AI and machine learning have exploded onto the business scene in 2017. If you haven’t gotten an email asking you if you want to learn how IBM’s Watson can help your business, you will be soon. And we’re just getting started.
The bots are coming, and if you’re thinking your business is immune, I don’t think you’ll feel the same way by 2020.
What should you be doing in 2018 to prepare?
Many small companies are not going to have the budget needed to use AI. But if you’re in a small company, you should still learn about what it can do and how it can be used. By hearing how AI is being used in your sector, you can make your offerings better and your operations more efficient – even if you don’t spend a dollar on AI technology itself.
You should also figure out your company’s algorithms. AI works through algorithms – coded logic about how to interpret data. You may not have Big Data to work with, but you have algorithms operating in your company…like which customers are better to work with, what products help with what needs that a customer has, and which of your staff to assign to which types of projects.
Back in the old days, this was called Experience, or Tribal Knowledge. Now…we call it Algorithms.
Your algorithms will probably start simple – like which customers are better to work with. But that’s just the start. The real power comes when you think about branches that you can build to make the thinking more complex. For example, once you identify what services help with what needs, then you can identify if customers of one service are more likely to buy another service you offer. Where are the connections and patterns in your business?
Many of the small businesses I work with know these algorithms intuitively – they’re operating all the time in the heads of the staff who have been there more than 10 years. Often the first reaction I get when I bring up the idea of capturing the company’s algorithms is, “Oh, we don’t need to do that. We know that already…in our heads.”
Which is great…but right now, someone is working on coding into a computer the algorithms that are needed to run your type of business. It’s happening. Right now. Believe me.
And the need to document your algorithms will be much clearer – and more urgent – when your staff person is competing with a machine that costs less than a month of that person’s salary and doesn’t need health care. When that happens, you’re going to wish that you’d asked your staff to outline how they make the decisions that run your business. And that staff person is going to wish that they’d been thinking about how to build value on top of their knowledge, rather than clinging to the knowledge itself as the differentiator.
What do you do when knowledge and experience are no longer differentiators? What will the differentiators be? I have some guesses, that I’ll outline another time…
So, I don’t know how all of this will play out. I’m sure bots, at some point, will be able to do most of what we rely on workers to do now…and that there will be needs that bots can’t handle. But while we’re waiting for that to play out, you can use the thinking of AI designers to make your business better and be in better control of your destiny. And you can do that whether you can afford the actual AI technology or not.
Pretend that you’re designing your own bots, give them fun/interesting names (Watson! Alexa! Siri!), and have some interesting discussions with your Leadership Team about the algorithms driving your business.
Many of you reading this post are 10%ers. And there’s something in the back of your mind eating away at your conscience. You know there’s something not quite right about it, but you tell yourself that 10% has always served you well.
And you might be right. You’ve probably gotten along well enough with your 10%. Then again, you may feel like it no longer has the same effect that it used to. So let’s take a look at your 10% and see if it’s still serving you.
I’m inspired to write about 10% because I met with a guy last week who said, “It’s just what I’ve always done. I don’t really have a reason for it, and sometimes I wonder if it’s what I should be doing. But I’ve never known how else to do it.”
Later on, after our discussion, he said, “Yes, that’s what I want – that would help me, and it would help my team. They’ve always been a bit confused and defensive about the 10%.”
What am I talking about? Let me use his words, “We did a strategic plan back in 2008, but we’ve never updated it. It was helpful and we did some things because of it. But for the last 5 years, I’ve just said that we should grow by 10% next year. And that’s what I say at the start of each year. I kind of know that I could or should have more to my goal, but we’ve been OK just trying for that 10%.”
It’s something I’ve heard many times before. So, let’s look at the good, the bad, and the ugly of the “Let’s grow 10% next year” approach to strategic planning.
The good is that it’s an easy way to communicate that you want to grow, but not too much. It says, “Let’s get better at what we’re doing.” It’s also quick – most leaders who use 10% as a goal (I just can’t bring myself to call it a strategy!) need about 1 second to access their intuition and come up with that number. And it’s also good that most leaders who use 10% don’t enforce it – some years they’ll decline 1%, and others they’ll grow 20%, and both are received equally.
The bad is that 10% doesn’t tell anyone how to achieve 10% growth, and, since the person who used it likes a planning process that only takes 1 second, they usually won’t commit the time to strategy and planning to figure out how to get the 10%. And so, they just react to whatever the marketplace offers. That’s not good, but often times 10%ers are bailed out by a strong market, and so reacting is bad but OK.
Which brings us to the ugly, which arrives when a 10%er is managing a business in a market that is seeing substantial change. If that’s the situation, 10% is of no use, and in fact may be counter-productive. Because at the heart of 10% is “let’s change, but not more than we’re comfortable with.” And that can breed complacency that appears to be fine…until it’s too late for any small adjustments to work. And if the only goal you’ve ever had is 10% growth, you and your team are not going to be prepared when you need to lead your company outside your comfort zone.
So, if you’re a 10%er, you have a choice – to be passive or active. Either keep enjoying that comfortable feeling until you’re forced to do more…or lead your team to have a new set of discussions that develop your company’s ability to identify opportunities a little outside your comfort zone, go after them in smart ways, and stay ahead of the market.
Hammering a screw …
Baking a cake in your dishwasher…
Pedaling your car…
One of the most common ways that small business owners get stuck is to have the wrong mindset for a problem. This happens a lot when companies emerge from start-up and move into Stage 2 of their development.
What does it take to be successful as a start-up? A high-quality product or service, quick reflexes, responsiveness, experimentation, frugality.
But those same qualities work against you when your business moves to Stage 2. With the right mindset, you stay in control of new opportunities and problems; without the right mindset, you struggle and waste time with solutions that don’t work.
There are many ways that business is different in Stage 2. Let’s look at a few…
Focus on ROI, not cost. In Stage 1, it’s important to manage your costs so that you can get to a point of profitability. In Stage 2, it’s important to focus on your investment returnsand the best and fastest way that you can get results. Often times in Stage 2, the best answer – the one that will get you the best results – is not the cheapest. But many Stage 2 leaders can’t break the frugal mindset, and are stuck in a cycle of underinvestment that never gets them where they need to go.
Focus on markets, not customers. Success in Stage 1 is a built on one-to-one sales, and that intimate contact is important to win early adopters. In Stage 2, though, making sales customer-by-customer is not scalable. What’s needed is the ability to sell to a market. The change from sales-driven to marketing-driven is a big one, and if a Stage 2 leader thinks she can just do “more of the same,” she’ll never be able to scale the business beyond her ability to add good sales people. (And we all know how hard that is.)
Spend more time on strategy and communication. Stage 1 businesses are not simple – but Stage 2 businesses are much more complicated. In fact, as a business grows, the complexity grows exponentially – but many Stage 2 leaders are thinking that it’s only growing linearly. Because the business is more complicated, it needs more time invested in strategy (which is how you coordinate and direct all the different parts) and communication (which is how you align all the different parts). Many Stage 2 leaders think that the decisions they have to make are simpler than they actually are, and are stuck in a reactive mode because they don’t spend enough time thinking about their situation to develop (more complicated) action plans.
What can you do if you’re stuck because of your mindset?
- Honestly assess whether you’ve been as successful in Stage 2 as you were in Stage 1
- Find someone with experience in your situation, who can help you understand the right mindset
- Ask your team what frustrates them – they usually have a good sense of how well you are managing, communicating, and planning
- Get trained on management and strategy, which are going to be key to your success in Stage 2
Seeing this humorous office video on YouTube made me think about innovation. Being innovative isn’t just about being creative, though there is a lot of important overlap.
I’ve been working with 2 clients over the last 6 months to develop their innovation capabilities. Neither of them have trouble coming up with creative ideas – it’s the rest of the “innovation ecosystem” that they are working on.
Here are some key ideas that we’ve focused on in our work.
Improve market intelligence, earlier in the process. Stage 2 companies often struggle with diversifying into new markets, which is a common form of innovation at that stage. The struggle comes from 2 factors – a Stage 1 focus on sales as opposed to marketing, and a typically-unconscious Stage 1 reliance on deep experience with an initial market. In Stage 2, the shift to marketing, and to new markets in which the company does not have experience, is a significant challenge. The answer? Build up market analysis capabilities, and apply them early and often in the development process.
Foster open communication. My 2 clients both have issues around communication, but they are different. For one company, they need their communication to be more open – to have people know that they can say what’s on their mind without it being criticized or used against them. We’ve worked on this by having dedicated discussions about the need for open discussion – and simply modeling that in our meetings has started to build a more open environment. For the other company, they simply need more communication – within and among their departments. We’ve worked on that by having new daily “stand-ups” and monthly management-team meetings.
Upgrade portfolio management. One of the consistently weak areas that I see in Second Stage companies is their “portfolio management” process for discretionary investments, and especially for innovation projects. Portfolio management is complex – it involves matching up resource allocation, business strategy, market opportunity, and development progress. On an on-going basis. That’s hard! But in Stage 2 companies, as the investment sizes grow, companies realize huge ROI gains when they have a way to cut off their losers and double-down on their winners.
These ideas may even get your staff rowing their way through the office…
I wrote more about Stage 2 innovation in this previous post.
In the work that Phimation has done with second stage businesses, there are several principles at play when developing agility in a person or an organization.
Since the turn of the year, one area that I highlight in Stage 2 business training has come up repeatedly in my consulting work too – agility.