THE FOUNDATION FORUM
TUESDAY 5TH FEBRUARY 2013
The following article is a summary of an event we held in 2013. Held at the Wayra Academy on 5th February 2013, the evening's subject was control vs. chaos – what large organisations can learn from entrepreneurs and vice versa. The three speakers were Simon Devonshire, Wayra's European Director, musician and entrepreneur Chris Craker, and Niall Murphy, founder of The Cloud and most recently, EVERYTHNG. Their conversation has been summarised by Simon Caulkin, formerly Management Editor at the Observer.
Tom Peters described entrepreneurship as ‘unreasonable conviction based on inadequate evidence’. As such, it’s not something that (with very few exceptions) big companies, with their routines and processes designed for control and predictability, go in for. That doesn’t prevent them yearning for their lost youth, of course. In fact it’s one of the oldest management tropes in the book: established mature company experiencing mid-life crisis decides to spice up performance by buying a smaller, sprightlier rival – which it then promptly smothers with routines and processes, thus killing the thing it fell in love with in the first place.
‘We quickly lost the soul of the company and the artists all started leaving’
As a packed Foundation Forum heard on 5 February, there are few exceptions to this rule. When musician-entrepreneur Chris Craker sold his fledgling company to a bigger company he imagined he was swapping start-up chaos (CDs in the bedroom, 70 artists clamouring for attention) for established production, distribution and marketing routines that would leave him and his wife free to concentrate on developing and selling great music. Instead, they found a more dispiriting type of chaos: ‘All the ethics of personal contact, unique contacts that we came up with, attention to detail, the people we sold them through… all that then had to conform to the formulas of the larger corporation. We quickly lost the soul of the company and the artists all started leaving’.
Later headhunted by another large corporation to (guess what) inject missing entrepreneurship and creativity, Craker had an even closer-up view of what was amiss. The contracts and subsequent misleading accounting statements, based on a 40-year-old model drawn up in the vinyl days which the majors still regretted, were so arcane that no one except lawyers could interpret them; and, at that moment, the passion, the desire, the excitement of making a record and sharing their music began to dissipate as mistrust came into play. The lawyers took over and were talking to each other (at the artists’ expense) and the artists were thinking, what rights am I giving up and what control am I losing here?
‘For an artist or musician, losing control is a massive, massive thing, which is why the most successful ones are total control freaks. But I love them for it, and we can’t and shouldn’t ever change that.’
Craker is still happy to work with many of the established firms. But after 25 years experience, including seeing them magisterially ignore the nature and implications of MP3 – the industry-level equivalent of turning down not just the Beatles but the whole British Sound – he believes that the most promising way to instil entrepreneurial thinking might be to bring in outsiders for two or three months at a time to drop bombs, sow seeds of new ideas and see what grows.
As this suggests, getting through big-company defences requires as much thought as breaking into the Bank of England. A variant on Craker’s ‘infectivity’ approach is provided by Telefonica, the Spanish telecoms firm that owns O2. It has set up Wayra, a business incubator, to identify the most promising ideas in IT and in return for a 10 per cent stake, mentor and support them through the seed stage of development. Currently present in a dozen countries in South America and Europe, Wayra aims to get first refusal on future innovation; but part of its remit is to speed up O2 and Telefonica too, by exposing its managers to the very different entrepreneurial approach.
‘...large and small companies should both be more solicitous of each other, recognising that each party supplies qualities that the other lacks’
Simon Devonshire, Wayra’s European director, describes how since launching in South America in 2011 and subsequently expanding into Europe in 2012, the company has backed 180 businesses: ‘We receive a new application every hour, we invest in a new start-up every three days, between them the start-ups generate or create three new jobs every day.’ While he believes that established corporations certainly have lessons to learn from the start-ups’ raw energy and 24/7 commitment, there are important and less glamorous traits that can usefully be exported in the other direction: discipline (‘the things entrepreneurs will do to stop them having to do the really difficult thing is amazing’), scaling up markets, and being more strategically comprehensive. Perhaps less obviously, Devonshire argues that large and small companies should both be more solicitous of each other, recognising that each party supplies qualities that the other lacks.
Viewing corporations in this way as a dynamic ecology, constantly creating new niches for opportunists to exploit, is the basis of a third approach to the control/chaos theme. For entrepreneur Niall Murphy, the starting point is acceptance of the impossibility of any direct control over the shifting and sometimes contradictory forces of technological advance, emerging competition, and economic boom and bust – as Tom Cruise instructs in Mission Impossible, ‘Relax, this is much worse than you think’. Then the Zen-like challenge is discerning what Murphy terms ‘inevitabilities’ in the swirling uncertainty and fog, figuring out the context that that will create in the future and developing a business model that will both surf on it and help make it come about.
In identifying business opportunities, says Murphy, the denial and resistance of incumbents to the coming inevitability are often key. The first inevitability Murphy spotted was Wi-Fi. Living in Amsterdam, he solved the problem of working in an attractive but hitherto broadband-free café by figuring out how to get a Wi-Fi signal from his apartment on the other side of the canal. That first Wi-Fi hotspot became the network The Cloud, which was sold to Sky for an undisclosed sum in 2011. What happened was this. Even having proved the concept, when the fledgling started to talking to local operators it ran into robust denial and resistance: ‘The response was, we’re in the 3G business, this is heretical technology, go away. But actually that resistance created a tremendous gap... We could package up the desire for resistance into a value proposition. The value proposition was a hedge. Because even though somebody wants to resist an inevitable force, a little voice at the back of their head is saying, “this may actually work, and if it does work what are we going to do about it?”
The Cloud was effectively an option to deniers on the possibility that they were wrong. A number of operators bought it on that basis, including Telefonica, which was well rewarded for its foresight. When Apple launched the iPhone in 2007, Telefonica’s access to The Cloud was an important factor in its selection to carry the new device. Murphy’s next project is EVRYTHNG, tagline ‘Make Products Smart’, which is a bet on the inevitability that sometime soon every object will have an online identity – something that will certainly create many lucrative deniers, resisters and other ‘fantastic value propositions’.
‘Standing back, the repeated and essential insight has to be that control is one of the great business delusions’
Standing back, the repeated and essential insight has to be that control is one of the great business delusions. Compliance produced by command and control may have been just adequate (although at enormous cost) in an age of standardised mass production. In a fast-moving knowledge economy where initiative and creativity is paramount, at every level it is self-defeating. Tight monitoring and performance management of individuals leads to disillusion, distrust and worse performance (the ‘supervisor’s dilemma’) – as Craker found in the music business, and, more horrifically, as we have seen at Mid Staffs NHS Trust. If the economy as a whole is to move up to the sunlit uplands of the high-trust, high-commitment, high-pay, as in the rhetoric, by definition it has to stop driving down the low-road low-trust, low-commitment, low-wage alternative, as it mostly is doing now. One of the entrepreneur’s most important roles may be sussing out smarter, indirect ways of finessing control. As the one-time FI driver Mario Andretti reflected, ‘If you think you’re in control, you’re not going fast enough.’
The Foundation's view
We enjoyed this one! We especially learned three big lessons from the conversation and subsequent Q&A:
Some of what entrepreneurs do well is never likely to happen in a big business.
Thinking about inevitabilities is hard enough, but the way Niall described acting on them was to paint a picture of someone happy with chaos for an extended period. ‘A year in the fog’ was how EVERYTHNG was developed, seeing B and a only gradually a view of how it connects back to A
Control in a big organisation can be illusory, leading to unintended consequences and anything but.
The big record company’s control of its artists’ contracts but not its marketing and distribution processes lead to mis-trust, time wasted adding no value, and ultimately the precious talent leaving for the freedom they need to do their best work. Understanding what matters and accepting some kinds of work just can’t be ordered if they are to work well is what Telefonica has done with Wayra, much to its credit
What entrepreneurs use to drive a path through the chaos is their strong sense of purpose, and it is this that is the most powerful piece of learning that big companies could take from their tiny cousins.
Some large organisations retain a true sense of purpose that earns the discretionary effort and goodwill of their people. Often they still have their founder involved, with a Steve Jobs or Richard Branson embodying the principles that make the enterprise about more than simply making money. For us, widening the pool of companies that think this way would lead to a virtuous circle of success – more committed people, more effortlessly aligned, with customers recognising products with merit not horsemeat, and success following as a consequence not being sought directly through control
About The Foundation
We are a management consultancy working with all kinds of organisations to achieve customer-led success. This means tackling big organic growth challenges; growing faster, growing into new markets or fending off threats to growth by starting with what matters to customers and then making it work for the business as well.
The aim is to influence customer behaviour, but this is inherently tough. Why? Because people in any organisation naturally see the world from the inside-out, with colleagues close and customers distant, and lots of assumptions about how things work that aren't challenged.
We help clients look from the outside-in, re-connecting them with what customers really value (the problem they want to solve, not usually what the client sells), then finding new and better ways to create this value.
This means working both as expert advisors and facilitators. The issue with simply gathering outside-in information is that it lacks impact to get senior teams to tackle inconvenient truths in what customers want, and to believe their own organisation can be different.
By using ‘Immersion’, personal conversations with customers and leaders of organisations in other sectors who have tackled parts of their challenge, we help teams get around the natural and limiting inside-out beliefs that stand in their way. This helps them develop better answers for customers and new ways of achieving lasting success.
We answer three sizes of question:
Small – a new proposition or an improved customer experience
Medium-size – growing value per customer or improving retention (a sub-set of the former)
Large – creating customer-led business success, often by uncovering a true outward-looking purpose and the genuine belief needed for it to be acted on
Our clients include HSBC, JLR, O2, M&S and Ebay, with achievements including helping create Plan A at M&S, adding £100m of value to a Travelex travel money proposition, and giving Morrisons a competitive direction contributing to their return to growth.
Behind our work our most distinctive characteristic is our team and their outlook. Each individual is motivated to and experienced in crossing the border between the worlds of customers and business which often resist mixing well.
This link will take you to more information about us and our Forum events: http://www.the-foundation.com
Charlie Dawson (Founding Partner):
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