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ОглавлениеIn my Preface, I (Richard) talked about the importance of simplifying your business and your market. Why is this so desirable? Well, it turns out that it is the secret of creating a very large market, and of generating a very profitable business.
I first realized this when I was twenty-five and came across the Boston Consulting Group (BCG). I’d been to Wharton Business School, where I pursued an “individualized major,” which was a fancy name for studying everything that interested me, including cooperatives, which were in vogue at the time but taught me nothing about creating a super-profitable business. In truth, I was in a bit of a panic as to who would employ me when I graduated, because I had not specialized in a narrow skill, such as corporate finance or marketing. Moreover, although I knew a lot of arcane things about business, I knew nothing that was particularly useful. So imagine my relief when I met the recruiters at BCG, who said that they were looking for young and frankly wet-behind-the-ears people like me, because they could train us using their model of business success, which involved categorizing a client’s business as a star, a cash cow, a question mark or a dog, and then telling them what to do with it. I didn’t need to know anything myself; I just had to learn how to do that kind of analysis.
Apart from relief, though, what struck me was what a really peculiar business BCG itself was. Here it was, charging some of the top companies in America and around the world a fortune for advice that could be mass produced by a handful of smart but totally inexperienced, newly minted MBAs. I came to discover that the work was very valuable to companies as they could sell or close firms with little potential, while concentrating on the few really good businesses that they had — the star businesses. Yet, what impressed me the most was how BCG could grow like billy-o and also generate extremely high margins because its own “costs of production” were so low. The simple principles behind the Boston Box made it possible for BCG to train almost unemployable people like me and then trust us to turn out original and useful analysis in a very short period of time.
How could BCG do this? Because it simplified. It boiled down the libraries of worthy work on business strategy into one dinky little model that could be replicated for any business at relatively low cost, but which could be sold at a very high price, because it had great benefits for the customers — the large industrial corporations that were BCG’s market.
What were the benefits from the customer’s viewpoint? The Boston Box was something that was so simple that it could be grasped by everyone throughout an organization, and so useful that it told all the firm’s managers exactly what to do. It was easy to use, highly practical, elegant, and memorable. It could be used as a simplifying and unifying communication device throughout the client organization.
Is your business a star? Get your Star Principle score in sixty seconds at www.simplify.fm.
That set me thinking that perhaps the most successful companies were ones that were not only the market leaders in a high-growth market (the Star Principle), but also the most simple. In hard economic terms, simplifying has two great benefits:
it can lead to high growth in a business and market; and
it can do so at high margins, because simplifying can lead to low costs of production and high prices at the same time.
What a neat trick to pull!
Throughout my career, I had always been on the lookout for simple answers, but I had never applied the principle template to simplifying in the same systematic way as I had with the 80/20 and Star principles. Then, about five years ago, Greg pointed out this gap in my thinking. That was how we started the journey that culminated in the book you are holding in your hands.
The Secret Red Thread
Greg and I came to the conclusion that simplifying should lead to extraordinary success. But there was a big surprise in store for us. We decided that the best way to illustrate simplifying — and to identify how to simplify — would be to explore case studies of the most successful simplifiers of the past hundred years or so. This was easier than we expected. There were plenty of great case studies available to us, from both the distant and the very recent past.
Then the truth dawned on us — the real secret of simplifying: Nearly all of the great success stories of the twentieth century — right up to the present day — are stories of simplifying.
We discovered that simplifying not only should lead to great economic success — as the theories of strategy and economics suggest. By observing men and women who have changed not only the face of business but how we work and live, we also learned that clever and creative simplifying has and continues to do just that. It really does lead to extraordinary success, and it has a huge impact on society to boot.
If you make a list of the people who have been most successful in the last hundred years — or, if you prefer, the last fifty, twenty, ten or even five years — a large majority of them have been great simplifiers:
Henry Ford;
Allen Lane;
the McDonald Brothers and Ray Kroc;
Walt Disney;
Ingvar Kamprad;
Kihachiro Kawashima;
Bruce Henderson;
F. Kenneth Iverson;
Herb Kelleher;
Steve Jobs and Jony Ive;
Akio Morita;
Bill Bain;
James Dyson;
Mitt Romney;
Jeff Bezos;
Pierre Omidyar;
Larry Page and Sergey Brin;
Daniel Ek;
Joe Gebbia; and
Travis Kalanick and Garrett Camp.
The list goes on and on, and it continues to grow as new “unicorns” (private companies valued at more than a billion dollars) emerge every month.
All of these entrepreneurs simplified. Some of them were quite upfront about it. For instance, Henry Ford said of his revolutionary new car, the Model T, that
“… its most important feature was its simplicity . . . I thought it was up to me as the designer to make the car so completely simple that no one could fail to understand it. That works both ways and applies to everything. The less complex an article, the easier it is to make, the cheaper it may be sold, and therefore the greater number may be sold.”1
Ray Kroc wrote that the McDonald brothers had created
“… a radically different kind of operation, a restaurant stripped down to the minimum in service and menu, the prototype for legions of fast-food units that would later spread across the land . . . Of course, the simplicity of the procedure allowed the McDonalds to concentrate on quality in every step, and that was the trick. When I saw it working that day in 1954, I felt like some latter-day Newton who’d just had an Idaho potato caromed off his skull.”2
His first motto for McDonald’s, he said, “was KISS, which meant, Keep it simple, stupid.”
Steve Jobs described his whole approach as “very simple . . . the way we’re running the company, the product design, the advertising, it all comes down to this: Let’s make it simple. Really simple.”3 His biographer, Walter Isaacson, wrote that Jobs “made devices simpler by eliminating buttons, software simpler by eliminating features, and interfaces simpler by eliminating options. He attributed his love of simplicity to his Zen training.”4 Jony Ive, the creator of every Apple device from the iPod onwards, constantly harps on to anyone who will listen that his approach is to make products that are incredibly simple to use, even though the design process itself is extremely difficult. He stresses that it is hard to make something so simple. His task, he says, is “to solve incredibly complex problems and make their resolution appear inevitable and incredibly simple, so that you have no sense of how difficult this thing was.”5
Given these clues, Greg and I find it extraordinary that, so far as we can tell, nobody has previously realized that simplifying is the key to the kind of product and business innovation that creates incredibly high value for customers, society and shareholders alike. Simplifying has been an invisible red thread running through business history in our lifetime, and that of our parents and grandparents.
But now the secret is out! And this should enable tens of thousands of new innovators — perhaps you are one of them—to create extraordinary value for themselves and others. The process of intelligent innovation can be speeded up!
Not only that, Greg and I have made another discovery. All of these simplifiers — every single one — followed one of just two simplifying approaches. So if you want to know how to simplify, our answer is that you have a choice of two equally reliable and well-validated models.
The two simplifying strategies are quite different and nearly always incompatible. So, as we’ll show through multiple examples, if you want to simplify, you must choose just one of them. After some reflection and a few tests, which we will explain in detail later, it will become clear which of the two strategies is better suited to your venture, aspirations and market opportunity. You must then be uncompromising in executing the chosen strategy.
The strategies themselves are simple.
The first we call price-simplifying. This requires cutting the price of a product or service in half, or more. Sometimes, within a few years, prices may be cut by 90 percent. On the face of it, this might sound unrealistic. Yet we will show you numerous examples of when it has happened. The new — hugely cheaper — product or service is not identical to the old, expensive product, but it fulfills the same basic function. For example, no one would argue that traveling on a budget airline is as pleasant an experience as traveling on a full-service rival, but they still get you from A to B quickly and safely. And yet, as we will explain, the way to cut prices by 50–90 percent is usually not to provide an inferior product, but rather to organize the delivery of the product in a different way that allows much higher volume and greater efficiency . . . and often to co-opt the customers into doing some of the work!
In a nutshell, price-simplifying works because markets usually respond to dramatic price cuts by multiplying their size exponentially. If the price is halved, demand does not double. It increases fivefold, tenfold, a hundredfold, a thousandfold or more. If prices are reduced to a fifth or a tenth of what they were originally, demand may multiply by ten thousand or a hundred thousand times. Occasionally, the multiples may be measured in the millions — look at what McDonald’s did to the hamburger market.
Yet price-simplifying makes financial sense only if you are able to make the product simpler to make and thereby cut costs by at least half.
Of course, it is not easy to halve costs and prices, let alone drive them down to a tenth of what they were. But there is a reliable template for doing this. Even better, it works equally well in every industry and region of the world. Price-simplifying can involve radical redesign not only of a product but also of the way that the industry is organized — what is called in the jargon business system redesign. To stand a whole industry on its head is hard. Still, there is a reliable way to transform the industry, common to nearly all the examples in our research.
Video by Richard Koch: How price simplifiers exponentially spike demand, creating markets that did not exist before: www.simplify.fm.
Our term for the second strategy, which is very different but equally effective, is proposition-simplifying. This involves creating a product that is useful, appealing, and very easy to use, such as the iPad (or any other Apple device of the last decade), the Vespa scooter, the Google search engine or the Uber taxi app. Proposition-simplified products are also usually aesthetically pleasing.
Proposition-simplifying creates a large market that did not previously exist in the same form, or at all. For instance, there was no market for tablet computers before the iPad. Unlike price-simplifying, products that proposition-simplify do not involve a radical reduction in price; they may even command a price premium. Yet proposition-simplifying also multiplies value for money and therefore market size by making the product or service so much easier to use as well as more practical and/or beautiful. Proposition-simplifying works when the product becomes a joy to use.
As with price-simplifying, there is a common formula for how to proposition-simplify, and we will explain it to you.
If you are the impatient type — and impatience is a virtue in business — and want to jump straight to our conclusions, feel free to go directly to Part Four: The Rewards of Simplifying, which lays out the research and summarizes our most important findings. Then read the whole book later.
For the more patient, linear reader — and patience is also a virtue — we suggest starting at the beginning, with Part One: Great Simplifiers, which describes a dozen standout cases of successful simplifying.
Part Two: How to Simplify will help you decide which of the two simplifying strategies is better for you and your firm, and then provides a template for each.
Part Three — provocatively titled Save the Dinosaurs? — examines the threat to established market leaders from simplifiers and how leading firms can stay on top. For an interactive guide to simplifying and how it can help established businesses, visit www.SIMPLIFYforCEOs.com.
Part Four: The Rewards of Simplifying looks at the financial rewards that have been gained by simplifiers in their respective fields, as examined independently of the two authors by an elite firm of strategy consultants. OC&C selected and analyzed twelve cases, six of each type of simplifying. Greg and I then explain why these companies have been so successful and how the case studies resemble — or contrast with — each other.
Visit www.simplify.fm and www.SIMPLIFYforCEOs.com for more online tools.
