 or more years discussed by philosophers as standard types of how we can think about human beings. In that sense, what I said earlier, to help you to understand entrepreneurship and innovators, but also human beings because these three types are the pure types, that are prevalent, but then you have mixes.

Ben: Yeah, what do you call it? A hybrid, right?

Marc: Yeah, the hybrids! If you think about companies nowadays that try to make profits, but also be sustainable, these are hybrids. And how their motivations might be in conflict, how they are aligned, I think identity theory can tell us a lot about this.

Ben: And would you argue that the hybrid model is becoming more prevalent, not because the makeup of the founders is changing, but there’s more constraints imposed by society to look beyond just financial returns?

Strategy and innovation are two sides of the same coin

Marc: Absolutely! I think that the times are over where financial profit and job creation are the only two factors that matter. They are a long over. I think the companies who haven’t realized this are soon in the cemetery of companies. It’s a much more pluralistic approach and it comes from the side of the founders or the managers, but it also comes as a demand by customers, but also by future employees. It’s like, if you want to have the best employees out there — I see it with the students here, at EPFL — if you are only profit-minded as a company, they will likely not choose you. They want to have this second leg, the social consciousness and the third leg, the sustainability consciousness embedded in what they do because they look for this meaning and they know that the world is breaking apart, so they want to work positively in an environment that allows you to follow these other goals.

Ben: I wanted to ask you about the coexistence of “Where to Play” and some of this other research. It feels a bit like “Where to Play” was written for Darwinians, but can it be used by all founder types?

Marc: Yes! “Where to Play”, in its purest sense, is written in the business logic to say “I want to create a company, I want to be successful” which is fine. I don’t want to challenge that. That’s still a model that creates a lot of wealth, that it creates a lot of good, and a lot of tax returns. What we have done now is an add-on that is available on our website where you download worksheets that help you understand if you want to create a social and sustainability venture, how to rate these opportunities and how to understand all the trade-offs between the profit side and the social side. I think this is extremely pertinent. So, the tool is now enlarged with these types of thoughts, and I think, from all the feedback we’re getting from social and sustainability ventures, this is a very important add-on because it allows these entrepreneurs to see more clearly how they could contribute and what it means, actually, to have sustainable and social impact.

Ben: Wonderful! I think there’s one last thing I want to cover. So, in all the years I’ve worked in strategy, each year, somebody, somewhere, some commentator proclaims that there’s a strategy. One of the things that’s great about reading your book is that it’s a return to fact-based, research-led strategy, which enables you to do what is the very heart of strategy, which is to make good choices and understand your constraints. And so, not to put words in your mouth, but I guess you would say that this book and this approach very much represents the triumph of strategy over the emerging school of just pragmatism and pivoting and iteration.

Marc: Yeah, I think it helps to bring both perspectives under one roof because it basically gives you a home for saying, “Hey, that’s more the strategic thinking and that’s more the testing, the reiteration that is needed to validate what you have thought.” So, it brings together the doers with the thinkers, and I think it gives them a home. I think that’s why Steve Blank liked it so much, as well, because it says that’s a part that was missing. He probably gets a hundred of these frameworks to look at every year and has been doing that for the last 20 years, and this is the first time he ever opened his toolbox in the last 15 years or so to say, “That’s a key new tool that needs to be in there.”

But, I think if we frame it nicely, strategy evolves, and I think we are thinking very differently about strategy nowadays than just maybe 15 years ago. And strategy and innovation are two sides of the same coin. It’s just how they work together — one is a world where you have to explore, where you have to investigate, where you have to test and the other is a world where you have to be a bit more foresightful, you have to try to understand where you’re strong at, what a good market turf is. How this interacts, I think it’s nicely described in the “Where to Play” framework because you have the markets you choose, there’s more of a strategic outlook, having a portfolio and then, on top of that, you say, “In order to understand these different options, of course, I need to test! I need to go out there, I need to collect data” but it gives you a framework to think about both, and I think that’s where this addition to the Lean tool makes sense because the Lean tool is one very much where you do experimentation testing, and now this gives you an additional aspect to do strategizing with.

Ben: Perfect! So, for those people who want to check out the toolset — which, as you said earlier, is available for free — the URL is wheretoplay.co, right?

Marc: Exactly! And I invite everyone. We have videos on there, there are PowerPoint slides that you can download for free, you can listen to webinars — there’s basically a lot of opportunities; For us, this is a tool that we want to see out there because we’ve seen in the research that it works, we’ve seen with thousands of startups and large companies that applied it, that it works.

Ben: There’s no excuse, now, if you blindly enter a market and you have to do a horrible, dramatic pivot.

Marc: Yes, there’s no excuse! Maybe after the first pivot, you realize that maybe you should have read the book and you read the book, then. It’s still valuable. You can start as an established company reading the book and try to figure out the new growth turf or you can start as a startup and say, “Let’s be a bit more mindful about what we’re going to do.”

Ben: Perfect! Mark, thank you very much, again, for coming on the show! That was great. Thank you!

Marc: Thank you very much! It was my pleasure, and good luck for everyone out there!

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