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Many Businesses Get Started from an Unmet Personal Need

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Many successful entrepreneurs never set out with the goal of launching a large company, let alone hiring scores of people. They are motivated enough to develop solutions to a direct problem they are facing. Before long, they discover that they are not the only ones with that problem—and, like so, a successful business is born.

How “The Cult of Lulu” Got Started

Consider the genesis of Lululemon, the Canadian athletic apparel company (from The Atlantic‘s narrative of how sports changed the way Americans dress.)

In 1997, a retail entrepreneur in British Columbia named Chip Wilson was having back problems. So, like millions of people around the world, he went to a yoga class. What struck Wilson most in his first session wasn’t the poses; it was the pants. He noticed that his yoga instructor was wearing some slinky dance attire, the sort of second skin that makes a fit person’s butt look terrific. Wilson felt inspired to mass-produce this vision of posterior pulchritude. The next year, he started a yoga design-and-fashion business and opened his first store in Vancouver. It was called Lululemon.

[Yes, that’s the Chip Wilson who gained notoriety for blaming in-poor-shape women for ruining their Lululemon yoga pants by rubbing their thighs together too much. “Quite frankly, some women’s bodies just actually don’t work for it [his apparel],” he condescendingly declared on Bloomberg TV.]

At present, Lululemon has the highest sales-per-square-foot of any American apparel retailer. Its pricey workout clothing has become a wardrobe staple, prompting other retailers to launch competing apparel lines to cash in on the growing market.

Lululemon kindled the prevailing fixation on a healthy appearance. Its brand continues to be an elite fitness status symbol for the skinny and wealthy set. More broadly, over the last two decades, Lululemon has redefined how the current generation dresses and lives. The company pioneered the “athleisure” fashion revolution, which has blurred the lines between yoga-and-spin-class outfits and regular street clothes.

Sara Blakely’s Personal Undertaking Morphed Spanx into a Big Business

In a similar vein, entrepreneur Sara Blakely started the Spanx hosiery company after searching for a solution to improve the way she looked in a pair of her cream-colored pants. Blakely started her wildly successful entrepreneurial journey by making sure that the specific type of undergarment she ideated to solve her clothing problem did materialize commercially. From her biography on Wikipedia,

Forced to wear pantyhose in the hot Floridian climate for her sales role, Blakely disliked the appearance of the seamed foot while wearing open-toed shoes, but liked the way that the control-top model eliminated panty lines and made her body appear firmer. For her attendance at a private party, she experimented by cutting off the feet of her pantyhose while wearing them under a new pair of slacks and found that the pantyhose continuously rolled up her legs, but she also achieved the desired result.

Idea for Impact: Learn to Pay Attention to the Subtle Clues to Opportunities All-Around

Many entrepreneurs initially got their start by first recognizing and responding to a personal need or a localized problem and later discovering that they struck a universal chord.

If you want to become an entrepreneur, find out if you can solve a problem that you’ve personally experienced. Uncover opportunities that you may otherwise have missed by asking, “Does this have to be time-consuming, arduous, expensive, or annoying?” “How can I improve on this?” and “Can I do this better or different from the other fellow doing it over there?” Then expand your opportunity by asking, “Who else may be experiencing the same problem?”

Wondering what to read next?

  1. Creativity by Imitation: How to Steal Others’ Ideas and Innovate
  2. Van Gogh Didn’t Just Copy—He Reinvented
  3. Four Ideas for Business Improvement Ideas
  4. Howard Gardner’s Five Minds for the Future // Books in Brief
  5. How to Stimulate Group Creativity // Book Summary of Edward de Bono’s ‘Six Thinking Hats’

How Stress Impairs Your Problem-Solving Capabilities: Case Study of TransAsia Flight 235

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As I’ve examined previously, airline disasters are particularly instructive on the subjects of cognitive impairment and decision-making under stress.

Consider the case of TransAsia Airways Flight 235 that crashed in 2015 soon after takeoff from an airport in Taipei, Taiwan. Accident investigations revealed that the pilots of the ATR 72-600 turboprop erroneously switched off the plane’s working engine after the other lost power. Here’s a rundown of what happened:

  1. About one minute after takeoff, at 1,300 feet, engine #2 had an uncommanded autofeather failure. This is a routine engine failure—the aircraft is designed to be able to be flown on one engine.
  2. The Pilot Flying misdiagnosed the problem, and assumed that the still-functional engine #1 had failed. He retarded power on engine #1 and it promptly shut down.
  3. With power lost on both the engines, the pilots did not react to the stall warnings in a timely and effective manner. The Pilot Flying acknowledged his error, “wow, pulled back the wrong side throttle.”
  4. The aircraft continued its descent. The pilots rushed to restart engine #1, but the remaining altitude was not adequate enough to recover the aircraft.
  5. In a state of panic, the Pilot Flying clasped the flight controls and steered (see this video) the aircraft perilously to avoid apartment blocks and commercial buildings before clipping a bridge and crashing into a river.

A High Level of Stress Can Diminish Your Problem-solving Capabilities

Thrown into disarray after a routine engine failure, the pilots of TransAsia flight 235 did not perform their airline’s abnormal and emergency procedures to identify the failure and implement the required corrective actions. Their ineffective coordination, communication, and error management compromised the safety of the flight.

The combination of sudden threat and extreme time pressure to avert a danger fosters a state of panic, in which decision-makers are inclined to commit themselves impulsively to courses of action that they will soon come to regret.

Idea for Impact: To combat cognitive impairment under stress, use checklists and standard operating procedures, as well as increased training on situational awareness, crisis communication, and emergency management.

Wondering what to read next?

  1. What Airline Disasters Teach About Cognitive Impairment and Decision-Making Under Stress
  2. Lessons from the World’s Worst Aviation Disaster // Book Summary of ‘The Collision on Tenerife’
  3. Under Pressure, The Narrowing Cognitive Map: Lessons from the Tragedy of Singapore Airlines Flight 6
  4. “Fly the Aircraft First”
  5. Jeju Air Flight 2216—The Alleged Failure to Think Clearly Under Fire

Your Product May Be Excellent, But Is There A Market For It?

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Akio Morita, the visionary co-founder of Sony, liked to tell a story about recognizing opportunities and shaping them into business concepts.

Two shoe salesmen … find themselves in a rustic backward part of Africa. The first salesman wires back to his head office: “There is no prospect of sales. Natives do not wear shoes!” The other salesman wires: “No one wears shoes here. We can dominate the market. Send all possible stock.”

Morita, along with his co-founder Masaru Ibuka, was a genius at creating consumer products for which no obvious demand existed, and then generating demand for them. Sony’s hits included such iconic products as a hand-held transistor radio, the Walkman portable audio cassette player, the Diskman portable compact disk player, and the Betamax videocassette recorder.

Products Lost in Translation

As the following case studies will illustrate, many companies haven’t had Sony’s luck in launching products that can stir up demand.

In each case in point, deeply ingrained cultural attitudes affected how consumers failed to embrace products introduced into their respective markets.

Case Study #1: Nestlé’s Paloma Iced Tea in India

Marketing and Product Introduction Failure: Nestle's Paloma Iced Tea in India When Swiss packaged food-multinational Nestlé introduced Paloma iced tea in India in the ’80s, Nestlé’s market assessment was that the Indian beverage market was ready for an iced tea variety.

Sure thing, folks in India love tea. They consume it multiple times a day. However, they must have it hot—even in the heat of the summer. Street-side tea vendors are a familiar sight in India. Huddled around the chaiwalas are patrons sipping hot tea and relishing a savory samosa or a saccharine jalebi.

It’s no wonder, then, that, despite all the marketing efforts, Paloma turned out to be a debacle. Nestlé withdrew the product within a year.

Case Study #2: Kellogg’s Cornflakes in India

The American packaged foods multinational Kellogg’s failed in its initial introduction of cornflakes into the Indian market in the mid ’90s. Kellogg’s quickly realized that its products were alien to Indians’ consumption habits—accustomed to traditional hot, spicy, and heavy grub, the Indians felt hungry after eating a bowl of sweet cornflakes for breakfast. In addition, they poured hot milk over cornflakes rendering them soggy and less appetizing.

Case Study #3: Oreo Cookies in China

Marketing and Product Introduction Case Study: Oreo Green-tea Ice Cream Cookies in China When Kraft Foods, launched Oreo in China in 1996, America’s best-loved sandwich cookie didn’t fare very well. Executives in Kraft’s Chicago headquarters expected to just drop the American cookie into the Chinese market and watch it fly off shelves.

Chinese consumers found that Oreos were too sweet. The ritual of twisting open Oreo cookies, licking the cream inside, and then dunking it in milk before enjoying them was considered a “strangely American habit.”

Not until Kraft’s local Chinese leaders developed a local concept—a wafer format in subtler flavors such as green-tea ice cream—did Oreo become popular.

Idea for Impact: Your expertise may not translate in unfamiliar and foreign markets

In marketing, if success is all about understanding the consumers, you must be grounded in the reality of their lives to be able to understand their priorities.

  • Don’t assume that what makes a product successful in one market will be a winning formula in other markets as well.
  • Make products resonate with local cultures by contextualizing the products and tailoring them for local preferences.
  • Use small-scale testing to make sure your product can sway buyers.

Wondering what to read next?

  1. The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline
  2. Starbucks’ Oily Brew: Lessons on Innovation Missing the Mark
  3. What Taco Bell Can Teach You About Staying Relevant
  4. Find out What Your Customers Want and Give it to Them
  5. The Mere Exposure Effect: Why We Fall for the Most Persistent

Microsoft’s Resurgence Story // Book Summary of CEO Satya Nadella’s ‘Hit Refresh’

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Leader as Sense-Maker and Cultural Curator

Microsoft CEO Satya Nadella is an exemplar of a leader as sense-maker. He has revitalized how Microsoft’s strategy, mission, and culture connect people, products, and services—inside and outside his company.

'Hit Refresh' by Satya Nadella (ISBN 0062959727) Nadella has a success story to tell, and his Hit Refresh: The Quest to Rediscover Microsoft’s Soul and Imagine a Better Future for Everyone (2017, with two co-authors) highlights how he is a different kind of leader transforming Microsoft into a different kind of company.

Hit Refresh‘s broad objective is to lay out a vision for the future of the company. The book is aimed at people who work at or with Microsoft. Many employees were given a special imprint of book with Nadella’s faux-handwritten annotations in the margins and highlighted snippets.

The book’s narrative arc shifts from a personal memoir to a management how-to, and then to technological futurism. The latter—and perhaps the least interesting—portion features Nadella’s forethoughts on artificial intelligence, augmented reality, and quantum computing, as well as their socio-economic implications.

Satya Nadella Shook Things Up by De-Ballmering Microsoft

Nadella took Microsoft’s reins in February 2014 after long-time CEO Steve Ballmer resigned in August 2013. Under Nadella’s watch, Microsoft quickly became more open and more nimble as an organization. Its cloud computing, Office 365, and gaming platform franchises are all running remarkably well.

Microsoft pivoted its business model around subscription products that produce recurrent revenue. It acquired Mojang (creator of the popular Minecraft videogame title,) LinkedIn, and GitHub. It ditched Nokia and embraced open source software—it’s even including a Linux kernel in a future Windows release.

Today one of my top priorities is to make sure that our billion customers, no matter which phone or platform they choose to use, have their needs met so that we continue to grow. To do that, sometimes we have to bury the hatchet with old rivals, pursue surprising new partnerships, and revive longstanding relationships. Over the years we’ve developed the maturity to become more obsessed with customer needs, thereby learning to coexist and compete.

A Renewed Sense of Purpose: The Leader’s Tone Steers the Organizational Culture

Hit Refresh‘s foremost take-away is how the tone at the top sets an organization’s guiding values. Properly contemplated, propagated, and nurtured, Nadella’s approach became the foundation upon which the culture of Microsoft has been remade.

With “the C in CEO is for curator of culture,” Nadella’s dominant mission has been to recreate Microsoft’s underlying beliefs, values, and expectations in the eyes of its employees, business partners, customers, investors, and the society. This culture is to be consistent within Microsoft and characterize all the discernable patterns of behavior across the organization.

When I was named Microsoft’s third CEO in February 2014, I told employees that renewing our company’s culture would be my highest priority. I told them I was committed to ruthlessly removing barriers to innovation so we could get back to what we all joined the company to do—to make a difference in the world.

Nadella’s playbook has consisted of challenging complacency, instituting a “growth mindset,” being open-minded enough to welcome new technology and collaborate with Microsoft’s traditional competitors (“frenemies,”) and shifting from a “know it all” to a “learn it all” mindset.

I had essentially asked employees to identify their innermost passions and to connect them in some way to our new mission and culture. In so doing, we would transform our company and change the world.

“Driven by a Sense of Empathy and a Desire to Empower Others”

Core to Nadella’s framework is his conviction that individuals are wired to have empathy. “The alchemy of purpose, innovation, and empathy” is indispensible “not only for creating harmony within organizations but also for creating products that resonate.”

Nadella describes how caring for a special-needs child and his wife Anu’s sacrifices for the family made him become conscious of the significance of empathy. Specifically, Anu helped him recast these setbacks as opportunities to expand his worldview.

Being a husband and a father has taken me on an emotional journey. It has helped me develop a deeper understanding of people of all abilities and of what love and human ingenuity can accomplish. … It’s just that life’s experience has helped me build a growing sense of empathy for an ever-widening circle of people. … My passion is to put empathy at the center of everything I pursue—from the products we launch, to the new markets we enter, to the employees, customers, and partners we work with.

The most interesting section of Hit Refresh is Nadella’s personal journey growing up in India, migrating to America, and working his way up the career ladder at Microsoft. The only child of a Sanskrit scholar and a civil servant, Nadella was hooked on cricket (it taught him how to compete vigorously, the virtue of working in teams, and the importance of leadership direction.)

Recommendation: Satya Nadella’s Hit Refresh is a satisfactory first take on his remarkable revamp of the culture of a company that had become set in its ways. Microsoft’s transformation has been nothing short of dramatic—there’s a lot more to be done and written about.

Wondering what to read next?

  1. Book Summary of Nicholas Carlson’s ‘Marissa Mayer and the Fight to Save Yahoo!’
  2. Two Leadership Lessons from United Airlines’ CEO, Oscar Munoz
  3. Better to Quit While You’re Ahead // Leadership Lessons from Microsoft’s Steve Ballmer
  4. Don’t Be A Founder Who Won’t Let Go
  5. Heartfelt Leadership at United Airlines and a Journey Through Adversity: Summary of Oscar Munoz’s Memoir, ‘Turnaround Time’

Creativity by Imitation: How to Steal Others’ Ideas and Innovate

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Emulating others’ ideas is an underappreciated learning tool. Many creative innovators set forth as remarkably astute mimics of others. “Good artists copy, great artists steal,” prods a creator’s maxim often misattributed to Picasso.

Imitation is a leading pathway to business innovation, even if being an imitator is anchored by a sense of derision. Ever more businesses are nicking great ideas wherever they can obtain them—in their own industries or beyond. Hospitals have adapted safety and efficiency procedures from the military and the airline industry. Aircraft manufacturers have adopted the car industry’s lean supply chain management concepts. Ritz-Carlton, the luxury chain of hotels and resorts, runs the Ritz-Carlton Leadership Center that has helped trained its legendary cult of customer service and employee empowerment best practices to managers from companies across industries.

Creativity by Taking Existing Ideas: Applying Them in a New Context

The most prominent example of innovating by imitation is Ford’s development of the automobile assembly line—a system Henry Ford copied (and improved) from the Chicago meat processing business.

Henry Ford’s relentless ambition to build his Model T a high-volume-low-cost automobile, together with his engineering knowledge and manufacturing experience provided the leadership and creative environment that nurtured the development of the moving mechanical assembly line. Today, the moving assembly line is the epitome of manufacturing. Almost everything that is now industrially manufactured—automobiles, aircrafts, toys, furniture, food—passes down assembly lines before landing in our homes and offices.

The genesis of the moving assembly line is in the American agricultural products industry. During the late 18th century, the movement of grains changed from hand labor to belts and later moving hoppers.

Innovation by Imitation: Many Innovations Come from the Outside

By 1873, Chicago’s meat-processing industry adapted belts and hoppers to transform beef and pork production into a standardized, mechanized, and centralized business. After cows and pigs travelled to their fate in train cars from farms throughout the Midwest, they were dropped into hoppers and killed. Conveyor belts then moved carcasses past meat cutters, who progressively removed various sections of the animal, cut them into appropriate sizes, and repackaged and dispatched processed meat across the United States.

The meat processors’ task was disassembly (as opposed to putting together automobile parts in Ford’s plants.) Each worker had a specific, specialized job. Production moved swiftly. The American writer Upton Sinclair famously described this industry’s ghastly working conditions in his acclaimed novel The Jungle and said, “They use everything about the hog except the squeal.”

Chicago Slaughter Houses Were the Pioneers of the Moving Disassembly Line Before Henry Ford Started His Assembly Line

In the early 1900s, when Henry Ford wanted to keep Model T production up with demand and lower the price, Ford’s team explored other industries and found four ideas that could advance their goal: interchangeable parts, continuous flow, division of labor, and cutting wasted effort. Ford’s engineers visited Swift & Company’s Slaughterhouse in Chicago and decided to adopt the “disassembly line” method to build automobiles.

The introduction of the moving assembly line process in 1913 enabled increased production up to 1,000 Model Ts a day and decreased assembly time from 13 hours to 93 minutes. Additional refinement of the process, thanks to reliable precision equipment and standardized shop practices, shortened production time radically: within a few years, a new Model T rolled off the assembly line every 24 seconds. First produced in 1908, the Model T kept the same design until the final one—serial number 15,000,000 rolled off the line in 1927.

Auschwitz-Birkenau and Victims of the Holocaust

Sadly, just as Henry Ford copied the Chicago meat processing and perfected the moving assembly line, the Nazi apparatus copied Ford’s methods of mass production to massacre six million people. While Midwestern butchers processed the livestock carcasses, the Nazis systematically handled corpses of the victims of the Holocaust. Nazi operatives removed victims’ hair, clothing, shoes, gold teeth, hairbrushes, glasses, suitcases, and anything of value to be repurposed for the Reich. The atrocities of this inexpressibly shocking disaster are on display at the train tracks and the museums of Auschwitz-Birkenau, Poland.

Formal Strategic-Benchmarking Programs

Smart businesses have formal strategic-benchmarking programs to achieve significant efficiency improvements: they pinpoint the strategic capabilities that matter most to their businesses, seek out companies or businesses that currently manage those capabilities best, and try to copy and deploy those capabilities as rapidly as possible. But time is of the essence for the success of these undertakings, as the management guru Tom Peters warns,

I hate Benchmarking! Benchmarking is stupid! Why is it stupid? Because we pick the current industry leader and then we launch a five-year program, the goal of which is to be as good as whoever was best five years ago, five years from now. Which to me is not an Olympian aspiration.

Imitation is a Key Characteristic of Highly Creative People: The Case of Steve Jobs Copying from Xerox

One of the key characteristics of highly creative people is their exposure to and experience with working in several related domains. They are very good at crossing domain boundaries, relating their creativeness in new and perhaps unexpected ways, and adapting knowledge into new domains. The following case of one of history’s most famous innovators illustrates this distinguishing characteristic.

Steve Jobs of Apple introduced the revolutionary Lisa computer in 1983. It featured such innovations as the graphical user interface, a mouse, and document-centric computing. Jobs had taken—and refined—all these inventions from Xerox’s PARC research labs and introduced by Xerox on its commercially-unsuccessful Alto and Star computers in 1981. The biographer Walter Isaacson writes in his best-selling Steve Jobs: “The Apple raid on Xerox PARC is sometimes described as one of the biggest heists in the chronicles of industry.” Isaacson cites Jobs: “Picasso had a saying—‘good artists copy, great artists steal’—and we have always been shameless about stealing great ideas… They [Xerox management] were copier-heads who had no clue about what a computer could do… Xerox could have owned the entire computer industry.”

Idea for Impact: Borrow Ideas from Others and Combine Them with Your Own Creativity

Interestingly, many “benchmarking” exercises in the world of business—even academia—do not come “top-down” out of strategy. In other words, innovations by imitation are typically not driven from the top down. Instead, they materialize from everyday operational challenges—those painful experiences that send managers scuttling for solutions in a hurry.

Look outside your industry. To improve your creativity, try spending time researching other smart companies—even those outside of your industry. Learning directly from other companies is a useful, underutilized form of research for finding ways to improve performance.

Attend to developments at your competitors and in other industries. Look for potential opportunities that have been discovered elsewhere. Avoid the “not invented here” syndrome—don’t reject other’s great ideas. Keep an open mind.

Wondering what to read next?

  1. Howard Gardner’s Five Minds for the Future // Books in Brief
  2. This is Yoga for the Brain: Multidisciplinary Learning
  3. Many Businesses Get Started from an Unmet Personal Need
  4. Innovation Without Borders: Shatter the ‘Not Invented Here’ Mindset
  5. Four Ideas for Business Improvement Ideas

The Dramatic Fall of Theranos & Elizabeth Holmes // Book Summary of John Carreyrou’s ‘Bad Blood’

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Bad Blood: Secrets and Lies in a Silicon Valley Startup (2018) is Wall Street Journal investigative reporter John Carreyrou’s remarkable exposé on Theranos, the former high-flying Silicon Valley tech startup founded by Elizabeth Holmes.

Theranos formally dissolved last week after a high-profile scandal revealed that the company not only deceived investors, but also risked the health of thousands of patients.

A Gripping Narrative, A Charismatic CEO, and A Big Fraud

In 2015, Theranos was one of Silicon Valley’s superstars. Valued at some $9 billion, Theranos claimed an out-and-out disruption of the $73-billion-a-year blood testing industry. Elizabeth Holmes pitched a revolutionary technology that could perform multiple tests on a few drops of capillary blood drawn by a minimally invasive finger prick, instead of the conventional—and much dreaded—venipuncture needle method.

The Story of Theranos and Elizabeth Holmes received much adulation by the media Theranos has its origins in 2004, when the brilliant Holmes, then a 19-year old Stanford sophomore, dropped out of college to start the company. Her missionary narrative swayed just about everyone to believe in the potential she touted.

Over the years, Theranos attracted a $1 billion investment, an illustrious board of directors, influential business partners (Walgreens, Safeway, Cleveland Clinic,) and significant amounts of adulation by the media—all of this lent credence to Holmes’s undertaking. She was celebrated as the youngest, self-made female billionaire in the world.

Nobody Asked the Hard Questions

Theranos’s castle in the air started to crumble in October 2015, when Carreyrou’s first Wall Street Journal article reported that the company was embellishing the potential of Theranos’s technology. Based on past employees’ disclosures, the article also cast serious doubts on the reliability of Theranos’s science. Behind the scenes, Theranos performed a majority of its blood tests with commercial analyzers purchased from other companies.

The persistent question in Carreyrou’s Bad Blood is how the many smart people who funded, endorsed, defended, and wrote about this company never set aside their confidence in Holmes’s persuasions and looked beyond her claim of “30 tests from one drop of blood.”

Without much independent due diligence, Theranos’s supporters possibly assumed that everyone else had checked out the company, its founders, and its science. Theranos got away with its actions for as long as it did because no one could conceive of the idea that the business would simply lie as much as it did.

The Story of Theranos and Elizabeth Holmes Appeared so Promising That Everybody Wanted it to Be True

Bad Blood also draws attention to Silicon Valley’s many failings, including the cult of the celebrity founder. Holmes’s smoke and mirrors was enabled by the notion of a “stealth mode” in which many Silicon Valley startups operate to protect their intellectual property. Theranos never proved that its testing technology really worked. It was performing tests on patients without having published peer-reviewed studies, getting FDA certification, or carrying out external evaluation by medical experts.

'Bad Blood' by John Carreyrou (ISBN 152473165X) Carreyrou acknowledges that Holmes’s initial intentions were honorable, even if naïve. What triggered Holmes’s downfall was the characteristic entrepreneurial “fake it till you make it” ethos—it inhibited her from conceding early on that her ambitions were simply not viable.

When things didn’t go as intended, Holmes exploited the power of storytelling to get everyone to buy into her tales. She continued to believe that the reality of the technology would catch up with her vision in the future. Trapped in a web of hyperbole and overpromises, Holmes and her associate (as well as then-lover) Sunny Balwani operated a culture of fear and intimidation at Theranos. They went as far as hiring superstar lawyers to threaten and silence employees and anyone else who dared to challenge the company or expose its deficiencies.

Book Recommendation: Bad Blood is a Must-Read

Every inventor, entrepreneur, investor, and businessperson should read Bad Blood. It’s a fascinating and meticulously researched report of personal and corporate ambition unraveled by dishonesty. This page-turner is a New York Times bestseller and is expected to be made into a movie.

Wondering what to read next?

  1. Let’s Hope She Gets Thrown in the Pokey
  2. A Real Lesson from the Downfall of Theranos: Silo Mentality
  3. Virtue Deferred: Marcial Maciel, The Catholic Church, and How Institutions Learn to Look Away
  4. Beware of Key-Person Dependency Risk
  5. How to Make Others Feel They Owe You One: Reciprocity and Social Influence

Beware of Key-Person Dependency Risk

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Key-Person Dependency Risk is the threat posed by an organization or a team’s over-reliance on one or a few individuals.

The key-person has sole custody of some critical institutional knowledge, creativity, reputation, or experience that makes him indispensable to the organization’s business continuity and its future performance. If he/she should leave, the organization suffers the loss of that valued standing and expertise.

Small businesses and start-ups are especially exposed to key-person dependency risk. Tesla, for example, faces a colossal key-man risk—its fate is linked closely to the actions of founder-CEO Elon Musk, who has come under scrutiny lately.

Much of Berkshire Hathaway’s performance over the decades has been based on CEO Warren Buffett’s reputation and his ability to wring remarkable deals from companies in duress. There’s a great deal of prestige in selling one’s business to Buffett. He is irreplaceable; given his remarkable long-term record of accomplishment, it is important that much of what he has built over the years remains intact once he is gone. Buffett has built a strong culture that is likely to endure.

Key Employees are Not Only Assets, but also Large Contingent Liabilities

The most famous “key man” of all time was Apple’s Steve Jobs. Not only was he closely linked to his company’s identity, but he also played a singular role in building Apple into the global consumer-technology powerhouse that it is. Jobs had steered Apple’s culture in a desired direction and groomed his handpicked management team to sustain Apple’s inventive culture after he was gone. Tim Cook, the operations genius who became Apple’s CEO after Jobs died in 2011, has led the company to new heights.

The basic solution to key-person dependency risk is to identify and document critical knowledge of the organization. (Capturing tacit knowledge is not easy when it resides “in the key-person’s head.”) Organizations must also focus on cross-training and succession planning to identify and enable others to develop and perform the same tasks as the key-person.

Idea for Impact: No employee should be indispensable. A well-managed company is never dependent upon the performance of one or a few individuals. As well, no employee should be allowed to hoard knowledge, relationships, or resources to achieve job security.

Wondering what to read next?

  1. What Virgin’s Richard Branson Teaches: The Entrepreneur as Savior, Stuntman, Spectacle
  2. Creativity by Imitation: How to Steal Others’ Ideas and Innovate
  3. Risk Homeostasis and Peltzman Effect: Why Risk Mitigation and Safety Measures Become Ineffective
  4. The Dramatic Fall of Theranos & Elizabeth Holmes // Book Summary of John Carreyrou’s ‘Bad Blood’
  5. Innovation Without Borders: Shatter the ‘Not Invented Here’ Mindset

Lessons from Peter Drucker: Quit What You Suck At

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The essence of leadership is risk- and opportunity-assessment and resource allocation. It follows that one of the persistent responsibilities of leadership is to mull over each individual and organizational endeavor and investigate, “Do we produce results that are meaningful and profitable enough for us to justify investing our resources to this purpose?”

Jack Welch’s Strategy for General Electric: #1 or #2 Businesses Only

When Jack Welch became CEO of General Electric (GE) in 1981, he set out to make GE “the world’s most competitive enterprise.” However, the company was a hodgepodge of many businesses—some unrelated or irrelevant, several unprofitable, and a few at the brink of failure.

Management pioneer Peter Drucker famously advised Welch to ask of each constituent of the GE business portfolio he now presided over, “If you weren’t already this business, would you enter it today? And, if the answer is no, what are you going to do about it?”

Welch’s responded with his legendary dictum that every GE division be—or become—the leading or the runner-up business in its respective industry, or plan to exit it completely.

Welch argued that in many markets, the number three, four, five, or six players suffered the most during cyclical downturns. On the contrary, number one or number two businesses could protect their market share by way of aggressive pricing approaches or by developing new products. Welch’s approach portended the emergence of oligopolies in many industries.

The resultant strategic focus eventually led to an immense restructuring of GE. Welch sold or discontinued dozens of divisions—including computers and time-shares. Over the next decade, he cut nearly one in four jobs at GE, warranting the nickname “Neutron Jack.”

By year 2000, GE had reached dominance or near dominance in most of its business markets across the globe.

Peter Drucker on Strategic Reprioritization

'Post-Capitalist Society' by Peter Drucker (ISBN 0887306616) Explaining this method of strategic reprioritization, Drucker wrote in Post-Capitalist Society (1993,)

To turn around any institution—whether a business, a labor union, a university, a hospital, or a government—requires always the same three steps:

  1. Abandonment of the things that do not work, the things that have never worked; the things that have outlived their usefulness and their capacity to contribute;
  2. Concentration on the things that do work, the things that produce results, the things that improve the organization’s capacity to perform; and
  3. Analysis of the half successes, half failures. A turnaround requires abandoning whatever does not perform and doing more of whatever does perform.

'Five Most Important Questions' by Peter Drucker (ISBN 0470227567) Drucker further elaborated on abandonment as the keystone for strategic reprioritization in his Five Most Important Questions (2015,)

To abandon anything is always bitterly resisted. People in any organization are always attached to the obsolete—the things that should have worked but did not, the things that once were productive and no longer are. They are most attached to what in an earlier book I called “investments in managerial ego.” Yet abandonment comes first. Until that has been accomplished, little else gets done. The acrimonious and emotional debate over what to abandon holds everybody in its grip. Abandoning anything is thus difficult, but only for a fairly short spell. Rebirth can begin once the dead are buried; six months later, everybody wonders, “Why did it take us so long?”

Idea for Impact: Assess What Endeavors Must Be Intensified or Abandoned

Don’t do—or continue to do—something just because it’s been a tradition, custom, or habit. Strengthen, abandon, or stay on. Align your efforts with your mission, your values, and the results you want to achieve.

If you abandon something important mistakenly, you can quickly pick up where you left off.

Invest your precious resources where the returns are rich.

Figure out what’s vital and stay focused, even if you have to cut your losses (read about sunk costs.)

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  4. Hofstadter’s Law: Why Everything Takes Longer Than Anticipated
  5. Everything in Life Has an Opportunity Cost

What Airline Disasters Teach About Cognitive Impairment and Decision-Making Under Stress

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Airline disasters often make great case studies on how a series of insignificant errors can build up into catastrophes.

As the following two case studies will illuminate, unanticipated pressures can force your mind to quickly shift to a panic-like state. As it searches frenetically for a way out of a problem, your mind can disrupt your ability to take account of all accessible evidence and attend rationally to the situation in its entirety.

Stress Can Blind You and Limit Your Ability to See the Bigger Picture: A Case Study on Eastern Airlines Flight 401

Eastern Airlines Flight 401 crashed on December 29, 1972, killing 101 people.

As Flight 401 began its approach into the Miami International Airport, first officer Albert Stockstill lowered the landing gear. But the landing gear indicator, a green light to verify that the nose gear was correctly locked in the “down” position, did not switch on. (This was later verified to be caused by a burned-out light bulb. Regardless of the indicator, the landing gear could have been manually lowered and verified.)

The flight deck got thrown into a disarray. The flight’s captain, Bob Loft, sent flight engineer Don Repo to the avionics bay underneath the flight deck to verify through a small porthole if the landing gear was actually down. Loft simultaneously directed Stockstill to put the aircraft on autopilot. Then, when Loft unintentionally leaned against the aircraft’s yoke to speak to Repo, the autopilot mistakably switched to a wrong setting that did not hold the aircraft’s altitude.

The aircraft began to descend so gradually that it could not be perceived by the crew. With the flight engineer down in the avionics bay, the captain and the first officer were so preoccupied with the malfunction of the landing gear indicator that they failed to pay attention to the altitude-warning signal from the engineer’s instrument panel.

Additionally, given that the aircraft was flying over the dark terrain of the Everglades in nighttime, no ground lights or other visual cues signaled that the aircraft was gradually descending. When Stockstill eventually became aware of the aircraft’s altitude, it was too late to recover the aircraft from crashing.

In summary, the cause of the Flight 401’s crash was not the nose landing gear, but the crew’s negligence and inattention to a bigger problem triggered by a false alarm.

Stress Can Blind You into Focusing Just on What You Think is Happening: A Case Study on United Airlines Flight 173

United Airlines Flight 173 crashed on December 28, 1978, in comparable circumstances.

When Flight 173’s pilots lowered the landing gear upon approach to the Portland International Airport, the aircraft experienced an abnormal vibration and yaw motion. In addition, the pilots observed that an indicator light did not show that the landing gear was lowered successfully. In reality, the landing gear was down and locked in position.

With the intention of troubleshooting the landing gear problem, the pilots entered a holding pattern. For the next hour, they tried to diagnose the landing gear glitch and prepare for a probable emergency landing. During this time, however, none of the pilots monitored the fuel levels.

When the landing gear problem was first suspected, the aircraft had abundant reserve fuel—even for a diversion or other contingencies. But, all through the hour-long holding procedure, the landing gear was down and the flaps were set to 15 degrees in anticipation of a landing. This significantly increased the aircraft’s fuel burn rate. With fuel exhaustion to all four engines, the aircraft crashed.

To sum up, Flight 173’s crew got preoccupied with the landing gear’s malfunction and harried preparations for an emergency landing. As a result of their inattention, the pilots failed to keep tabs on the fuel state and crashed the aircraft.

Stress Can Derail Your Train of Thought

Under pressure, your mind will digress from its rational model of thinking.

The emotional excitement from fear, anxiety, time-pressure, and stress can lead to a phenomenon known as “narrowing of the cognitive map.” This tunnel vision can restrict your field of mindful attention and impair your ability for adequate discernment.

Situational close-mindedness can constrict your across-the-board awareness of the situation and force you overlook alternative lines of thought.

Idea for Impact: To combat cognitive impairment under stress, use checklists and standard operating procedures, as well as increased training on situational awareness, crisis communication, and emergency management, as the aviation industry did in response to the aforementioned incidents.

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  4. “Fly the Aircraft First”
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Turning a Minus Into a Plus … Constraints are Catalysts for Innovation

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Creativity Thrives Best When Constrained

“Art consists in limitation,” as the English writer G. K. Chesterton remarked. Constraints are the sine qua non of creativity.

One of the great ironies of creative thinking is that it seems to benefit from constraints. At first blush, inventive thinking may seem to require a great degree of freedom and a lack of restrictions, but the reality of the creative process is that it is frequently entwined with many challenging constraints and intractable requirements. In the right light, demanding constraints can truly be blessings in disguise as the French poet Paul Valery observed, “A person is a poet if his imagination is stimulated by the difficulties inherent in his art and not if his imagination is dulled by them.”

Constraints can shape and focus problems and provide clear challenges to overcome. Constraints stimulate creativity because they not only invigorate inventive thinking but also reduce the complexity of the problem at hand. That is to say, constraints can make a problem more controllable, and possibly even more appealing.

Constraints and Challenge Can Actually Be Assets to the Creative Process

When you explore inventions that are creative, you’ll discover that the creators often exploited some core constraints that had characterized their domain in the past. Here are six examples of creativity that exploited a constraint to great advantage.

  • In 1986, British Airways ran a “Go for it, America!” marketing campaign to give away 5,200 free seats—all seats on its scheduled flights between USA and UK on June 10, 1986. In response, the upstart Virgin Atlantic ran its own newspaper advertisements that declared, “It has always been Virgin’s policy to encourage you to fly to London for as little as possible. So on June 10 we encourage you to fly British Airways.” And in smaller type, the ad read, “As for the rest of the year, we look forward to seeing you aboard Virgin Atlantic. For the best service possible. At the lowest possible fare.” The British Airways giveaway generated a lot of publicity, but most of the news coverage also mentioned Virgin’s unexpected, witty response.
  • In October 1984, during the second presidential debate with challenger Walter Mondale, Henry Trewhitt of the Baltimore Sun questioned President Ronald Reagan about his age: “You already are the oldest President in history, and some of your staff say you were tired after your most recent encounter with Mr. Mondale. I recall, yes, that President Kennedy, who had to go for days on end with very little sleep during the Cuba missile crisis. Is there any doubt in your mind that you would be able to function in such circumstances?” Reagan famously replied, “Not at all, Mr. Trewhitt and I want you to know that also I will not make age an issue of this campaign. I am not going to exploit for political purposes my opponent’s youth and inexperience.” Tyrwhitt responded, “Mr. President, I’d like to head for the fence and try to catch that one before it goes over.” Mondale lost and Reagan got elected for his second term as President. [See YouTube clip of this debate.]
  • An determined young woman I knew was embarking on a career as a new architect. She had set her sights on a job with a prominent architectural firm, but her professors and career councilors urged her to gain experience at a smaller employer first, as no prestigious firm would take on an inexperienced, new graduate. Undeterred, the young woman applied to the firm she had set her sights for. When asked about her experience, she declared slickly, “I have no experience at all. You see, I want to learn this business at a top quality firm. Employ me and mentor me to suit your design practices. This way, I’ll not have to unlearn any of the second-rate skills I’d have learned in another place.” She got the job.
  • When YouTube launched in 2005, many of its upstart competitors examined each uploaded video for copyright infringement. However, unlike its competitors, YouTube calculatedly let users upload any content and waited for copyright owners to complain before taking down noncompliant videos. By choosing to put their business model at risk, YouTube rapidly grew in content and viewers. Its early rivals faded out, and YouTube got acquired by Google and went on to became the world’s leading video-sharing platform.
  • The Soup, 1902 by Pablo Picasso (from his Blue Period) Legend has it that one day, the Spanish painter Pablo Picasso (1881–1973) had only blue paint to work with. When he started toying with the effects of painting with one color, he discovered the potential to produce interesting paintings that conveyed a sense of melancholy. Picasso had just relocated to Paris and was deeply affected by a close friend and fellow artist’s suicide. Art historians believe this event marked the onset of Picasso’s Blue Period (1901–1904,) during which he produced many stoic and sentimental paintings in mostly monochromatic shades of blue and blue-green. In what would become the hallmark of this greatest artist of the 20th century, Picasso leveraged an apparent constraint into an unintended creative outcome.
  • When American sculptor Janet Echelman’s art supplies never arrived to South India on a Fulbright scholarship trip, Echelman altered her plans and started working with bronze casts inspired by the local materials and culture of Mahabalipuram, fishing village famous for sculpture. However, she soon found the material too heavy and expensive for her Fulbright budget. While examining fishermen bundling their nets one evening, Echelman began speculating if nets could be a new approach to sculpture. However, the delicate surfaces of the fishnets revealed every ripple of wind. Echelman hoisted the fishnets onto poles and created sturdy volumetric forms without heavy, solid materials. Echelman’s building-sized constructed net art structures are now featured in many cities around the world. [See Janet Echelman’s TED talk.]

In each situation, the inventor reframed elements of his/her world that he/she couldn’t control.

When faced with an element of the situation that they cannot ignore or overcome, instead of tackling those problems head-on, creative folks tend to leverage their constraints in a creative way and reframe them into an exceptionally powerful problem-solving technique.

Idea for Impact: Constraints often stimulate creativity rather than suppress it.

The heart of many a problem lies in what seems to be a single, intractable element. When that’s the case, instead of asking, “how can I minimize this liability?” explore “how can I make the most of it?”

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