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Strategic Inflection Point
Strategic inflection point as I define it is something in the external environment that changes the assumptions upon which a business is based. It’s often technology but it doesn’t have to be. It could be a change in social norms. It could be a change in a company’s reputation. But the reason it’s so important to see these things is that we all develop a view of the world and our view of the world is really based on the assumptions that may have been true at one point. But those assumptions guide what we think is going to drive outcomes in our business. When something happens that changes those assumptions all of a sudden it’s as though our radar was off, you know. We don’t really see what’s going on in truth. And the longer an inflection point goes the more wide the gap is between our current understanding of what’s happening and what’s actually happening.
Now the reason for spotting them early is firstly, obviously if they’re going to change your assumptions you don’t want to let that gap persist for too long. But secondly, if you get it right it can take your business to new heights. If you get it wrong it can be very destabilizing. And we’ve seen so many examples of companies that everybody thought were at the top of their game and within a couple of short years were just out of business or irrelevant or had to dramatically change what they were doing. Blackberry comes to mind in the handset business. They’re still there. I mean they’re still somewhat relevant but as the driving force in that sector, they are no longer really in charge of their own fate. And that’s what happens when you get an inflection point wrong.
Recognizing a Market Shift: Adobe’s Big Bet on Cloud-Based Services
One of my favorite examples and I’ll give you a couple of companies that positioned themselves appropriate to see an inflection point. And I should also mention this isn’t a case of being prescient or making predictions. It’s a case of taking early investments so that when something changes you’re there and you’re aware of it. And typically these are at the edges of your environment. So, one example of a company that was pretty courageous in how they went about this was Adobe and Adobe picked up on this notion that we were all changing our behavior in terms of how we consume software in particular. We were going from a world where everybody bought shrink-wrapped software and upgraded every couple of years to a world where people kind of paid-for software as you need it. So the software as a service model.
And Adobe made the incredibly bold decision to shift from the one business model to the other. This was not easy and their customers didn’t like it either. I mean 5,000 of Adobe’s customers signed a change.org petition saying please don’t do this to us because they really didn’t like the idea of the new model. But as we see now that turned out to be pretty smart because that opened the door to all kinds of new customers for Adobe. So you can be an Adobe customer now for $9 a month and it’s very inexpensive.
Some people call that pivot so some of my colleagues over at Accenture actually call Pivot to the Future. It’s a big book that they’ve just written which I think is pretty smart. What they’re looking at is as a company how do you take advantage of trapped value where there’s something you could be doing that adds more value to your customers or that allows your customers to respond in a way competitors really can’t match. So if you think about companies that have fundamentally changed their business model this is hard. This is really not easy. So when Adobe went from selling shrink-wrapped boxed software they had one set of key metrics, one set of ways of rewarding people, one set of things that drove success.
When you switch to selling software as a service now you’ve got a whole different set of metrics. And, in fact, their CFO who I give enormous credit to spent months basically training Adobe’s analysts in how they should be looking at this different business model. He said look, you’ve got to understand we’re going from a world where we get all the money upfront and that’s our income for 7 to 12 months versus a world where we’re going to get little bits of income every month. And what you should be looking at is things like how many users stay with us and what’s monthly recurring revenue. They did this long before this became widely understood among the analyst community. And I think they did that because it’s so hard for people to reconsider what their key metrics are when you’ve gone through one of these big inflection points.
Anticipating a Market Shift: Nike’s Small, Cumulative Bets on Direct-to-Consumer Sales
I am pretty skeptical of anybody that claims they can predict the future and for a couple of reasons. You can make super-smart, very intelligent decisions and still have a bad outcome. You can make horrific, idiotic, stupid decisions and still have a good outcome because that’s how unpredictable things are. So I think there is a big distinction between forecasting and what I’m talking about here which is picking up weak signals, opening your mind to different possibilities and having the foresight to say hey, maybe that’s worth putting a small bet or a small investment or maybe it’s worth going to that meeting or doing that experiment.
Another company that I think has been slowly and carefully taking advantage of an inflection point is Nike and Nike started what we today call the direct-to-consumer or D2C market years and years ago when they first started partnering with technology companies like Apple. You remember the Nike+ Plus iPod campaign that ran years and years ago. Well, that was really a first baby step toward what we now realize is a revolution in the way consumers are interacting with retailers.
And today we talk a lot about companies like Bonobos and Dollar Shave Club and Harry’s. But Nike really but ahead of that curve in a big way but they did it slowly and carefully. Today about 29 percent of all of Nike sales go through their direct-to-consumer channels.
It’s almost impossible to predict what the future holds. Even very smart, very educated people miss things that are important in the long run. With strategic inflection points, however, what I think you can do is make some reasonable assumptions about what are possible futures. And I think it’s that creation of diversity in terms of what you’re thinking might happen or could happen, that’s where I think a lot of the creativity comes in when you’re trying to see around the corners.