“Butterflies, for all their graces, are merely caterpillars who persevere.”Guillaume Apollinaire
In “Think & Grow Rich”, Napoleon Hill tells the story of R.U. Darby, one of the many caught by “gold fever” in the gold-rush days. Darby went west to dig and grow rich and, after weeks of labour, was rewarded by the discovery of the shining ore. He needed machinery to bring the ore to the surface. Quietly, he covered up the mine, retraced his footsteps to his home in Williamsburg, Maryland, and told his relatives and a few neighbours of the ‘strike’. They got the money for the needed machinery and had it shipped. He went back to work at the mine. The first car of ore was mined and sent to a smelter. The returns proved they had one of the richest mines in Colorado! A few more cars of that ore would clear the debts. Then would come the big killing in profits.
Down went the drills! Up went the hopes of Darby and Uncle! Then something happened. The vein of gold ore disappeared! They had come to the end of the rainbow, and the pot of gold was no longer there. They drilled on, desperately trying to pick up the vein again – all to no avail.
Finally, they decided to quit.
They sold the machinery to a junk man for a few hundred dollars and took the train back home. The junk man called in a mining engineer to look at the mine and calculate. The engineer said the project had failed because the owners were unfamiliar with “fault lines”.
Their calculations showed that the vein would be found ‘just three feet from where the Darbys had stopped drilling!’ That is precisely where it was found!
The junk man took millions of dollars in ore from the mine because he knew enough to seek expert counsel before giving up.
Napoleon Hill went on to say;
“Failure is a trickster with a keen sense of irony and cunning. It takes great delight in tripping one when success is almost within reach.”
Many Innovation projects, new products, services and even startups fail for a similar reason. Senior executives unfamiliar with the fault lines of innovation kill projects when they are just three feet from gold. Regarding corporate innovation, launching a new product or even searching for a new business model, incumbents must understand that they need dramatically different rules, tools, and cultures. They must embrace the idea of failing their way towards success, which requires runway and corporate patience.
“Guessing the right strategy at the outset isn’t nearly as important to success as conserving enough resources (or having the relationships with trusting backers or investors) so that new business initiatives get a second or third stab at getting it right. Those that run out of resources or credibility before they can iterate toward a viable strategy are the ones that fail.”– Clayton M. Christensen
Many of us have been there, working in an innovation role in a large organisation. We have an embryonic product or service. We know there is a market for it. The company slaps a timeline on us. “You have 12 months to make it profitable, or we kill it.” Twelve months feels like plenty of time, but if we balance this project with a day job, a 12-month runway is too short. Only those new product development projects that receive adequate resources stand a chance of survival; those starved of resources die on the vine.
According to our guest on The Innovation Show this week, Mark W. Johnson tells us, “successful new businesses typically revise their business models four times or so on the road to profitability”. While the mothership supports the new concept, leaders are impatient for a return on investment and dismiss small wins as a waste of resources (crushing the morale of the innovation team in the process).
Mature organisations must become comfortable with the initial failure symbiotic with innovation. It is through constant course correction that we uncover the correct course. As we have mentioned in the Clayton Christensen series, startups, investors, and incumbents should be “patient for growth (allow the market opportunity to unfold) but impatient for profit (validate the idea works)”.
Many of the world’s most successful organisations invested in innovations that created new markets or rode the waves of fledgeling trends. The trajectory of these firms would have been impossible to predict, considering their humble beginnings. Sony started selling faulty electric blankets. Kia began as a bicycle company. Samsung sold dried fish. One of my favourite stories of persistence against bleak odds comes from Honda’s entry into the US market, and it was an (ahem) bumpy ride. (This story is used as an example of an emergent strategy by Clayton Christensen in “The Innovator’s Dilemma” and as an exemplar of Discovery Driven Growth as coined by our friend Rita McGrath).
Honda – Running Out Of Runway
When we look at successful organisations, we often forget that that butterfly was once a struggling caterpillar, that is if it wasn’t crushed as a pupa.
Honda’s success in attacking the North American and European motorcycle markets has been cited as a superb example of clear strategic thinking coupled with aggressive and coherent execution. That picture is far from reality.
During Japan’s post-war reconstruction and poverty, Honda emerged as a supplier of small, agile motorised bicycles for deliveries in congested areas. Honda developed considerable expertise in designing small, efficient engines for these bikes. Its Japanese market sales grew from an initial annual volume of 1,200 units in 1949 to 285,000 units in 1959.
Eager to exploit low labour costs (at the time), Honda executives wanted to export motorbikes to America. Doing so almost killed Honda because there was no equivalent market for its popular Japanese “Supercub” delivery bike. Honda learned that Americans used motorcycles primarily for long-distance driving, in which size, power, and speed were the most highly valued product attributes. Accordingly, Honda engineers designed a fast, powerful motorcycle specifically for the American market, and in 1959 Honda dispatched three employees to Los Angeles to begin marketing efforts. To save living expenses, the three shared an apartment, and each brought with him a Supercub bike for cheap transportation around the city.
In the first few years, it sold very few bikes—compared to a Harley, Americans considered Honda a poor man’s motorcycle. Worse, Honda discovered that its bikes leaked oil when subjected to the long drives at high speeds typical in America. This was a real problem; Honda’s dealers in America could not repair such complicated issues. Honda had to spend what precious few resources it had in America to air-freight these faulty motorcycles back to Japan for repair. Despite the difficulties, Honda persisted even though it drained the U.S. team of its cash.
In addition to the large bikes it sold, Honda included some small delivery bikes in the initial shipment to Los Angeles. Known as the Super Cub, these “delivery bikes” differed greatly from American motorcycles. One weekend, Kihachiro Kawashima, the Honda executive in charge of the North American venture, decided to vent his frustrations by taking his Supercub into the hills east of Los Angeles. It helped: He felt better after zipping around in the dirt. A few weeks later, he sought relief dirt-biking again. Eventually, he invited his two colleagues to join him on their Supercubs. Their neighbours and others who saw them zipping around the hills began inquiring where they could buy those cute little bikes, and the trio obliged by specially ordering Supercub models for them from Japan. This private use of what became known as off-road dirt bikes continued for a couple of years. At one point, a Sears buyer tried to order Supercubs for the company’s outdoor power equipment departments. Still, Honda ignored the opportunity, preferring to focus on selling large, powerful, over-the-road cycles, a strategy that continued to be unsuccessful.
However, they realised that selling the smaller bikes kept Honda’s venture in America alive. No one had imagined that was how Honda’s entry into the U.S. market would play out. They had only planned to compete with the likes of Harley. But it was clear that a better opportunity had emerged. Ultimately, Honda’s management team recognized what had happened and concluded that Honda should embrace small bikes as their official strategy.
Priced at a quarter of the cost of a big Harley, the Super Cubs were sold not to classic motorcycle customers but to an entirely new group of users (non-consumers) that came to be called “off-road bikers.”
Honda’s experience in building a new motorcycle business in America highlights the process by which every strategy is formulated and subsequently evolves. As Professor Henry Mintzberg taught, options for your strategy spring from two very different sources. The first source is anticipated opportunities—the ones you can see and choose to pursue. In Honda’s case, it was the big-bike market in the United States. When you put a plan focused on these anticipated opportunities, you are pursuing a deliberate strategy. The second source of options is unanticipated—usually a cocktail of problems and opportunities that emerges while trying to implement the deliberate plan or strategy you have decided upon.
Like the Darbys in the Napolean Hill story, every company has to decide whether to stick with the original plan, modify it, or even replace it altogether as alternatives emerge.
The problem that mature organisations encounter is a common one. Once they have failed their way towards success, they can double down on exploiting their winning strategy. They forget that evolution keeps rumbling along, and so should a strategy process. This idea of permanent reinvention is essential for strategy, mindset, and an organisational vision, but as Bob Johansen told us in episode 251 of The Innovation Show…
“Leaders will need to be very clear about where they are going, but very flexible about how they get there.”Bob Johansen
Thanks for Reading