Executive Summary:
In order to continuously make good decisions, it's critical to develop an understanding of the quality of a decision in hindsight. Because bad decisions may yield good outcomes and good decisions may yield bad outcomes
Opportunities come up frequently. Whether or not to pursue them should depend, amongst other factors, on whether chasing this opportunity fits into the overall strategy
Establishing a solid foundation for good strategy requires looking outwards and conducting research
In other news: I gave my first talk in 3 years at Sparkscon 2023 and would love to be back on stage more often. If you know someone who is looking for a speaker, I would appreciate it if you could put me in touch
How to Make Better Strategic Decisions
Hosain Rahman built a fitness empire.
In 1999, he founded his fitness wearables company, Jawbone. And over the course of several years, he built it into a profitable business.
But that was not enough. Hosain wanted to expand. In 2007, he began raising capital. Jawbone experienced rapid growth and received substantial funding.
By 2014, they had gone through several rounds of funding and raised a total of USD 900 million. Their valuation was 1.5 billion dollars.
Hosain pressed on and kept growing the business. Things went great.
And then… Jawbone collapsed overnight. In 2017, they filed for bankruptcy.
After Hosain had been growing his business steadily for 18 years, it came to a sudden, grinding halt, and the game was over.
How could this possibly have happened?
The initial reaction of many people was to conclude that Hosain became greedy and expanded too quickly. And while that may or may not be true, this explanation falls way too short and doesn't help. The real question is: If that happened to Jawbone when things went phenomenal - then why wouldn't it happen to your organization, too?
And we can even go a step further: At any point in your life, in your career, or in your business, when things start progressing fast, you can (and should) frequently ask yourself:
"Am I in over my head?"
If you're progressing too quickly in your career, there is a chance that you lack certain skills, the right network, or sufficient client relationships that help you to meet the expectations that come along with the next, bigger role. And that may set you up for failure on the next level.
In business, expanding your organization always bears the risk of stretching it too thin. And that may bring bread-and-butter business lines to the verge of collapsing - or it may even push them over that edge.
On the other hand, you don't want to be too cautious and forfeit opportunities, just simply because of the possibility that they may be out of reach.
So you need to find a balance between staying hungry and biting off more than you can chew.
For this, one of the most essential skills that anyone who wants to achieve any level of success can possibly have is to develop an understanding of whether a decision was a good decision in hindsight.
In other words, it is imperative to develop an understanding of whether a decision is a good decision in retrospect - regardless of whether it resulted in success.
To truly understand this, we need to come to terms with the fact that sometimes bad decisions turn into lucky shots that yield disproportionate outcomes. And other times, good decisions result in failures. And in both cases, it is critical to acknowledge when you were successful despite a terrible decision - and when you failed despite a perfect decision and flawless execution.
Here's an example of why this is so important when making career choices:
Many people make choices that let them progress quickly early on in their career. They frequently increase their salary for a couple of years and think that they are on the right track. But 15 years later, they look back and realize that they have been stuck for a decade while some of their peers that they seemingly left in the dust are now much further ahead.
And the same applies to businesses:
Oftentimes, high-growth businesses press ahead and expand as quickly as they can. At some point, they stagnate, and the competition slowly but steadily steals their customers away. And sooner or later, the once fast-growing business goes out of business. Just like in the case of Jawbone.
But how and why does that happen?
In the case of businesses, there are many potential reasons.
Hiring may have been too aggressive, and standards may have been too low. This kind of organizational debt accrues and begins to increasingly slow the progress of the business.
Sales may have overpromised, and the product may subsequently have underdelivered, losing customers in the process.
Product development and market research may have been deprioritized in favor of growth, increasingly giving competitors the chance to develop their products into underserved niches. Niches that ultimately turn into real market opportunities.
But that doesn't explain the underlying root cause of these large-scale terrible decisions. Where, how, and why do decision-makers get lost in the undergrowth and fail to see that they sacrifice the big picture for quick wins that are, in the long run, meaningless?
The personal influence fallacy
There is a phenomenon that is ubiquitously present in humans. A peculiarity that can easily be observed in many areas and that has repeatedly been shown in studies: When things don't go according to plan, people attribute failures to external circumstances. But when things go well, they unanimously credit their skills, decisions, and actions for their success.
So, when bad decisions yield a good outcome - people tend to follow up with more bad decisions that will, sooner or later, turn things for the worse.
In the case of Jawbone, we can only speculate whether or not it was a good idea to seek funding. But it may have been a better course of action to keep focusing on product development instead of expanding the business at all costs. We can say with a fair bit of certainty, though, that continuing on that path of expansion led to catastrophic failure. And while in hindsight, it's easy to see that ignoring how the market developed was a grand mistake, their perspective at the time was most likely very different. For them, probably the situation presented itself as a flywheel that they needed to spin ever-faster to stay ahead of the competition.
The rush of chasing shiny opportunities
Oh, the temptation of business opportunities. It's ever-present. And all-too-often new opportunities are oh-so shiny and feel almost irresistible.
So, when should you go for them?
First, it's important to understand that shiny opportunities come up all the time.
Product managers fight this challenge frequently: Whenever there is a huge potential client, they typically demand a customized solution. It's tempting to change the entire product for that client - because after all, they are huge. And oftentimes, sales demands that product development follows this client's needs. And just as often, management agrees. But good product managers know that whenever you give in to custom demands, you dilute your product and your value proposition. And you'll begin losing other customers and, ultimately, market share.
Once we understand that opportunities are never a once-in-a-lifetime occurrence, we need to figure out which ones to pursue.
The answer is surprisingly simple: We need to determine whether chasing a shiny opportunity is in line with our overall business strategy.
So, does that mean that Jawbone didn't have a business strategy? That seems hard to conceive, given that investors handed them close to a billion dollars. But it's a possibility.
Having a strategic North Star vs. having strategic targets
The root cause of many fundamental mistakes in business is a slight misunderstanding of what constitutes a good strategy.
Of course, most businesses have some kind of targets. Some even have goals. The problem is that they only know that they are at X today and that they want to be at Y in the future. But there are no substantiated, strategic objectives that describe how they will get to that future state. In some cases, there are no strategic objectives at all. And the biggest challenge that this results in is that these disconnected business objectives are very hard to merge into a clear and bright strategic, contextual North Star that the organization can follow.
In the case of Jawbone, they knew they were at size X, and they wanted to be at a much bigger size Y. The how can likely be summarized as "more investor money for marketing." In other words, they applied an inside-out perspective and largely ignored the developments in the market.
While that is a strategy, it is not a substantiated strategy that is grounded in an outside-in view of the market.
And when an unsubstantiated strategy is thrown at the people in an organization, it's very difficult for them to figure out how they can act within the strategy because abstract goals give people neither direction nor guardrails.
With substantiated, strategic objectives, any decision about whether to take a new course is very simple. Because when you have a bright North Star, you don't mind straying from your course by a tiny bit. But you do mind going in the wrong direction.
So far, so good. This all makes sense. But how do we get to that North Star?
Building the Foundation for Good Strategy
The challenge that Jawbone faced is a struggle that most people and companies face: their strategic targets and objectives rest on unsubstantiated data, which in turn stems from a shaky process for formulating their strategy.
And the reason is simple: they follow an inside-out approach.
The foundational data of their strategy is constituted of their past performance, their vision, their ambition, their estimates, and their expectations. Little to no outside information is incorporated in the process.
The language in the strategy process usually starts with “We…”
We want…
We will…
We assume…
The fundamental problem with this approach is that it implicitly assumes that the organization possesses some degree of power and autonomy in the market. In some cases, companies go even further and assume that their organization can influence the market. But except for exceptionally rare cases in which a company is an actual market maker, these two assumptions don’t hold.
It doesn’t matter what the company wants to achieve, plans on accomplishing, or assumes. The market will develop regardless of it.
And that’s the reason why any strategic objectives and conclusions that are developed based on an inside-out view are irrelevant and, most likely, wrong. If they are right, it is by chance.
But people can’t see that. When they decide on a strategy and they achieve successes, they attribute them to their decision-making.
When things don’t work out, they blame the market and unforeseen circumstances. Funny enough, they are actually right about the latter.
But their business strategy is built on a shaky foundation that, essentially, leaves the results to be up to chance.
And this always leads to a rude awakening sooner or later. In some cases, like in the case of Jawbone, the awakening is so rough that the organization doesn’t survive it.
So, both for careers and for businesses, here is another, better way to build a solid foundation that your strategy can rest on:
Looking for Outside Data
The crucial step is to first look outwards into the market and far into the future.
The first step is to conduct research in order to understand the forces that drive the market that you are in. Understand which factors drive uncertainty - which technologies, methodologies, political factors, societal factors, and which customer trends may cause change and disruption. Gain an in-depth understanding of your competitors and their strategic objectives.
And when you detect signals in all the noise - listen to them!
In the case of Jawbone, what brought them down were not only similar products from other wearables companies but also the fact that their entire product was being added as a feature to existing products by companies like Apple in their Apple Watch.
And it is hard to conceive that the leadership at Jawbone didn’t notice any of this. So either they didn’t consider the possibility that they were made obsolete a real possibility, or they chose to ignore emerging trends in the market.
So, if you would like to create a substantiated strategy, make strategic foresight a part of your agenda as a leader. Look into the market with an open mind. And when you pick up signals, don’t filter them according to what’s convenient. It’s your job to remove confirmation bias and any type of bias, for that matter, from your decision-making process.
If you need any input on how to get started or which methods to apply - or if you need someone to do it for you - let’s have a call to see how I can best support you.
Hosain Rahman built a fitness empire.
In 1999, he founded his fitness wearables company, Jawbone. And over the course of several years, he built it into a profitable business.
But that was not enough. Hosain wanted to expand. In 2007, he began raising capital. Jawbone experienced rapid growth and received substantial funding.
By 2014, they had gone through several rounds of funding and raised a total of USD 900 million. Their valuation was 1.5 billion dollars.
Hosain pressed on and kept growing the business. Things went great.
And then… Jawbone collapsed overnight. In 2017, they filed for bankruptcy.
After Hosain had been growing his business steadily for 18 years, it came to a sudden, grinding halt, and the game was over.
How could this possibly have happened?
The initial reaction of many people was to conclude that Hosain became greedy and expanded too quickly. And while that may or may not be true, this explanation falls way too short and doesn't help. The real question is: If that happened to Jawbone when things went phenomenal - then why wouldn't it happen to your organization, too?
And we can even go a step further: At any point in your life, in your career, or in your business, when things start progressing fast, you can (and should) frequently ask yourself:
Am I in over my head?
If you're progressing too quickly in your career, there is a chance that you lack certain skills, the right network, or sufficient client relationships that help you to meet the expectations that come along with the next, bigger role. And that may set you up for failure on the next level.
In business, expanding your organization always bears the risk of stretching it too thin. And that may bring bread-and-butter business lines to the verge of collapsing - or it may even push them over that edge.
On the other hand, you don't want to be too cautious and forfeit opportunities, just simply because of the possibility that they may be out of reach.
So you need to find a balance between staying hungry and biting off more than you can chew.
For this, one of the most essential skills that anyone who wants to achieve any level of success can possibly have is to develop an understanding of whether a decision was a good decision in hindsight.
In other words, it is imperative to develop an understanding of whether a decision is a good decision in retrospect - regardless of whether it resulted in success.
To truly understand this, we need to come to terms with the fact that sometimes bad decisions turn into lucky shots that yield disproportionate outcomes. And other times, good decisions result in failures. And in both cases, it is critical to acknowledge when you were successful despite a terrible decision - and when you failed despite a perfect decision and flawless execution.
Here's an example of why this is so important when making career choices:
Many people make choices that let them progress quickly early on in their career. They frequently increase their salary for a couple of years and think that they are on the right track. But 15 years later, they look back and realize that they have been stuck for a decade while some of their peers that they seemingly left in the dust are now much further ahead.
And the same applies to businesses:
Oftentimes, high-growth businesses press ahead and expand as quickly as they can. At some point, they stagnate, and the competition slowly but steadily steals their customers away. And sooner or later, the once fast-growing business goes out of business. Just like in the case of Jawbone.
But how and why does that happen?
In the case of businesses, there are many potential reasons.
Hiring may have been too aggressive, and standards may have been too low. This kind of organizational debt accrues and begins to increasingly slow the progress of the business.
Sales may have overpromised, and the product may subsequently have underdelivered, losing customers in the process.
Product development and market research may have been deprioritized in favor of growth, increasingly giving competitors the chance to develop their products into underserved niches. Niches that ultimately turn into real market opportunities.
But that doesn't explain the underlying root cause of these large-scale terrible decisions. Where, how, and why do decision-makers get lost in the undergrowth and fail to see that they sacrifice the big picture for quick wins that are, in the long run, meaningless?
The personal influence fallacy
There is a phenomenon that is ubiquitously present in humans. A peculiarity that can easily be observed in many areas and that has repeatedly been shown in studies: When things don't go according to plan, people attribute failures to external circumstances. But when things go well, they unanimously credit their skills, decisions, and actions for their success.
So, when bad decisions yield a good outcome - people tend to follow up with more bad decisions that will, sooner or later, turn things for the worse.
In the case of Jawbone, we can only speculate whether or not it was a good idea to seek funding. But it may have been a better course of action to keep focusing on product development instead of expanding the business at all costs. We can say with a fair bit of certainty, though, that continuing on that path of expansion led to catastrophic failure. And while in hindsight, it's easy to see that ignoring how the market developed was a grand mistake, their perspective at the time was most likely very different. For them, probably the situation presented itself as a flywheel that they needed to spin ever-faster to stay ahead of the competition.
The rush of chasing shiny opportunities
Oh, the temptation of business opportunities. It's ever-present. And all-too-often new opportunities are oh-so shiny and feel almost irresistible.
So, when should you go for them?
First, it's important to understand that shiny opportunities come up all the time.
Product managers fight this challenge frequently: Whenever there is a huge potential client, they typically demand a customized solution. It's tempting to change the entire product for that client - because after all, they are huge. And oftentimes, sales demands that product development follows this client's needs. And just as often, management agrees. But good product managers know that whenever you give in to custom demands, you dilute your product and your value proposition. And you'll begin losing other customers and, ultimately, market share.
Once we understand that opportunities are never a once-in-a-lifetime occurrence, we need to figure out which ones to pursue.
The answer is surprisingly simple: We need to determine whether chasing a shiny opportunity is in line with our overall business strategy.
So, does that mean that Jawbone didn't have a business strategy? That seems hard to conceive, given that investors handed them close to a billion dollars. But it's a possibility.
Having a strategic North Star vs. having strategic targets
The root cause of many fundamental mistakes in business is a slight misunderstanding of what constitutes a good strategy.
Of course, most businesses have some kind of targets. Some even have goals. The problem is that they only know that they are at X today and that they want to be at Y in the future. But there are no substantiated, strategic objectives that describe how they will get to that future state. In some cases, there are no strategic objectives at all. And the biggest challenge that this results in is that these disconnected business objectives are very hard to merge into a clear and bright strategic, contextual North Star that the organization can follow.
In the case of Jawbone, they knew they were at size X, and they wanted to be at a much bigger size Y. The how can likely be summarized as "more investor money for marketing." In other words, they applied an inside-out perspective and largely ignored the developments in the market.
While that is a strategy, it is not a substantiated strategy that is grounded in an outside-in view of the market.
And when an unsubstantiated strategy is thrown at the people in an organization, it's very difficult for them to figure out how they can act within the strategy because abstract goals give people neither direction nor guardrails.
With substantiated, strategic objectives, any decision about whether to take a new course is very simple. Because when you have a bright North Star, you don't mind straying from your course by a tiny bit. But you do mind going in the wrong direction.
So far, so good. This all makes sense. But how do we get to that North Star?
Building the Foundation for Good Strategy
The challenge that Jawbone faced is a struggle that most people and companies face: their strategic targets and objectives rest on unsubstantiated data, which in turn stems from a shaky process for formulating their strategy.
And the reason is simple: they follow an inside-out approach.
The foundational data of their strategy is constituted of their past performance, their vision, their ambition, their estimates, and their expectations. Little to no outside information is incorporated in the process.
The language in the strategy process usually starts with “We…”
We want…
We will…
We assume…
The fundamental problem with this approach is that it implicitly assumes that the organization possesses some degree of power and autonomy in the market. In some cases, companies go even further and assume that their organization can influence the market. But except for exceptionally rare cases in which a company is an actual market maker, these two assumptions don’t hold.
It doesn’t matter what the company wants to achieve, plans on accomplishing, or assumes. The market will develop regardless of it.
And that’s the reason why any strategic objectives and conclusions that are developed based on an inside-out view are irrelevant and, most likely, wrong. If they are right, it is by chance.
But people can’t see that. When they decide on a strategy and they achieve successes, they attribute them to their decision-making.
When things don’t work out, they blame the market and unforeseen circumstances. Funny enough, they are actually right about the latter.
But their business strategy is built on a shaky foundation that, essentially, leaves the results to be up to chance.
And this always leads to a rude awakening sooner or later. In some cases, like in the case of Jawbone, the awakening is so rough that the organization doesn’t survive it.
So, both for careers and for businesses, here is another, better way to build a solid foundation that your strategy can rest on:
Looking Outside
The crucial step is to first look outwards into the market and far into the future.
The first step is to conduct research in order to understand the forces that drive the market that you are in. Understand which factors drive uncertainty - which technologies, methodologies, political factors, societal factors, and which customer trends may cause change and disruption. Gain an in-depth understanding of your competitors and their strategic objectives.
And when you detect signals in all the noise - listen to them!
In the case of Jawbone, what brought them down were not only similar products from other wearables companies but also the fact that their entire product was being added as a feature to existing products by companies like Apple in their Apple Watch.
And it is hard to conceive that the leadership at Jawbone didn’t notice any of this. So either they didn’t consider the possibility that they were made obsolete a real possibility, or they chose to ignore emerging trends in the market.
So, if you would like to create a substantiated strategy, make strategic foresight a part of your agenda as a leader. Look into the market with an open mind. And when you pick up signals, don’t filter them according to what’s convenient. It’s your job to remove confirmation bias and any type of bias, for that matter, from your decision-making process.
If you need any input on how to get started or which methods to apply - or if you need someone to do it for you - let’s have a call to see how I can best support you.
Conference Talk: Successfully Driving Strategic Transformations
In June, I was invited as a speaker to Sparkscon - Germany's biggest digital experience conference with over 1200 attendees.
After taking a break for almost three years, it was a great feeling to be back on stage.
In case you missed it, the recording is now available:
And with that in mind, here's a call for support:
I love being on stage to bring value to an audience - if you know anyone who is looking for a speaker, I would appreciate it if you could connect us.
My background in a nutshell:
Five years of consulting (Accenture & Deloitte) in Strategy and (Digital) Transformation
Built my own start-up from scratch with no funding, but with turbulent times during the pandemic (including a complete reset of our business model)
Built my own consultancy for Strategy and Transformation
Associate professor for Entrepreneurship at the Wiesbaden Business School
The topics that I'm passionate about are:
Entrepreneurship, Business & Corporate Strategy, Innovation & Product Development, Researching Future Trends and Disruptions, Organizational & Business Transformation, Leadership Mindset & Methods
Thank you so much!
Philipp
Like what you read? Join the newsletter!
Once per month, the Leader's Digest gives you actionable insights on how to build, steer and lead in business. Applicable both if you have a career or your own business.
Comments