Nowhere in the Harvard Business School roster of roughly 130 separate cour-ses is one that deals with paranoia as a cornerstone of executive leadership. But Ben Legg doesn’t walk through the doors of Adknowledge in the morning without it.
“From an industry perspective, we’re just paranoid about being made obsolete,” the company’s chief executive says.
“That’s the biggest thing we worry about. How can we have more data, better data, better algorithms, a better value proposition to advertisers, better payout to publishers—how can we keep innovating at the speed we’ve done? That’s what I lose sleep over, not the economy.”
Coming from a sector that just may confront change at a faster pace than any other, Legg was one of four thought leaders Ingram’s invited to assess factors that are either driving or hindering business success, and what corporate leaders and business owners should be doing today to reassert control over their organizations’ fates. The others were Paul Gorup, chief innovation officer at Cerner Corp.; Reggie Chandra, chief executive officer of Rhythm Engineering; and Michael Song, director of the Regnier Institute for Entrepreneurship and Innovation at the University of Missouri–Kansas City.
Collectively, their comments tell us the old maxim that a business must grow or die has been updated in a high-speed-information world: For many compan-ies, the imperative to grow is not a long-term proposition, but one that must be tended to every day.
That, Legg says, is why “you have to be paranoid. The reality is, there’s so much innovation, that if you think ‘I know everything, how every ad product works, what everyone does, what will make my advertisers happy.’ you’re kidding yourself. And even if you’re right today, you’ll be wrong tomorrow, because there’s so much change.”
And that change is by no means confined to his world of on-line marketing and advertising. The question, then, is one of control: What can you control, and what can’t you?
‘The Economy Stinks’
How many times have you heard that since 2007? And yet, as we’ve seen with Ingram’s annual lists of the fastest-growing companies in the Kansas City region, plenty of growth is taking place with certain companies in even the most challenged sectors. And with construction starting to get back on board, fresh signs of optimism are emerging for broader economic growth in 2014.
Business analysts for years now have been citing the massive amounts of cash sitting on the sidelines as companies wait for signs of improved conditions. That, says Cerner’s Gorup, is their first mistake.
“Our business never did disengage, in terms of health care,” he said. As proof of that, note Cerner’s continuing presence in Ingram’s list of the 100 fastest-growing companies in this region, despite the multi-billion-dollar revenue baseline that makes high growth percentages difficult.
To be fair, he notes, Cerner caught a break with the increased regulatory environment of recent years in its primary field of health-care IT. Health-care providers compelled to upgrade to electronic medical records have helped swell sales for several years, and that trend will continue for several more, Gorup says. “But to be honest, only two really big sectors have been growing over the past decade or 15 years—health care and energy.” Other cyclical sectors may be poised for growth now, he says, but current economic indicators, cash on the sidelines, the highest savings rate in years and the lowest debt rates in nearly half a century all bode well for improvements, he said.
So if any companies have been sitting things out, this might be a good time to get active. And that, says UMKC’s Song, means redefining what you can control in business and what you can’t.
“If all these regulations are beyond my control,” Song said, “I focus on getting closer to customers, figuring out what
their needs are, creating parts that will provide total solutions to customers. A winning company will increase solutions for customers, and help that customer make more money.”
Chandra, whose company has soared with introduction of an innovative approach to managing traffic-signalization systems, acknowledges the challenges posed by a changing regulatory environment. And while he remains bearish on where the markets are going, he’s bullish on his company, which has prospered through the down economy because his clients—governmental units—have had the money to spend.
His broader concern is the impact of regulation. “Even for us, regulation is painful, but there’s so much regulation now, and that’s creating more uncertainty.” In response, he’s had the staff re-assess spending needs. “We want to make sure we’re getting the biggest bang for our buck,” he said, “and we’re using management optimization, process optimization, trying do to more with less. But we are gearing up for growth.”
The Uncertainty Factor
Entrepreneurs, said Song, have a long, proud history of succeeding during tough times. That’s the essence of entrepreneurship. And experienced entrepreneurs, he said, see changes in the business cycle and regulatory environment, then make adjustments and surge ahead.
“The trouble is with new entrepreneur, the first-timer,” Song said. “For them, it’s very difficult to get anything started. Things keep changing, you have higher tax structures, more regulation and uncertainty, and they don’t have the money to deal with all that because it’s becoming more expensive to create a company. Many will say, ‘why bother to do this?’
It’s really killing first-time entrepreneurs.”
Gorup greets talk of uncertainty with a popular barnyard epithet. “That’s just part of the game,” he said. “The Vanderbilts and the Rockefellers and Morgans had it a lot easier in that regard, they could do whatever they wanted to do, but in some ways, it was harder, because the other guy could, too. There were not rules, and things got dirty.”
Still he says, while the 3-point shot in basketball or the off-sides call in soccer may have changed the games themselves, the success factors didn’t. “Regulation or taxation, it’s just part of the game, and everybody plays by the same rules.” We still have people that can build companies like Microsoft, Apple and Cerner, he said, and all are thriving despite changing the rules.
Legg, whose career included a stop at Coca-Cola, noted that it was a mature industry; when sales were down, one could argue
that the economy played a factor. “But we never blamed the economy,” he says, “It was always, ‘OK, what are humans drinking
now, what could they be drinking in the future? Where are they? When are they thirsty? How do we get a cold drink within arm’s reach of every thirsty consumer?’ You just take no prisoners.”
When to Act?
Many business owners who have done well to survive a tough set of economic conditions should take a hard look at their own operations, these leaders say. There are external, as well as internal metrics that can tell you whether the problem is a down economy—or, more critically, a flawed business model.
“One big signal is that if, in the same industry, your competitors are doing better, not worse, that is the best signal telling the executive that his model is broken,” says Song. “Second, when you see that a product or service is becoming obsolete—where everyone in the same industry has the same problem.”
So how to tell the difference? Song says the institute’s surveys of hundreds of business leaders suggest that, on average, they will wait slightly more than 2½ years before determining that might be amiss with their own model. That might not be fatal in a legacy sector, but it surely is in a tech-related field.
“We don’t talk about the economy when we talk about our strategy or our business plan; it’s sort of irrelevant,” says Legg. “We talk about what’s happening on Facebook, Twitter, YouTube, mobile phones, what’s happening with data, what’s happening with Google. That’s what affects us.”
Lots of tech companies have died, he noted, “but they’ve died because someone made them obsolete, not because of the economy.” So it’s important to know how you’re doing compared to direct competitors, compared to the sector overall—and compared to yourself, measuring your performance against past performance by days, weeks, months and years.
“We watch revenue every day,” Legg said. “The first thing I do every morning is refresh the dashboard to see what happened yesterday. If revenues went down yesterday, what happened? Things go wrong. A server could go down. That means you stop serving ads. If a server goes down for an hour, it’s not the end of the world, but if it goes down for 24 hours, our customer notices.”
On a week-to-week basis, or longer-term review, he said, “if you have a decline that’s not a one-day drop but something more systematic, the first thing we do is look for seasonality.” And if seasonal factors aren’t the source, you’ve got bigger problems.
Strategies for Growth
Companies looking for big growth need to think big, of course, but set the right foundation, these executives say—
not only to plan for growth, but also to plan for ways to avoid the pitfalls. “You don’t wait for it to slap you in the face, you have to anticipate or have contingencies, know the business indicators that are going to trigger it,” says Gorup. “Most successful businesses don’t wait for something to happen, they anticipate it happening, they plan for it happening.”
And rather than complaining about regulation, he said, you can grow by understanding its potential effects on competitors, and responding in kind. “Regulation drove some of our competitors out of the marketplace; they just said it was too rough of a place to play,” Gorup said. “That created huge opportunities for us.”
If you have a solid economic footings—a strong balance sheet, strong cash flow—you’re well-positioned. “In the end,” Gorup says, “growth will solve a lot of problems.”
Legg notes that Adknowledge, like many companies, has an annual retreat to set strategies, and a quarterly review to refine. But underpinning all of it is having the right team.
“If you want an organization that gets stuff done, hire people who get stuff done. I would say that’s No. 1. I would also say set people structured goals. If you set people easy goals, they might not innovate. If you set goals that can only be achieved through innovation, they have to innovate.”
Other suggestions? “Try stuff,” Legg says. “The amount of people who get analysis paralysis, especially in our industry—look, you can’t just try building a factory to see if it works; you might waste a billion dollars. But in most industries, especially ours, if you think something might work, put a smart person on it, get it done today.”
Drawing on a lecture he gives frequently, Song outlined seven essentials for long-term, strong growth, the kind that can produce billion-dollar companies:
• Create and sustain a breakthrough value proposition.
• Exploit high-growth market segments.
• Use marquee customers to drive revenue.
• Create alliances with other companies to enter new markets.
• Master exponential growth with additional product or service lines.
• Create a management team and culture that is entrepreneurial and innovative.
• Recruit experts to your board of directors.
“If you look at those seven essential steps, you have a higher probability of getting to become a multibillion-dollar company,” he said, “For entrepreneurs to achieve, they have to reach $1 million annual revenue quickly. That’s the scale you need to have any opportunity to grow to a billion-dollar company.”
The success factors that will get you there, he said, are focusing on innovation, creating an entrepreneurial culture, knowing current and future customer needs, providing total solutions for your customers, turning those customers into your best salespeople by sharing their stories, making it ever-easier for customers to get your product, and getting the pricing structure right.
One more thing, Chandra advises: Invest in yourself. Wealth managers caution against business owners putting too many nest eggs into one basket, but the way the Fed is pumping money into the markets, investing in financial instruments isn’t far removed from leading sheep to the slaughter at this point, he said.
“I invest in myself and my company,” he said. “You sell, you grow; you make a profit, you grow. Regardless of whatever regulations there are, we will survive, because we have that great American entrepreneurial spirit. We are able to survive.
“Otherwise, I would not be in business,” Chandra says.
“I would take my money and go live in a cave.”