system two

system two
start-up thinking in the enterprise

Friday, 16 April 2010

Size....


As a business you are more likely to survive – the smaller you are as an organisation. On the face of it – ridiculous – but true.

For what passes as a career (that word - so prescriptive and dull – a career – it even shares half of cancers’ letters….) I've worked in businesses’ who are getting hurt by the online world.

My learning’s.....big businesses faced with this “threat” can't change. No…I’d go further - they “won't” change. In fact in the case of EMI I think they’d rather die than change.

I’m picking on EMI because I have first hand experience of the business (I have an email relationship with Guy Hands - I sent him a book – it’s a long story) but we could just as easily substitute NewsCorp, Palm, AA, Travis Perkins, NASA, civil service, NHS……

In a recent conference call with his senior management team I discovered their strategy was….

1.    To make their packaging better so people bought more CDs
2.    To make older people buy more music
3.    To make sure different formats were introduced

13 years since Napster. 13 years since a college student with zero resources fundamentally altered their business model - and nothing - and I mean - nothing has changed.

Why is a business, now all but bankrupt, which for so long has been watching the paint, on the writing on the wall, slowly dry, still adamantly refusing to accept reality and change?

If Guy Hands presented his shareholders with a plan to use his UPS (discovering and marketing music) - to fire everyone except the A&R teams, close the flash offices, make music free and generate revenue off the merch and tour income (which we know has been the solution for 12 and a half years – see Live Nation’s shareprice v. EMI’s for more info.) – he would probably be given the green light.

But he can't - and he won't.

Why?

Because at a fundamental level human nature - anger, fear and ignorance - breed a strong resistance to change. But that's not the whole story. This intransigence is reinforced, like steel in concrete - at a practical level - by the size of his organisation.

Even if Guy Hands bought the plan – he knows the people on my conference call - and those embedded within the business - can’t change as a group.

“If it was down to me…..”

Human nature doesn't truly explain this suicide, because of course there are plenty of people within EMI (usually at a junior level, and usually under 25) who “get it”. How is it that these few are not listened to?

Size.

Sean Fanning (Napster) injected a lethal, long acting poison into the music industry's business model because he was small. Fanning had no overhead. He needed no committee to approve his work. He had no legacy CRM system which prevented him from telling all his mates about it. There were no politics between him and a hundred other people to kill the idea (for my first meetings with Terra Firma we couldn’t meet at EMI’s offices in West London because the TF people weren’t sure we’d be welcome….). His idea lived, because there weren’t 100 other people around willing to kill it, for all the weird and wonderful reasons we humans tell ourselves are legitimate at the time.

Size is why Zappos created value so quickly. Size is the biggest single threat to google and it knows it. It is why it gives its employees time to work on their own. To try and mimick the conditions in which the original business was created.

Online then David really is stronger than Goliath - and yet the notion goes against all evolutionary logic. It is completely counter intuitive.

It is in no way an original thought. Gladwell popularised the notion of a finite number of people within an organisational hub and I’m sure there is psychological work stretching back many decades on which he built his thesis. Plenty have made the point.

What is so extraordinary to me as I work with businesses now, 13 years later, is that it is still happening. Surely someone properly bright, someone with a couple of MBAs who speaks 4 languages and owns an expensive suit has, at some point, taken the CEO aside and had a chat?

What is even more scary is that this is happening in so many “traditional” businesses, businesses on which so many of us depend for our livelyhoods and pensions. Want a possible cause of the next financial crisis? Step up the old world meeting the new….

Massive household names, corporations which you just couldn’t even consider going broke, run by intelligent resourceful people, cant move. Its like they’re in one of those dreams where you wanna…..run……but……you…...just….can’t…..get…..any…..where

The fact bears repeating because of how amazing it is!

As a business you are making your survival exponentially less likely with every new employee you take on.

Its crazy. But its true.

This from Seth Godin here