Introduction
Why we do things, our purpose, is at least as important as how we do things
The most important skills, if you want to lead organizations, are the ability to speak and write.
Find that sweet spot where your own passions and ideas intersect with the real needs of real people.
Successful people are almost always optimists.
I believe in studying the best in every business. There‘s a lot to learn from Wal-Mart, Southwest, Dell, and many other well-run enterprises. Success is based not on thinking like today‘s winner, but on thinking differently, thinking in original and creative ways.
Great businesses succeed because of their leaders‘ ability to see things that others do not see.
Key 1: Observing and understanding other people and how their needs, desires, interests, values, and tastes change over time
Key 2: Serving other people by making their lives better
Key 3: Developing a business style that expresses your own dreams and passions even as it serves the needs of others
What entrepreneurial leaders do have in common is a burning desire to build something new and worthwhile.
Part One: Exploration, the Foundation for Finding Your Own Path to Success
The leader of a successful enterprise is, above all, curious.
People who build and lead great enterprises are generally students of the past as well as the future.
The first step in gaining wisdom is to sort out the meaningful from the meaningless.
No matter what your position or your enterprise, the more you understand your context, the more successful you‘ll be.
If you can think of your business as a game, you can begin to understand it as a whole. Even if you don‘t think through a complete game, at least diagram your business on a piece of paper.
Old ideas come back again and again.
In economics, the most interesting problems are often at the small end (why did I buy this book from Barnes & Noble instead of Amazon?) and the big end (how can we save the Brazilian rainforests?).
Common chains to keep an eye out for include these: Time – from past to future; Age – from old to young; Path – from the source to the destination; Price – from low to high; Hierarchy – from chief to subordinate, from king to vassal; Classification – from the specific to the general; Quality – from low to high.
Great minds break through definitions that aren‘t right.
A famous essay by Theodore Levitt, “Marketing Myopia,” tells how the railroads lost out to the truckers because they saw themselves as railroads rather than as freight transportation companies.
eBay is not an Internet company; it is a wonderful clearinghouse for collectibles and other items
Technology will by definition move on. Brands and customer relationships, however, have proven more durable over the years.
It is just as bad to lie to ourselves about the definition of our own enterprise. If you are an insurance company but call yourself a financial services company, you‘d better not be just an insurance company.
The secret of success is seeing something nobody else sees.
The basic rule of discovery is that nothing has ever been discovered by looking in the same place and in the same way as everyone else.
Only by thinking about the unexpected, by looking for the undone thing, can we really jump the track and create a whole new vision.
In a bookstore or a library, find the section you are least likely to visit.
Contact some living famous person in an area that interests you. Many are more accessible than you might think.
We should try to travel as far as we can in every direction — into our own souls, backward through time, and physically to neighboring towns, states, and countries.
Read books from every shelf in your local bookstore or library. Go to another industry‘s convention.
At the extreme, it has become an intellectual vogue to believe that things are bad and are getting worse. Arthur Herman has written a fascinating book, The Idea of Decline in Western History, which tells the intellectual and philosophical history of the doomsayers.
Unconventional thinking can and should be applied to every area of your business.
I‘m always looking for lessons I can transplant from one industry to another.
If you can get out of the channel everyone else is in and look at things from a different angle, you can often gain fresh insights.
If you can get to the point where half of you is asking, “Why?” and half of you is saying “Why not?” then you may achieve new insights.
One of the most important things is understanding the future, being a visionary in some way large or small. But understanding the future first and foremost comes from looking at the past.
The best teachers are also scholars, always learning.
To succeed, you must be obsessed with observing others and serving them. You must go out of your way to see things as others see them, to put yourself in other people‘s shoes.
Knowing what to change and what not to change are at the core of leadership.
The most powerful tool for accomplishing the impossible is the ability to look at a problem — call it a challenge — in different ways.
Even a cursory understanding of the way some other profession sees the world can be invaluable. The worldview of an accountant is a powerful one. So is that of a marketing professional
A great way to sense the viewpoint of others is to read a book of interviews with workers. The classic is Studs Terkel‘s Working. Even broader and more current is Gig.
But many of the great scientists were people who also studied history and literature, music and psychology.
The visionary leader has the capacity to understand many perspectives, to see the world from many views.
Sergio Zyman, former marketing master of Coca-Cola and author of The End of Marketing as We Know It, points out that marketing success is really about studying people.
Can you hold a conversation with an over-the-road-trucker, a member of the Communist Party, an evangelical Christian, or a hip-hop artist?
The more we can see things the way others see them — our work associates, our community, and (most important) our customers — the more we can build a comprehensive view of what matters.
You can learn as much from the local workers in one hour at a breakfast counter as you can learn in a year of nice meals at the trendiest restaurant with your best friends. Great politicians know this. So do great leaders of enterprise.
The credo of the learning person is ―there is no one on earth that I cannot learn something from – the rich, the poor; the bosses, the workers; the young, the old – no one.
If you wish to start an enterprise but have not yet figured out exactly what you want to do, the most important thought in your mind should be a simple one: Find a need and fill it.
Look for things that are not working, look for problems, for opportunities. Look at things that are working, that are popular. Think about how to take their ideas and adapt them to other industries.
Find (and watch) real people having and talking about real problems. Get out of the strategy room and onto the battlefield.
In the worst-run industries lie opportunities where an innovator can succeed, and in the best-run industries are found the ways to do so.
Study cockroaches if you want to understand durability and adaptability. Study coyotes and turkey vultures.
One of the most common causes of failure is the inability of leaders to see the most important underlying trends – trends that emerge from the past to create the present and shape the future.
One of the most important developments for retailing and marketing since World War II has been the entry of women into the workforce.
Large, slow-moving trends are easy to miss. But missing them can spell the end of your enterprise.
The single most important trend for most of us, especially in the US, is the aging of the baby boom generation.
The years in which the members of this boom will reach particular stages of their lives are precisely predictable. People:
- Spend more time and money on hobbies and leisure pursuits in their fifties and beyond.
- Give away more money in their sixties and beyond.
- Gradually increase political participation, especially voting, from a very low level in their twenties to a peak in their seventies or even eighties.
- Increase their power (corporate, community, political) through their fifties and possibly sixties.
- Begin to establish second or retirement homes in their fifties and sixties.
- Move into nursing homes and assisted living in their seventies and eighties.
- Increase their concern with health and nutrition in their fifties and sixties.
- Die in their seventies and eighties, supporting enterprises even with their last breath.
I believe the aging of the baby boom will result in dramatic expansion of four key industries: health, education, travel, and financial services.
Second, be careful not to confuse age-related trends with generation-related trends. Ask: “to what degree is this something that will pass as these people age, and to what degree is this going to stay with them for life?”
People will be healthier and live longer, maintaining more varied interests than the senior citizens of prior times.
We will see a significant rise in demand for college and other educational services by senior citizens.
This division of the world into young countries and aging countries will result in a newly defined “new world” (or “young world”) and “old world.”
The first and most significant component of this trend is the increasing Latinization of North America. By 2025, over 18% of the American population will be of Hispanic origin.
As time passes, we Americans become more diverse in our passions.
It takes more work to watch things that move slowly – clouds, demographics, long-term trends in industry, history, or culture.
One of the biggest risks in thinking about the past and the future is that we become “chronocentric” – that is, obsessed with our own era, considering it the most important or most dynamic time ever.
Unfortunately, most people in the world of business have little or no appreciation of the heritage of business history.
Any study of history and of changing consumer preferences indicates that many ideas of old recycle back to us.
Geography does matter. It matters more than ever. For we humans are still creatures of place. So geography is much more than a physical place. It is culture, history, ethnicity, way of life.
Although geography is a more important subject than it ever has been, our knowledge of geography has gotten worse—especially here in the US.
Canada is one of the world‘s largest and most powerful economies, and Mexico has the chance to become another.
An enterprise must be built with an awareness of what is going on in the world.
It‘s a worthwhile experience to spend time looking at the world through the eyes of a foreigner. The most effective way to do this is to go abroad.
Travel can be greatly enhanced by studying history, geography, and culture in books, but there is ultimately no substitute for walking the streets, eating the food, meeting the people—for being there.
Stereotypes are not by definition evil: they are natural, human tools we use to try to make sense of the world around us. Stereotypes change. Relying on stereotypes is dangerous
The “Pacific Century” is probably an American myth.
It’s pointless to speak of one Asia.
The nation to watch is China.
Malaysia and Singapore are nations of the future. I think of them as the Netherlands and Switzerland (successful smaller nations) of the future.
Europe probably has a lock on being the tourism center of the world.
The Middle East, North Africa, and the culture of Islam are much more complex than we may think.
The three nations with the greatest unrealized potential are Brazil, India, and Indonesia.
Throughout Latin America, the opportunities for culture, tourism, and commerce are enormous. As in Asia, some nations will be well led, while others will not.
Over the long term, the world – the whole world – is getting wealthier and wealthier.
Furthermore, even in the most prosperous nations, there continue to be pockets of poverty and deprivation. There will continue to be economic cycles, and in the downturns people living near the edge of poverty.
Compared with all the people who have lived before us, even the kings and queens, most of us live in unprecedented luxury, with unequalled options and choices.
As we become wealthier, will we lose the drive, the hustle, the dissatisfaction with the status quo that is an American hallmark?
Over the last twenty years, there has been a remarkable global spread of the practice of democracy.
In conjunction with the rise of democracy, we have seen the fall of communism in many nations. More such shifts can be expected.
The spread of universal education will continue.
The rise of technology and science will continue.
Increasing urbanization will continue.
The end of the farm and factory will continue. The single most significant trend in the history of the world‘s economies is our long, slow progress away from spending most of our time growing things and making things.
The rise of services means that we will have more and more freelance workers, more people selling their services rather than their skills on the assembly line. This means that more and more people will have the option of living where they want.
There are two great enemies to the gradual lifting of the peoples of the world through trade: isolationism and arrogance.
You don‘t have to be an Amazon.com or an e-wizard to succeed in the twenty-first century, you just have to care about your customers and your product and pay attention to the details.
Each nation, each state, each city, no matter how small or how large, has a personality – defining attributes that can be turned into competitive advantages.
If you want to see what an American city of the future may look like, visit Singapore or the capital of neighboring Malaysia, Kuala Lumpur.
The most common mistake we make in thinking about technology is that we start with gadgets, rather than with people. Think people first. Insight comes more from studying people and their needs than it comes from studying the underlying science.
Our cities have always been the center of our commerce, of our dealings with each other. I would even go so far as to say that the city itself is the greatest of human enterprises.
Cities today are more important than ever before in world history. This is the result of two factors: (1) The long-term global rise of cities (urbanization); and (2) the recent improvement of inner-city quality.
New York is more important than any other single city on earth. I think there are three real contenders for the next capital of the world: Hong Kong, Shanghai, and Singapore.
Today, there is no stronger long-term global industry than tourism. Those cities with a strong, lasting tourism base should be in a good position for the future. Thus, one great place to be is near a physical sight that is not going to move.
There are two cities that I love to visit that may surprise some readers: Las Vegas and Orlando.
One characteristic common to all great cities through history is effective civic leadership. That includes leadership by ordinary citizens.
Physical geography is still a very real factor. People are likely to continue to move away from cold winters, as air conditioning makes the world‘s warmer regions more livable. People like living in the mountains or near the sea when possible.
The rise of the service economy will let more people live wherever they want. Oceanfront and mountain view property will only rise in value. Physically attractive towns will prosper.
Boom cities will see growth spillover to nearby cities.
Medium-sized cities will likely continue to do well.
Selected smaller cities, with their lower crime rates, lower costs of living, and stable societies, will boom. For example, in the area around Austin, San Marcos, Bastrop, Kerrville and Fredericksburg will boom.
More and more of Colorado and the other mountain states will boom.
There will be more “wealth colonies” like Carmel, Santa Fe, and Naples.
The boom in Florida will eventually reach every nook and cranny in that state.
Cities with major universities and state governments will continue to have an advantage.
Cities serving tourists and retirees will continue to boom.
Some high-tech cities will go into decline as their technologies fade.
The Sunbelt (defined as an arc from Seattle to DC, reaching inland to include Denver and Nashville) will continue to attract people, while the cities of the Northeast struggle.
Part Two: Essence: The Power of Vision
The single most critical ingredient of enterprise success is having a clear vision.
Vision tells us why the enterprise exists. An enterprise without a clear purpose is a ship without a rudder, a train without a track.
Instead, your vision should reflect what you expect and hope your organization will become. Your vision is by definition a statement of ambition.
A great vision reflects your “core values.”
But above all else your vision must reflect what is unique about your enterprise, its personality and attitude. It will reflect what you believe is most important, why you believe the enterprise exists.
A vision bonds people together.
A vision inspires and motivates people to achieve more working together.
Nothing is a more powerful agent for attracting and keeping talented people than a clear vision, especially if the organization is living that vision and achieving its goals.
A vision is an anchor in hard times and times of change. It is what makes the difference between the flash in the pan and the enterprise that is going to last.
A vision is a potent competitive tool. A unique vision can differentiate you from competitors.
I believe that there are four primary attributes in successful enterprise visions: clear, consistent, unique, service-oriented.
One of the clearest visioned companies in the US is Southwest Airlines.
Some of the giant airlines tried to copy Southwest, but they thought the whole story was price, and missed the simple vision based on reliable, fun service.
Stick to your vision through thick and thin, through bad quarters and good.
The hardest part of building a great enterprise is knowing what to change and what not to change.
The part of an enterprise that does not change is the essence, the vision. Everything else, every aspect of the execution of the idea, every strategy and tactic, every product and every price, is subject to change.
A successful vision is unique, so that the enterprise has the chance to be the very best at something.
Don‘t lose too much sleep if the single best spot is already taken. Most auto races aren‘t won from the pole position.
Volvo has never in its history sold a car. Instead, Volvo has sold durability and safety.
It is also important to understand that each enterprise has a personality. Your vision must be valid, it must jive with what the customer (and everybody else) already knows about you. While they may not be popular at the big ad agencies, a little realism is always appreciated.
Saying an enterprise exists to make a profit is like saying automobiles exist to get good gas mileage. Automobiles exist to give us mobility, to allow us to move around.
The only valid reason to the existence of any enterprise, for profit or non, is to provide products or services to people.
The only rule is that customers always get what they want. It is just a matter of who gives it to them and when.
People want to do something that is worthwhile – nothing is more motivational than doing something that you think is worth doing. People need to know that their work matters.
At the best of enterprises, this sense of mission becomes almost a religion. Southwest Airlines, Nordstrom, and the Container Store are just a few of the other organizations where people behave as if they were on a mission of great importance, a mission based on service.
Most mission statements talk about serving the customer. But in fact, most companies make their decisions based on what accounting says they can do, what is the easiest procedure to train people in, what their systems allow them to do, what the lawyers tell them to do, or any of a thousand other ways of setting priorities. But the enterprises that survive and prosper the longest always start by asking, “what is best for our customers?”
We spend so much time and energy on attracting new customers, but often the most direct route to prosperity is by keeping our existing customers.
And yet virtually every great leader spends disproportionate amounts of their time with customers.
The reality is that brands and reputations are built very very slowly, one customer at a time, one transaction at a time, one experience at a time. All the ads in the world will not tell as many people about your enterprise as their friends and relatives will.
Building your business, serving people, depends first and foremost on paying attention to details.
What matters is the same as always: is knowing your customers, caring about their needs and desires, and working around the clock to anticipate and meet those needs and desires.
Everyone looks at Southwest and thinks the secret is low fares. They ignore the on-time record, the lack of lost bags. People first and foremost want safe, reliable air travel.
The most compelling explanation I ever heard of how to dream up businesses was also the first one I heard: find a need and fill it.
Categories of new enterprise formation:
- Copy an existing idea in a new geographical territory.
- Copy an existing idea from one industry to another.
- Chain it up. Many industries remain highly fragmented, dominated by independent companies.
- Brand an unbranded field.
- Split things into finer specialization. Sporting goods store => outdoor store, bicycle store, fishing store.
- Make a dramatic breakthrough in a business or improve the way things are done. Wal-Mart took the Kmart approach and further ―perfected‖ it. There is always room for improvement, in any business, if you watch it closely enough.
- Invent a whole new business. Federal Express came from Fred Smith‘s mind. WD-40 came out of nowhere. eBay came from even less.
Look for intersections means finding ways to combine two existing ideas.
Be cautious when asking customers for feedback on new ideas. When you come up with a whole new idea, there is no way someone else can visualize it like you can. Customers do not always consciously know what they want.
However, you can extrapolate what customers want based on their behavior.
Great enterprises usually do one thing, and do it very, very well. Over and over again. But as companies are driven to grow by managers and stockholders, they sometimes grow into strange dimensions and lose focus.
New competitors take market share from existing leaders by competing at a higher or lower price point, pioneering new technologies, differentiating by brand, or specializing in a niche of the larger market.
Part Three: Execution: Enterprises at Work
An entrepreneurial organization is resourceful, flexible, ever-adapting. By contrast, an institutional organization is built around rules and procedures. Most companies like to claim they are entrepreneurial in spirit; very few truly are. Entrepreneurs see opportunity when they see industries or companies that are rule-bound institutions.
I believe that one of the most common signs of corporate (and industry) illness is the merger between two giant companies. Size is the enemy of the customer. Size is the enemy of vision and culture. Size brings complexity. Size alone does not win. Size brings diseconomies of scale.
The benefits of vertical integration are usually a fantasy.
Mergers are always harder to pull off than people think. Mergers can be a powerful way to extend the geography of an enterprise – not cheaply or easily, but perhaps quickly.
Innovative industries have high rates of experimentation and offer the consumer many options.
Companies touch customers most effectively through the establishment of a unique, differentiated identity – a brand. A brand name is not really meaningful if it has no strong connotation in the mind of the consumer. Brands can be especially durable if they really connect with the customer, if they have some emotional content.
Health, financial services, education, and travel will grow dramatically. Subcategories within those industries will become massive.
My nomination for today‘s best industry, the one that does its job most effectively, is the food and beverage distribution industry. In my opinion, furthest behind the curve is the consumer banking industry.
I believe today‘s financial-industry environment, with the lack of leadership on the part of the biggest companies, offers tremendous opportunities for new entrants and smaller competitors. As the baby boom ages and retires, the industry will only grow bigger.
By most measures – customer focus, lack of pointless mergers, innovation, diversity of options for the customer – the retailing industry scores high.
People are by nature social animals, and they want to be around each other. Most successful retail stores are, above all, social experiences. They engage their customers. The best etailers will realize this. Many will even open stores. If Sony, Apple, and Nike think they need stores to advertise their brands, so too may Yahoo!, AOL, and Amazon.
I believe Amazon’s greatest strength remains their understanding of their merchandise, their understanding of their customers, their ability to recommend merchandise, and their high service standards – not their use of the Net.
Most of the successful retailers of the future will smoothly integrate the Internet, the telephone, direct mail, and retail stores.
But customers‘ lives and experienced aren‘t organized around merchandise categories. Thus, it would seem logical for retailers to organize themselves in the same way their customers think – around themes.
There may be no industry with more exciting prospects in the entire world than healthcare.
In the future, wellness and prevention will be at the heart of healthcare.
Medicine is an industry that desperately needs to learn the art of service – to learn to focus on what it feels like to be a customer.
In a world where healthcare consumers are inundated with advice good and bad, those who provide unbiased, independent, reliable information will become key linchpins in the system.
Another industry whose prospects are enhanced by global aging is travel and tourism. As the baby boomer age, they will have more time and more money. In many cases, their desires for material goods will become sated and they will increasingly turn to experiences.
My major criticism of the airline business relates not to service but to the lack of personality and the weak branding that characterize most carriers. Wake up from a nap on a typical flight and tell me which airline you are on.
Lodging is a huge industry, with over $100 billion a year in revenue in the US alone. As global tourism booms, the future looks great.
As the travel industry grows dramatically in this century, we‘ll see whole new companies begun, and old ones remodeled, to offer customers new and more interesting choices. Business battles will not be won via mergers and cost controls alone. They will increasingly be won through differentiation, showmanship, entertainment, visual design, a sense of history, and skillful catering to market segments.
Entertainment, from video games to music, is a multi-billion-dollar business. And the global spread of the entertainment industry has barely begun.
The greater lasting value in media lies in content, not distribution pipelines. The greater value is in media companies, not in technology companies.
The twenty-first century is likely to see dramatic growth in the industries which were, in the twentieth century, known collectively as the non-profit sector. This growth will be particularly dramatic in education, museums, and the arts.
The fundamental qualities that lead to greatness at Southwest Airlines are the same ones that lead to greatness at Harvard, at Home Depot, at the Salvation Army, and at the Smithsonian Institution.
In both for-profit and not-for-profit organizations, the board has the ultimate responsibility to set the organization‘s goals, select the management team, make sure that financial and other resources are managed responsibly and ethically, and that all the constituencies of the enterprise are well-served.
The American and foreign citizens and tourists who support cultural organizations are steadily growing healthier, longer- lived, and better educated, and they have more money in their pockets.
This growth in demand will be accompanied by two other big trends: the rise of philanthropy by an aging (and ultimately dying) population, and the increased availability of volunteer and leisure hours.
And, particularly in contrast with other non- profit enterprises, museums are great at differentiation – at branding. People around the world know and respect the great cultural brand names – the Museum of Modern Art, the San Diego Zoo, the Bolshoi Ballet, the Tanglewood summer music festival, the Prado, the Rock and Roll Hall of Fame.
Demographic factors will help spur the growth of education as well. Millions of retiring baby boomers will want to devote serious time and money to new activities and interests.
US higher education is in many ways a backward industry, plagued by economic inefficiency, lack of differentiation, and structural inertia.
There has been a dramatic rise of home schooling across the U.S.
America‘s middle class has fled the cities and headed to the suburbs to find better schools.
From an entrepreneurial viewpoint, the greatest opportunities in education are in the mass market. Giving a great education to large numbers of people is where the greatest opportunity lies for entrepreneurs, not in providing private schooling for the privileged.
But as an entrepreneur I have to say that the religion industry is not in the best of shape. While some faiths are growing in membership and attendance, many are in decline. Millions of people around the world are searching for meaning in their lives.
Of course, the single largest industry in the United States is our government. There are functions only government can provide, such as national defense. But in many other cases, the free market can do a better job.
Above all, government needs to become more creative, experimental, and customer-oriented. It‘s beginning to happen
Passion is at the heart of every great enterprise. Without passion, without heart, all the analysis and study in the world is for naught.
“Knowing trees, I understand the meaning of patience. Knowing grass, I can appreciate persistence.” – Hal Borland
Persistence is the endurance to continue the journey. For building any enterprise is indeed a journey, often a long one.
It‘s a long march. You start out uncertain of your ability to generate any sales. In time, you make some sales, but you‘re not sure you can make any profits. Then you make some profits, but you‘re unsure of your ability to sustain them. You start out with nothing but unanswered questions. Then you proceed to answer them, one by one.
I can assure you that anyone who accomplishes things like this may appear shy, but he has a fire burning inside . . . a fire just as hot as the fire inside a person whose heat can be felt from fifty yards away. Some people just have their engines set on high, and entrepreneurs are among them.
Pessimists usually don‘t build anything. Why invest in a bleak future? Entrepreneurial optimists are not blind to the problems around them, but they see them as opportunities.
But history shows that being best is more important than being first. Microsoft, Wal-Mart, and IBM often have been followers – really excellent, and very profitable, followers.
If you manage your business based on what Wall Street tells you, you are probably going down a dead-end street. Don‘t listen to them. Listen to yourself and listen to your customers.
Passion and vision combine to give the entrepreneur strength and self-confidence.
Leadership is how passion and vision are translated into organizational success.
A CEO is really in charge of two crucial things: strategy and culture.
A common mistake made by those who fail is trying to do it all themselves. The sooner you develop organizational depth, the better. Developing strong people through coaching and teaching is critical to success, yet many entrepreneurs fail in these areas.
Leadership is about seeing what needs to be done and having the courage to do it. Management is about knowing how to fit together the details to make the vision real.