Each week, you’ll read stories on how to innovate faster, the pains of growing a startup and digital transformation, and on maintaining company culture.
We will connect the latest thinking from business leaders on why and how to drive human-centered innovation. Through our new blog, we hope to provide guidance through experience...and good storytelling.
Welcome to Interface Forward.
For our first piece, we interviewed Geoffrey Moore, author of the bestselling tech business classic, Crossing the Chasm, and his latest book, Zone to Win.Geoffrey Moore is known as “The Chasm Guy,” and for good reason.
His book, Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers has been the go-to source for tech industry marketers wanting to bring innovative products to larger markets since it was first published in 1991.
Moore followed Crossing the Chasm with a number of sequels, including Inside the Tornado, Living on the Fault Line, and The Chasm Companion. His most recent work, Zone to Win, takes the Crossing the Chasm theme and applies it to the enterprise, which is known as digital transformation.
That term is thrown around a lot these days. Lots of enterprises talk about digital transformation, but what does it really mean? In the first piece of a two-part interview, we talk with Moore about his newest book and his outlook on how true digital transformation works.
Skuid: Tell me about Zone to Win and how it’s different than Crossing the Chasm.
Zone to Win is Crossing the Chasm inside an established enterprise. In other words, Crossing the Chasm was all about the venture-backed startup and how you do that. But the companies who are established have to do the same thing. But they don't have any venture capital.
So, it's a very challenging problem to negotiate inside a large company. That's where my work has been over the last, probably three or four years. Salesforce and Microsoft were the two key case studies for that.
When it comes to large enterprises, where different divisions are in different stages of the tech adoption life cycle, how do you get everyone on the same page for digital transformation across the enterprise?
The big difference is startups have a lot of challenges, but they're not conflicted, the whole ecosystem that supports venture capital is all in favor of going through what financial guys call a J curve.
That means, “We're going to put a lot of money in, and not see any come out for quite a while. When this thing turns around, it's going to generate an enormous return, but that return is going to come several years after.”
The whole venture capital ecosystem is set up to play that game. The limited partners give money to venture capitalists and say, "Yep, invest in J curves." The venture capitalists interview CEOs and say, "Let me see your J curve. Do I think this is going to be a big one?"
They back CEOs, and the CEO recruits people.If you join a startup, you know our job is to run like hell to get through the J curve as fast as we can. That's what it's all about. If you're inside an established enterprise, there is no venture capital.
Basically, the capital you're using is working capital. It's the operating capital of the company. It's also the stream which is going to return a profit to shareholders.
When you get about a third of the way into your J curve, you have this very painful realization that you're really conflicted about where you're going to allocate your next dollar.
Because you know you're going to get a return from your existing business, not a fabulous return, but a real return. And you're not sure about this speculative thing that you're doing. And your investors are not enthralled with you, because they don't really think that's your job.
It gets very, very hard. We've got this reputation that large, established enterprises can't innovate, which isn’t true. What they have trouble doing is coping with the resource prioritization that's involved in the J curve. That really is a tough problem for them to solve.
The book Zone to Win was about how you could have a principled conversation to address this problem. You have to do it during the annual budgeting process because that's when the allocations happen. Most annual budgeting processes were not principled. They were, frankly, exercises in bluffing.
It was very important to get people to say, "Look, I know this has been a tradition around here, but this is not going to work, You're really putting your entire enterprise at risk when you play the game this way."
Can you explain how a large enterprise can really learn to behave the same way as a startup?
You see, they don't actually behave that way. They don't do that because they're not a startup. But to your point, what do they have to learn? The whole Zone to Win idea was that the first thing you have to do is acknowledge that there are genuine conflicts of interest inside an established enterprise that are totally legitimate.
They're not false, and they're not inappropriate. It's not that they can't innovate, or that they're stupid, or that they don't get it. And so, setting that up, and making clear to people where that conflict of interest comes from has been important. The zone thing does that.
If you will, walk us through those four zones and what they mean. Performance Zone
The Performance Zone has to make the established business money in the budget year, and it has to create returns during that year, on a quarterly basis.
The people involved in this zone have to meet the allotted quota, they are either a sales organization that has to make a bookings number, or they own a business or product line and they have to make a revenue number every quarter.
The Productivity Zone is when there is a set of cost centers that do a lot of the work behind the scenes, which allows departments like marketing, HR, legal, finance, customer support, and others, to be successful in their areas.
Though there can often be stress about where money is allocated, the problem of where it should go is never huge and, for the most part, is solved easily, though not always with smiles on faces. The decision-making here is pretty black and white.
This is where people suggest more exciting ideas and ask for a place in the budget for these things, like digital, investments, or acquisitions. The idea of getting on board with “the next big thing” comes into play.These three zones typically aren’t where the big budget investments go.
The normal annual budgeting process typically allots money to these three zones. The first two have to pay off the current year, and the third zone pays off in the far future, so you don’t budget for a lot of money to go there. Nobody typically gets that worried about it. The problem happens in the fourth zone, the Transformation Zone.
Transformation ZoneThis is the zone you enter when you have to go through the J Curve. This is where the innovation happens. This is where an employee or department pitches a truly innovative idea, and leadership fully commits to the idea.
This is where budgets are re-allocated and taken away from the other three zones, and all of the money is riding on this one big idea that will change the way the company does business, in a good way.
That sounds pretty simple. But how often does it happen?
It generally doesn’t happen. That's why it was so ugly because that's exactly what most of the companies were not doing. And that's why they were failing. What the framework source says is, in each of the zones, there are ways to play your zone better, particularly when it's under the stress of a transformation.
There are things you can do in your zone to help mitigate the stress of a transformation, but the key thing is that the leadership, starting with the CEO and the board, has to commit to the J curve. And if they want to stay committed to it, it has to be the number-one priority of the corporation, for everyone in the corporation, throughout, until we're out of the woods.
Virtually no company was doing that. Virtually every company was saying, "Well, no, you keep running your businesses, and we'll do this transformation over here on the side."What I certainly came to realize by going to company after company in these situations is realizing that that just doesn't work.
The people that have been successful with J curves in big companies have normally been founders, who basically just have enough personal power to say, "We're going to do this, and you're going to do it my way, or you're going to leave."
That's Steve Jobs, and Bill Gates, and Larry Ellison, and Mark Zuckerberg, and Elon Musk, and Reed Hastings at Netflix, and certainly Jeff Bezos at Amazon. It's anybody who's got a big enterprise and saying no.So you look at those and you realize, "Okay, those are the four zones."
You don't need a transformation zone every year. You only need it when you're really going to do these J curves. You probably shouldn't do more than one J curve a decade, because they're very, very painful and challenging.
So here's how you do it. The book just says, "If you buy this line of argument, what does it look like? What do you have to do differently, and how does it work?"