Wednesday, July 15, 2015

Discovery Trumps Planning, So Plan to Discover

Heard at an outdoor café along University Avenue in Palo Alto: “The strategy was clear. You can’t start as a platform. You start as an application and then, when the user base is large enough to get a network effect, you can pivot into a platform.” Knowing nods around the table; wisdom understood by the cognoscenti.

I was hunkered down with a Super Tuscan at the last sidewalk table, eavesdropping on the ideas circulating among the start-up crowd. This one is a lesson from my elective course at Stanford. Not to imply that I’m the headwaters. To the contrary, I’ve waded into a stream of ideas cascading around the valley, ideas that change with each new, unexpected development. Even the subject of the debate I overheard, Facebook’s platform strategy, is being discovered along the way. Originally, Facebook’s leaders saw it as a social network application. Only once Facebook grew large did the idea materialize to become a platform. So in 2007 the website’s APIs were opened to a world of developers who could independently create Facebook applications. Since then, a litany of reversals and changes have fueled debate among developers and users, as Facebook has tried to exert control over the platform. Some have criticized Facebook for this haphazard evolution. Turns out, that is how most strategies emerge: Discovery trumps planning.

For more evidence, go back and look at the strategic plan from years ago at your favorite successful company. There is a good chance that the company’s winning strategy won’t appear in that old plan. Examples abound: Trader Joe’s, a boutique specialty retailer in the U.S., once made its money selling cigarettes and ammunition – a far cry from the microwavable organic meals and fancy cheeses one can get there today. Honda Motors, famously, planned to sell big motorcycles – “choppers” – in the U.S., and ended up discovering the market for small “minibikes.” The list of examples goes on, including many entrepreneurial firms that discover a strategy better than the plan their founders once pitched.

So how do we deal with the fact that discovery trumps planning?

One common reaction is to pretend that the success was planned. Of course, after a discovery we naturally try to make sense of what we see working so well. And there is nothing wrong with retrospective rationalization; we do it all the time in business school “case studies” in an effort to learn. The problem is allowing retrospective rationalization to masquerade as a well-planned strategy, as in the young folks talking about Facebook (“The strategy was clear…”) Such a misunderstanding leads observers to think (wrongly) that great businesses result from a great plan.

Another bad reaction is to wax cynical, surmising that success really just comes down to luck. This conclusion denies the fact that some people are better than others at spotting the opportunities that (luckily) come along. There is much more to discovery than the flip of a coin. When plans produce unanticipated consequences, these look like failures.  If you think that leadership means waiting to get lucky, you’ll conclude from such failure that your luck has run out – a self-fulfilling prophecy.

But there is information in those unanticipated consequences for those who know to seek it out. Scott Cook, Intuit’s founder, coaches his people to “savor surprises” – to see deviations from plan as the fountainhead of opportunity. Seen this way, the strategic plan is just step one in the discovery process. Leaders that understand this truth do not pretend to know the solution in advance. Instead, they plan to discover.

A more academic treatment of this idea is in my book on the Red Queen.