White Space has to Produce Results

Motorola's on the bubble.  Today we learned the CEO is being replaced (read article here). 

It's easy to forget how bad things were at Motorola (see chart here) when Ed Zander took the helm.  The company had been laying off thousands, and most analysts were calling for more reductions.  Many people wondered if Motorola would survive.  But Ed Zander didn't cut a lot of jobs, instead he opened up a lot of White Space.  He altered where Motorola invested, and made many acquisitions in businesses keeping Motorola at the cutting edge of digital television, wireless data and wireless communications.  Ed Zander made a lot of Disruptions at Motorola, and he encouraged thinking to move the company forward - rather than trying to find past glory.  Some people forget that he was CEO of the Year in the business press 2005.

But he didn't do enough, fast enough, to leverage fast wins in mobile phones. His White Space project with Apple, for example, didn't move fast enough or hard enough to be a leader, and ROKR is barely known while iPhone is gadget-of-the-year.  Enterprise data applications from Symbol still aren't even identified with Motorola, despite being a Lotus Notes sort of application.  Even though all the Comcast Digital Video Recorders come from Motorola, too many people only know the name TiVo.  Lots of great White Space - but not enough results fast enough, as profits from RAZR evaporated.

No rest for the weary is never more true than in growth companies.  It's not important what you did last year, only what you're doing now.  Despite Disruptions and White Space, there weren't enough results. 

Now the press is talking about how the new CEO is from the telephone business - as if going back to previous markets will save Motorola.  Do analysts want to go back to thousands of lay-offs and cost reductions?  Or should the company go forward, continuing its path into new markets, new applications, new growth opportunities?

When RAZR profits fell, Carl Icahn came calling.  This grim reaper investor doesn't care about Motorola's long-term health.  He wants to suck cash out for himself.  If pulling the cash kills the company's long-term prospects he doesn't care.  He just wants a short-term payoff.  And he got Mr. Zander to blink (or maybe Motorola's Board).  New programs slowed, new rollouts slowed, market share efforts stopped as the organization turned to old approaches.  Faith in Disruptions and White Space evaporated as Defend & Extend practices returned.  And Mr. Zander's demise became predictable.

Mr. Zander turned around Motorola, lest we not forget.  But what will happen next? If the company forgets how it unleashed innovation and returned to growth, things could get a lot worse before getting better.  Our biggest regret has to be that Mr. Zander didn't do a better job of keeping his Board and investors aligned with his programs - and of not pushing his White Space teams to produce more results more quickly.  We can hope the new CEO will return to Disruptions and White Space rather than Defend & Extend practices which will push Motorola back to where it was before Ed Zander arrived.  Going back to the past may sound comforting, but success is all about the future.

Merciless Growth

There is no doubt that it's more fun running a business in the Rapids than one stuck in the Swamp.  But it's surely no walk in the park!  Even in high growth markets, competition is fierce and the demands for growth are merciless.  Recently Starbucks (see chart here) admitted to a 1% decline in store traffic (see article here).  The stock was punished, dropping to it's lowest price of the year.

Businesses in the Rapids have to grow, grow, grow.  There's no time to relax and count the money.  Even a very small hiccup scares the devil out of investors.  As it should, because a growth stall could mean a very quick trip from the Rapids to the Swamp.  Starbucks has felt this fear palpably.

It is inevitable that Starbucks store growth will slow.  Honestly, no matter how good the product or store ambiance, there is a limit to how many Starbucks we need.  If we view Starbucks as a one-trick pony, just out to replicate its Success Formula by opening store after store, then investors should be very wary of this company.  If Starbucks is Locked-in on selling coffee in its stores, that Success Formula has a half-life and there's plenty of reason for concern.

But, is that true about Starbucks?  Let's see, they've started adding sandwiches and other food to their stores - which could well lead to an increase in the average check size and continue growth even if number of stores and number of customers per store doesn't grow.  They don't sell coffee just in their stores, but also in grocery and other outlets.  They are still moving Starbucks liquor into more liquor retailers.  They still produce music, and are the Starbuck's agency just this year added Paul McCartney to the list of musicians represented.  And the movie production company that put out Akeelah and the Bee is still alive and kicking.  When we look at all these other businesses, we can see that Starbucks doesn't rely just on store foot traffic for individual coffee purchases to create growth.  They have a number of other businesses, many not just Defending & Extending Starbucks but actually White Space, as growth vehicles.

Starbucks does not do a good job of educating investors about all it does.  And its White Space does not get much attention.  That's too bad, because investment analysts like simple stories - and they oversimplify Starbucks when discussing the company's future.  Yes, a drop in foot traffic - even a mere 1% - is something to be concerned about.  But the important question is whether any of the other Starbucks initiatives are powerful enough to keep the company in the Rapids.  We need to know more about those programs before writing an epitaph for a company showing lots of Disruptions and White Space.

Now You're Talking!

Five newspaper giants are banding together to sell internet ads (see article here).  Now that's creating some White Space to help their businesses grow.  Good luck to Tribune, Gannett, Hearst, Media News Group and Cox.

Readers of this blog know I've been brutal on Tribune,, in particular for staying Locked-in on newspapers and focusing management on short-term metrics while implementing a leveraged buyout by a real estate developer.  That effort looks like a Defend & Extend action trying to salvage a troubled ship called "the newspaper", and shows little hope of success.  After all, journalism is about "news", not "paper", and efforts to salvage the oversized document thrown on my doorstep daily can't be viewed optimistically.  When readership is declining as people go elsewhere for news and entertainment, and advertiser spending is dropping at more than 10%/year, it's not hard to predict the future.

But this new venture is White Space for these companies.  Their individual web sites focused on displaying news.  Interesting for readers, but what's the business proposition?  These companies have been so Locked-in to old paper-based business practices they didn't know how to make money from their web sites.  But this venture is focusing on the business side of journalism - the ads.  And marrying advertisers with the content created and distributed by the journalists.  Focusing on the business aspects, and in the extremely high growth internet ad market (just look at Google and Yahoo! to recognize the growth in internet ad sales), this venture has the opportunity to create a new Success Formula these companies can use to turn around their companies - and save their journalistic heritage.

My only disappointment is I see no Disruption to existing Lock-ins.  It appears this venture is totally outside the traditional organizations.  The risk is that this venture learns how to sell ads, but the 5 investors don't Disrupt themselves in order to migrate away from old ways and toward the new market.  If they don't migrate, this venture may succeed but the traditional companies most likely won't.  So the White Space is good, but these companies need to go further to Disrupt their existing Lock-ins and create opportunities for rapid adaptation to the marketplace this joint venture develops.

Nonetheless, we have to be encouraged by this venture. Instead of just giving up the market to upstart Google they are finally starting to compete.  Let's hope the venture is given permission to ignore its investors' old Lock-ins and do whatever the market requires for success -- and let's hope the investors fund this sufficiently so it can grow and succeed.  This offers real hope for some very tired Success Formulas in traditional newspapers.

Surely you aren't surprised

Today GM (see chart here) announced one of the biggest losses in corporate history.  Believe it or not, GM announced a third quarter loss of $68.85 per share - double the value of the stock (read article here).

Surely you aren't surprised.  GM has sworn to its Lock-in.  The company has refused to set up White Space.  Leadership keeps saying it can somehow improve it's broken Success Formula and thusly turn the company around.  They've sold assets, including most of GMAC, to raise cash for keeping the broken Success Formula breathing - barely. 

But GM has been failing for more than 20 years.  Why would anyone think that changing its handling of employee health care costs would improve its competitiveness (a recent much-ballyhooed management action)?  Let's wake up and realize that GM has been going out of business for a very long time, it's just now that people are seeing the real risk.  We'd like to believe in the Myth of Perpetuity - that large companies will simply go on forever.  But that's not true.  Montgomery Wards, Polaroid and Wang are just a few examples of companies that were large and once profitable but that disappeared. 

When management refuses to accept that it's Success Formula is failing it dooms the organization.  If management refuses to create White Space, and use that White Space to develop new Success Formulas and migrate the organization, it assures failure.  EDS, Hughes and Saturn were all projects that had the opportunity to define a new, successful GM.  But GM dismantled these projects and sold assets to keep the old Success Formula on life support.

As investors, employees and suppliers if we are surprised it's our own fault.  Size is meaningless in today's information economy.  Companies can fail very fast when customers can move to new solutions with the click of a button.  GM may not declare bankruptcy in the next 2 years.  But if it does..... will you be surprised?