How to Build Your Business 2.0

[Photograph : Origami by Julien Sister]

In my previous column, I spoke of how behaving like an entrepreneur is essential to personal leadership. Now let's talk about Indian firms. More than anything, today they need to foster a culture of entrepreneurship and innovation. It is a structural imperative.

The Indian market is going through growth at warp-speed. Sectors that have hardly had a chance to mature and evolve are being hit by a wave of innovative firms. Take retail as an example.

Shopper's Stop and Big Bazaar have not had the time to evolve into multibillion-dollar retail behemoths with large footprints - they have been stopped short in their tracks by the explosive growth of online players like Flipkart and BigBasket. Most brick and mortar retail and grocery chains are yet to turn profits; chances that they ever will look even slimmer today. This, when less than two percent of the country is shopping online.

This trail of disruption will follow in sector after sector. Darwin’s theory may not hold true here - today's fittest companies may not survive. A new species of firms is about to rout them - startups that are innovating away into the core of older business models. Indian businesses are skipping an entire generation of evolution. Indian consumers did that - we jumped from wired phones to cellphones, bypassing the pagers. We never saw TV guides and coupon books here and went straight to electronic programme guides and online coupons.

Unless your business is protected by regulation, licences, strong intellectual property (IP) or a brand, beware, there is a startup somewhere waiting to eat your lunch.

And they will do it in three ways:

1. Disruption: They will use technology to do what you do. They will do it cheaper and faster. They will do it with fewer people and touch points. They will reach out and engage customers without the intermediaries you built up in your chain. They will take the data they gather about consumers and use it ruthlessly to sell more. They will make consumers ambassadors for their brands, while you are still clearing media plans.

Retailers thought distribution reach and the square feet they controlled was a big advantage. In one stroke, online retailers proved otherwise. Hospitals will soon realize that a lot of care and diagnostics will move into homes. Fast food brands will find out their competitor is not the outlet across the food-court, but virtually every restaurant in your neighbourhood that delivers food at the press of a button.

2. Dissection: They will find that little gap you left in your offering and dig into it. They will strip bare each element of your value chain, prod and question it, until they re-invent it. They will innovate on the business model - if you sell something, they will find a way to rent it. They will create a second-hand market for your own products. They will buy up your competitors' spare capacity and get products made cheaper. They will pitch their private labels against the brands you've built over decades. They will commoditize your business and deconstruct your bundle of benefits and throw away the irrelevant ones and craft a new set that sells harder.

Worse still, they will create a marketplace where you and your competitors are put on an equal footing, making it harder for you to communicate your differentiators and put power in the hands of the consumers. You may still win, but you need to be ready to fight harder

3. Diversion: They will create entirely new ways for your consumers to achieve their goals. This is the most dangerous thing that can happen to your business; it can sideline your offering and divert consumption. I won't discuss what happened to Kodak, Blackberry, Nokia and Blockbuster, but as an example, if you are building ATMs today when every Indian, sooner or later, will use their smartphone to transact, you should be worried.

Sure, there are several case studies of Western companies that have adapted and thrived. But there is a vital difference: they play in large and deep markets, which have remained stable for long periods. That gave them some time to adapt. They also have a cadre of experienced managers who learnt to be flexible when they got baptised by fire during the many downturns. 

In my opinion, we in India have it tougher. Our markets have just started deepening. Our firms are much smaller and younger than their counterparts in the West. Our middle managers are younger too and most haven't seen more than one slowdown. Plus, we have a massive leadership talent crisis - we have elevated young professionals with just a few years under their belt into positions of decision-making.

More significantly, we have built our businesses to overcome the huge transaction costs that our economy imposes. Result: we have created unwieldy organizations where technology plays a supporting role, rather than being a strategic asset.

The new Indian consumer psyche is not helping either. Loyalty has been replaced by a thirst for novelty; they are ready to jump on this new app-driven, technology-led bandwagon with the lure of the buy-one, get-one offers. 

This makes it harder for Indian firms to adapt. Last week, a few large retailers announced they will retaliate and launch their own integrated online sites - isn't it just too little and too late? If your entire team wakes up in the morning thinking about how to put goods onto shelves, their DNA won't permit them to think about the consumer who clicks on an app and expects delivery at home the next day. The twain' just don't meet and that's where these half-baked internal 'task-force' initiatives die.

Here's a quick survey: all the well-known retailers in India are present on the web. How many times have you actually bought from them? Are you confident that they will deliver in a day? Do they make you feel that you had a choice of an entire range of products? The answer is probably no. But do they see it? 

I have used retail and e-commerce only as an illustration, because it is playing out in front of our eyes today. Every product company will be forced to adapt to the new way consumers discover products and services. This wave of disruption is about to hit services and businesses too. It will hit doctors, hospitals, food service chains and home services. In fact, there are two waves coming at businesses. One if hitting firms that deal with consumers. The other is hitting the business-to-business (B2B) segment, especially the ones that merely intermediate transactions (banking anyone?)

Net-net, we have shallower markets, smaller firms combined with massive shifts in consumer demographics, purchasing power, consumption habits and aspirations. Add to this the billions of dollars flowing into mobile and consumer Internet businesses and we have a recipe for a perfect storm.

[Photograph : Desk by Damien Zaleski]

So ask yourself: is that nice little Excel sheet with my five-year business plan relevant anymore? How do I adapt, how do I change, how do I give birth to version 2.0 of my business? It’s the question facing every mid-size company and conglomerate today. 

I have some thought-starters for you from my one-and-a-half decades of experience in the media business. Leading a media business is like running on shifting sands; every day is a new day, new show, new movie and you go to battle only with ideas and execution. All else is the same. The hit movies and shows are not shot with different cameras; they simply take birth as different ideas. But the lessons may be relevant. 

[Photograph: Cameraman by Leeroy]

Lesson #1. Know that it is an unequal war. Denial kills 

This idea that a task force carved from your team will help you fight the upcoming battle is an insane one. Drop it. Doing a few fist-thumping meetings won't change the DNA of your company. The off-sites won't help. You need a new DNA. Business 2.0 is a different animal that requires different skill sets, teams and approaches.

You need a new DNA. Business 2.0 is a different animal that requires different skill sets, teams and approaches

You have to believe a simple truth: if technology can lubricate or eliminate an activity or a function, it will.

So for starters, you avow to use technology as a strategic asset to help you reach your customers and to conduct your internal processes faster and better. 

When I started creating the online avatar of CNBC-TV18 in 2001, I realized that a website (moneycontrol.com) needed a different DNA. In the online space, content is a layer on technology and not the other way round. Your content reaches people because you’ve used technology to engage them. We did not make Moneycontrol a sub-set or an adjunct of the TV service, but gave it a life of its own. A TV channel's DNA would not have allowed the website to flourish and there was no way that the channel could have fought the online war, since it was fighting its own - in the TV business. In just four years, Moneycontrol started commanding a size of audience that would rival CNBC-TV18's. That seeded the Internet businesses at Network18 and we invested in some of the largest destinations like bookmyshow.com, yatra.com and homeshop18.com.

Retailers launching their online avatars need to think: is just creating a website enough, or do they need an entirely new way to use technology to engage with their consumers and keep them coming back for more?

The Takeaway: If your future requires a new DNA, don't deny it. 

#2. Separate from the core. Create a labour room

The team at your core business should be focused on maintaining order, on delivering consistently - that’s what the market is paying them for. They are not the folks who should be in charge of changing the game. 

To change the game you need a separate team, with its own culture. The operating ethos of building out a new business is different from the maintenance mindset that you need at the core - you cannot incubate anything game-changing in your current structure. So cut the cord and let go. 

To change the game you need a separate team, with its own culture

Alibaba's Jack Ma (I met him when we set up a Network18 - Alibaba alliance back in 2008) said that he took seven of his best people from Alibaba and sent them with $50,000 to his old house from where he had started Alibaba and asked them to create a marketplace that would rival eBay in China. The result was Taobao and Tmall, the world's largest online marketplace. He did it again when he launch Alipay. He created a labour room to give birth to new businesses. 

The Takeaway: Ring fence the team, it will pay back!

Lesson #3. Find the entrepreneurs

Sure you can send in the managers, who will develop the plans and show you the blueprints, and then what. Giving birth to a new business needs passion and purpose.

You need to identify the intrapreneurs from within or find an entrepreneurial leader from outside. Find intrapreneurs who can inspire people to join them and have the necessary internal influence to pull resources from within. Don't give the task to someone who doesn't display these traits but is simply good at the job or today carries a fancy designation. Managers are not cut out for this. Don't force them. 

You need people who are willing to put their career and reputation on the line. 

I have often faced this difficult choice when we had to launch new channels at Network18 - the pressures are intense to promote a manager from within. But each time one decided to promote from within and made a convenient choice, it turned out to be a disaster. So one learnt the lesson: unless you have an extraordinary candidate within the firm, find someone from outside.

My first startup assignment was with Vineet Nayar at HCL Comnet, a company that we created within the HCL Group to hit the data-communications market (HCL then was primarily a personal computer/server hardware company). It could have very well been an adjunct, but a bunch of us came together with nothing but a cheque for the seed amount and office space and built out a business without regard to the mothership. It worked and Vineet went on to lead HCL Technologies to become one of India's most celebrated IT stories and HCL Comnet is a billion dollar business today. 

Choose the passionate over the smartest, and empower them to hire the smart ones.

The Takeaway: Choose the passionate over the smartest, and empower them to hire the smart ones.

Lesson #4. Purpose and pride

You are sending out a guerrilla team on a mission, not a few managers on a task. People with passion and purpose are the key to creating something new. The rest is just resources and process. 

Another thing that drives people is belief and commitment. Make a visible and public commitment to the new idea. Make it a matter of pride for the team - responsibility for success is no longer diffused, it is theirs. 

 Make a visible and public commitment to the new idea. Make it a matter of pride for the team.

A public commitment will ensure they are driven and also gives a signal to the rest of the organization that they need to remove the speed breakers in the path of these guerrillas.

When we wanted to launch Forbes India magazine, we found Indrajit Gupta and Charles Assisi, who were passionate and single-minded about creating a great product. They were willing to fight the fight. The purpose was to not launch just another business magazine, but to capture mindshare of the business community immediately. That passion came through in a winning product.  

The Takeaway: Drive people with purpose, not process. 

Lesson #5. Lean, built-for-purpose structures

Breakthrough teams will be successful only if anyone's thinking does not shackle them, have any turfs to protect or legacy to worry about. It's not their job to protect the current business model. Free them to ignore what you have built; free them to focus on what the market needs. 

Breakthrough teams will be successful only if anyone's thinking does not shackle them

Let the team decide how to build it. Don't impose structure, compensation, don't try and equalise things. Your group human resources head will pull his hair; let him. His job is to maintain order, but you need a team that will fight and win a war.

So each division at Network18 - news, entertainment, kids, youth, consumer internet, home shopping, print and transaction services - was given its own resources, and one sat with each leader and team to design an organization that fitted the war they were fighting. There was no recourse to headquarters on anything. You made a plan; you asked for the ammunition you needed and you chose the war. 

When we were preparing to launch the Colors channel, it was going into battle of a different proportion. It sounded like a hare-brained idea. Viacom18 was an ailing Rs.100 crore group company trying to give birth to a Rs.1,000 crore gorilla. The core team had never handled this scale of investment or risk. Success or failure would have come later, but we had to cast the dice. I had a great team in Rajesh Kamat and Ashvini Yardi. We jettisoned them out into a separate office and we built out a new team to take on the big networks. It worked - they had a public commitment, had their own team and built their own organization to fight the triumvirate of Star, Zee and Sony, and won. 

The Takeaway: Manage the risk, not the business process. 

Lesson #6. Self-disrupt or self-destruct

If you don’t become your own biggest critic, you are in trouble. Examine your business - every touch point, every activity and see whether it is needed. Whittle it down to see whether it is a source of competitive advantage not. Think about every bit of fat you have built up, how many fiefdoms of corporate managers are causing a 'coordination overload' which makes it tough to move and flex your firm's muscles. Act like a patient reading his test reports, and then commit to a plan to get back to health.

And talk to your people.

There is not a single failed company in the world where the employees did not know exactly what was going wrong. Everyone does - they just don't dare tell the captain. You need to get your team to speak up. Every firm should have a 'no bulls**t room' where employees can freely speak up and debate why something is being done the way it is. Of course, you may want to call it the 'innovation room' - as long you make sure you are connected with reality. 

There is not a single failed company in the world where the employees did not know exactly what was going wrong

A lot of people in a lot of companies do a lot of work that makes absolutely no difference to the outcomes. People are asked to make reports that no one reads and no one takes action on. Year after year processes are added on till it resembles a small government. Well, do this reality check and your team will tell you which processes are silly and are wasting the firm's energy. Harness their instincts and you will be rewarded. 

The Takeaway: Open your eyes to your own faults.

Lesson #7. Be the cheerleader

It’s a small point, but will make the difference whether your team thinks innovation is a job or is their calling. 

Ownership drives people to deliver beyond the call of duty and any firm is only as good as the team. You have to genuinely believe that the team owns the project. You give them the canvas and the paints and brushes, but the painting is their own. And you are there to applaud them and be there when they are falling, to give them confidence and support. That's the perfect chief executive - one who can empower and inspire people better than him to do their best. 

Ownership drives people to deliver beyond the call of duty and any firm is only as good as the team

The Takeaway: Celebrate their success, and always know it’s their baby. Your role is merely to be the midwife. 

[An abridged version of this article was concurrently published in Mint]