Tuesday, July 23, 2013

Bad News - When Bad News Is Good For Business

    "Sometimes, I think my most important job as a CEO is to listen for bad news. If you don't act on it, your people will eventually stop bringing bad news to your attention and that is the beginning of the end."

    - Bill Gates, former world richest and Microsoft founder

Someone should tell Gates that bad news has surrounded him.

In Silicon Valley, "IPO" has been replaced by "pivot" as the most popular and over used word. Pivoting is changing the direction or even the product a company offers when it becomes painfully apparent that the original concept isn't selling.

Some pivots are minor, such as retargeting to new segments. Others are major, like when I assisted one post-IPO company transition from being a hardware vendor into a software supplier.

Nearly every pivot is instigated by bad news. Something within the product-to-customer pipeline gets stuck, meeting friction or outright resistance. Sometimes the product is deficient. Other times competitors outmaneuvered you. Technologies may come to the fore that possess superior value. Most of the time reaction is required due to external forces, mainly the market telling you that your product is not exactly what they need.

Other times the stickiness originates from within.

Founders can be a stubborn lot. A VC I know is fond of asking founders seeking his money "Do you want to be rich or do you want to be king?" It is an open challenge to the hungry founders that being in utter control defeats the mutual goal of earning gigabucks. Yet founders - being the original visionary and engineer - do not like handing their baby over to others, and resist when bad news shows that the baby is ugly.

Marketing departments can also create pivot-worthy stickiness. Marketers are humans, despite what salesmen think. They are often wed to inaccurate or incomplete notions about their markets, campaigns and the messages they carefully and incorrectly composed. Testing remains repugnant to some marketers, social campaigns are detouring dollars from more traditional and effective promotions, and many marketers still think lead volume is more important than lead quality.

Yet the market remains the major source of bad news. The primary places where bad news occurs, but is often under reported include:

New competition: Some forms of competition appear out of nowhere. Not toe-to-toe product competitors but different ways of doing the same thing. That Oracle is now joining the SaaS surge after deriding it showcases new competition that changed the fundament of Oracle's market.

Whole product stalls: Your whole product definition has to agree with your target segments. Some companies lose focus on their target segment and start designing the wrong product. Occasionally segment needs actually change, leaving formerly good products wanting. The product no longer fits and it might be time to quit.

Uncertainty: Markets hesitate, be it from generally rotten economic conditions (such as the last five years) or anticipation of new offerings. The bad news is silent because customers are not making decisions at all. Even a lost sale provides usable information whereas quiet inaction does not.

Mega shifts: Markets change, as Gates is learning. The PC won't die, but nobody is buying one for grandma this Christmas. Entire slabs of the PC market are disappearing into the slab market. Mega shifts are easy to see in hindsight, but Microsoft should have recognized the mobile revolution tide the moment iPhones were first released.

Shy away not from bad news. The client I mentioned before was in the hardware business and had a huge IPO. But their market was changing rapidly and their business model was disappearing faster that congressional approval ratings. They had acquired and created some software assets and made the bold decision to pivot hard. Their leadership did not fear bad news, and neither should you. Profit instead from bad news because your competitors might not.

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