Be a 10x entrepreneur like Alan Turing

From Nikola Tesla, to Steve Jobs to Elon Musk, entrepreneurs’ vision and endeavour push civilisation forward. They are the driving force of human evolution, the vanguard of innovation leading us into the future. Innovators are not limited to those who run a business as entrepreneurs, an innovator is anybody who is consciously building the future that has an impact on society.

To create something truly original requires a deep sense of courage and vision. The interesting paradox here is that often those who invent new things also have a healthy disrespect for what has already been achieved. They use the past not as a boundary, but as the frontier upon which to innovate.

In this sense, those seeking to truly innovate find reassurance in the discomfort of originality, as those who strive to create new things are quickly confronted by the stark reality that we live in a world that finds comfort in doing what is tried and tested. The battle against conventional wisdom, therefore, becomes the innovator’s greatest encounter.

One innovator who was certainly confronted by conventional wisdom was Alan Turing. As an academic, Turing delivered a paper in 1936, On Computable Numbers, with an Application to the Entscheidungsproblem, in which he presented the notion of a universal machine capable of computing anything that is computable. Turing’s inventions would go on to be called ‘Turing Machines’, the blue print for today’s computers.

After receiving his PhD from Princeton in 1938, Turing returned to Cambridge, and then took a position with the Government Code and Cypher School, a code-breaking organisation, the forerunner of GCHQ. During World War II, Turing was a leading participant in wartime code-breaking at Bletchley Park where he made major advances in the field of cryptanalysis, including specifying the bombe, an electromechanical device used to decipher German Enigma encrypted signals.

Turing’s contributions to the code-breaking process didn’t stop there. He also wrote two papers about mathematical approaches to code-breaking, which became such important assets that GCHQ waited until April 2012 to release them publically.

In the aftermath of WWII victory, Turing arrived in Manchester with an even bigger task in mind – development of his ‘Turing Machines’. It would be a task he left unfinished, publically humiliated and destroyed by the revelation of his sexuality and prosecution for indecency.

Turing held senior positions in the mathematics and the computing faculties at the University of Manchester in the late 1940s. He first addressed the issue of artificial intelligence and proposed an experiment known as the ‘Turing Test’ – an effort to create an intelligence design standard for the tech industry. Over the subsequent decades, the test has significantly influenced debates over artificial intelligence.

At Manchester, Turing made highly significant contributions to the emerging field of computing, including the Manchester Mark 1, one of the first recognisable modern computers. However, despite his soaring intellect, if tragedy requires the inventor to be undone by a fundamental flaw, it may have been Turing’s autism that brought about his fall.

Turing was incapable of speaking anything but the plain truth where a lie might be less hurtful. A fateful police interview in which Turing, having arrived to report a robbery, haplessly incriminates himself with the admission that he had been having sex with a man, was fateful.

Consequently, Turing lost his job, and was given experimental ‘chemical castration’ in 1952, after being convicted for homosexual activity. His criminal record resulted in the loss of his security clearance and meant he was no longer able to work for GCHQ.

Turing died on June 7, 1954. Following a post-mortem, it was determined that the cause of death was cyanide poisoning. An apple with a single bite taken from it was found next to the body The autopsy reported that four ounces of fluid which smelled strongly of bitter almonds, as does a solution of cyanide was found in the stomach. Trace smell of bitter almonds was also reported in vital organs. The autopsy concluded that the cause of death was asphyxia due to cyanide poisoning and ruled a suicide.

Turing’s death may have been an accident, the apple was never tested for cyanide, nothing in the accounts of Turing’s last days suggested he was suicidal and Turing had cyanide in his house for chemical experiments he conducted in his spare room.

Acknowledged as founding father of the discipline of British computer science, he posthumously received an apology on behalf of the British Government, for prosecuting him as a homosexual and recognition of the appalling way he was treated. Turing was subsequently given a rare Royal pardon almost 60 years after he committed suicide.

Turing’s scientific contributions are in line with many of history’s greats. It’s also easy to recognise many of Turing’s personality traits in today’s tech entrepreneurs who succeeded him. All are great dreamers, certainly, but they also possessed a tenacious and sometimes intransigent character with regards the realisation of their vision.

Turing’s is a parable of radical innovation that goes beyond incremental advances in search of great opportunities that have the potential to upset the status quo, and open up a nexus of possibilities for society. It is what investor Peter Thiel, in his book Zero to One describes as 10x innovation, meaning that it provides a solution at least 10 times better than the solution currently on the market.

Thiel points as examples the Google algorithm, which was at least 10x more powerful than the others search engines that preceded it, as well as the Amazon website, which offered at least 10x more books than any bookseller in the world. It is this kind of innovation, he notes, the world goes from a state of impossibility to a market reality.

Many entrepreneurs today are working on 10x projects, such as lightweight aerial drones that offer a multitude of potential uses, to Bitcoin, a crypto currency that has the potential to replace current cash systems. Perhaps it is Elon Musk, with his SpaceX, Hyperloop and Tesla projects that will mark him out as the 10X innovator of the early C21st.

In the case of Turing, his efforts to create an intelligent machine ‘with a brain and a memory’ were almost terminated by an impatient military commander. The latter tried repeatedly to cancel his initiative, deemed too risky and esoteric. Often, short-term urgency forces the use of more traditional methods to solve a problem.

Therefore, 10x innovation can sometimes be scary. In particular, we remember the classic episode of modern cinema’s introduction in 1895 by the Lumière brothers, where spectators fled the room when they started to believe that the train shown in the movie would come out of the screen!

Turing deserves to be remembered and recognised for his contribution to the war effort and his legacy to science. An exceptional man, his awkward posture and scruffy tweeds suggest a giant intellect trapped within the body of an overgrown schoolboy – indeed in the play Breaking The Code, currently playing at The Royal Exchange Theatre in Manchester, the only time he becomes truly eloquent is during an address in which he likens the grey matter of the human brain to the tepid porridge of his boarding school days.

We don’t celebrate Turing enough probably in part because of his sexuality, and also probably because he was a computer scientist and we don’t value that history enough either. For me, put him on a banknote. Better, put him in the school curriculum as an icon in the history of science. Turing is remembered as the father of modern computing and artificial intelligence. He should be remembered, additionally, as a pioneer in the practical application of maths that advanced both society and industry.

Suicide, an accident or an act of subterfuge by British Security Services who considered Turing a high security risk? Whatever happened, the fact remains that a half-eaten apple was found by Turing’s bedside. Fast-forward two decades, to a few guys making personal computers in a garage in San Francisco.

They had a name for their product and were now in need of a logo. The men were aware of Turing’s contributions to computers and coding, idolised his ingenuity, genius and talent for putting together the first real computer, and decided to honour him and comment on his persecution by removing a single bite from the apple graphic they had picked to represent their company. And that’s how we got the iconic Apple logo on the back of all of our phones, computers, and iPods.

Or is it? Is it a nod back to Turing and his role as creator of the machine for which Apple made its business logo? Designer Rob Janoff claims that he didn’t explicitly intend this meaning when he created the logo in 1977.

He intended it to be about taking a bite out of an apple for sure, because of its use as a symbol over hundreds of years of mythology, back to the Garden of Eden, and the logo being the ‘symbol of lust and knowledge’. For Steve Jobs, the apple logo symbolises ‘our use of computers to obtain knowledge and, ideally, enlighten the human race’.

So the story goes – other theories – that the logo references Newton’s discovery of gravity also exist. The original apple logo from 1976 featured a hand drawn image of Isaac Newton under the tree where the apple fell with the copy: A mind forever voyaging through strange seas of thought alone’. Perfectly sums up Apple, especially at the time as what they were doing was so pioneering.

Whatever the real story of the Apple logo, if it isn’t in recognition of Turing, the fact remains that everyone who taps at a keyboard, opening a spreadsheet or a word-processing program, is working on an incarnation of a Turing machine.

Turing was a remarkable 10x innovator. We can only see a short distance ahead, but we can see plenty there that needs to be done, he once said of himself. It was Socrates who said, The unexamined life is not worth living. It’s not the path itself that matters the most; it’s that it has been consciously created and is therefore a reflection of who you are.

Whatever you’re working on as an innovating entrepreneur today, this week, this month, look to the achievements of Alan Turing, and make your x10 mark.

Apple, bobbing along in its own Blue Ocean Strategy space

I’ve always had an interest in business strategy and business models, I like thinking about why some strategies work and why others don’t. When I see a company starting to do something that is innovative, I take notice and investigate, and try to leverage insights into my own client work.

What sparked my interest is a concept developed several years ago by W. Chan Kim and Renée Mauborgne called Blue Ocean Strategy, a metaphor for companies creating uncontested market space. Here’s a link to their web site http://www.blueoceanstrategy.com

Imagine a company as a fishing trawler at sea. Setting out from port, there are many trawlers that are in competition with each other. They are sailing in a ‘Red Ocean’, contending against each other for a greater share of the ocean space and fishing catch. They’re all fighting after the same fish.

As more trawlers enter the Red Ocean, the harder it gets for them to be commercially viable, since the ocean does not get any bigger and the potential catch is shared out more. Customer demand remains the same but the number of suppliers continues to increase, thus encouraging fierce competitive practices to ensure that they get as much of the market out at sea, and also when they get back to port. Inevitably this means a price war – and blood everywhere, hence ‘Red’ Ocean.

Now let’s think of two scenarios: a new trawler that has never sailed in any ocean decides to venture out on its own into unchartered territory instead of entering the Red Ocean, or a trawler decides to sail out of the Red Ocean that it is currently in, and into unchartered territory, which we’ll call the ‘Blue Ocean’, as there is lots of space and clear, blue ocean around.

For each of the above scenarios, the end result is the same. The trawler has entered a Blue Ocean and in so doing made the other trawlers irrelevant as they’ve removed competition, and created itself a new market to thrive in. If you get it right, the pay off for developing your own market is much more rewarding than trying to beat down others to get to the top in established markets.

Competing in existing market space, with existing customers, only makes the water bloody, resulting in a horrible Red Ocean where there are more fisherman – but less fish each. By creating a Blue Ocean, there aren’t only more fish, but you’re the only trawler around. You’ve reconstructed the market boundaries.

A good example of a Blue Ocean Strategy is Apple’s iTunes. In 2003 Apple moved into the digital music space as a provider and distributor of content – and signalled the end of the previous innovation, the CD. Apple created iTunes as an online service where people could download legal, high quality songs for a very reasonable price.

Apple observed the flood of illegal music file programs such as Napster and LimeWire had created a network of Internet savvy music lovers freely, yet illegally, sharing music. By 2003 more than two billion illegal music files were traded every month and the recording industry fought to stop the cannibalisation of physical CDs.

With the technology available to digitally download music free instead of paying for a CD, the trend toward digital music was clear. This trend was underscored by the fast growing demand for MP3 players that played mobile digital music, such as Apple’s iPod.

Apple decisively capitalised on this trend with a clear trajectory, by launching the iTunes online music store. Until that point, no one had been able to establish such a user-friendly system for online music content curation and distribution.

Apple’s strategy was also unique in that the success of iTunes fed into Apple’s other hot product, the iPod. People would go to iTunes and download music onto their iPods. Apple provided the content, the means of acquisition and distribution, and the device. A great Blue Ocean!

Another reason for Apple’s success is that it is more a design-driven company rather than a technology-driven company, putting customers at the centre of its product innovation. In doing so, Apple created the need for its products and then exploited its newly created market share quickly, making it very difficult for competitors to grab a piece of the pie.

iTunes offered legal, easy-to-use and flexible à la carte song downloads. iTunes allowed buyers to freely browse and listen to thirty-second samples, and download an individual song or an entire album. By allowing people to buy individual songs and pricing them far more reasonably, iTunes broke a key customer annoyance: the need to purchase an entire CD when they wanted only one or two songs on it.

iTunes also leapt past free downloading services, providing sound quality as well as intuitive navigating, searching, and browsing functions. Apple’s iTunes unlocked a Blue Ocean in digital music. It was personalised, it was accessible, it was affordable – it was value innovation. iTunes was, and is not, a product either. It sprang to live as an eco-system, a collection of carefully orchestrated hardware, software services and content channels with unbeatable pricing.

As a creator of a Blue Ocean, Apple didn’t use the competition as their benchmark. Instead of focusing on beating the competition, they focussed on making the competition irrelevant by creating a leap in the value proposition for customers across several dimensions as highlighted above, thereby opening up new and uncontested market space.

Apple then applied Blue Ocean thinking to the iPad – instead of further segmenting the PC industry, they asked can we create a third category that is neither PC nor smartphone? Instead of offering high-valued laptops or lower-valued netbooks, can we make a new product that provides breakthroughs in value for PC users? Today the iPad defines the market, it is not so much a competitor in an established market, it sails in its own clear and pristine Blue Ocean.

The iPad and iPad 2 show that Apple is trying to displace the way we use our computing devices, and extend the usage of tablets to a larger, wider audience. They have sold 204 million units to the end of February 2013.

Rather than competing head on with a laptop or tablet pc market leader, the iPad defined a new market and even the boundaries of the space, showing its applications and usability. Instead of seeking to mitigate its weaknesses (specifications and price), it isn’t afraid to harp on its strengths (design and user satisfaction).

Just like Windows made OS the PC mainstream, now Apple wants to move people away from that mainstream. It wants more people on iOS devices, more people to use iTunes, more people to purchase apps from App Store, more people to use iPads to read books, more people to use iPods to listen to music and iPhones to make calls.

By moving the consumers into the Blue Ocean market defined by Apple, it doesn’t need to fight with Microsoft head on. Maybe it hopes that one day enterprises will use iOS instead of Windows, and use Apps instead of software?

Apple has shown that a Blue Ocean Strategy makes sense:

Focus on the market and user How does the user interact with your product or service? Find out what hasn’t been met and how things can be improved. There is definitely a way to improve on things, since nothing is perfect. Dyson made vacuum cleaners a tech-gadget with its futuristic design and disposing with flimsy one-use filters.

Don’t fight the market, move the market boundaries. Create the necessary foundations to define the boundaries of the new marketplace. Apple did this by creating iTunes and the Apps Store, making it affordable to people to buy songs and easy to access from all iDevices. It created a new ecosystem where new customers can thrive, and retention rates are high.

Build on your strengths and hide your flaws Apple focused on user-experience where it could make a difference rather than showing off its technical specification. In the iPad 2, it didn’t tell people how much RAM it had but told them it was lighter and thinner – things that were more important for portability in tablets.

This is where the Blue Ocean begins to turn a little murky – blood in the water from skirmishes between laptop companies, Android and Windows-based tablet makers. However, iPad has so far demonstrated that it can navigate around these battles because it is not a product, it is part of a broad collection of products and services that no single competitor seems to be able to match. Even in these seemingly competitive scuffles, the iPad is slowly but surely replacing the traditional modes of computing and moving users into Apple’s clear Blue Ocean space.

The competitive sea is getting more crowded for iPhone. Apple still has an edge, in that it built that sea. However, the sheer convenience of using all its products together also creates very real switching costs – the 250 million users of Apple’s iCloud are going to think twice (or three or four times) before buying a smartphone, tablet, or computer from anybody else.

Apple made the iPod with a great circular touch-sensitive dial to make the user interface more satisfying to use rather than to press on buttons and dials. The iPhone was the first great touch screen phone and cracked open a market. The screen rotation on the iPad and the tap, scroll, pinch and swipe – the multi-touch function, continue to set it part as genuine value innovations.

Apple’s strategy is really about finding Blue Oceans, markets that come into existence as Apple defines them. The company has repeatedly given customers something that felt entirely new, that solved their problems in a way no existing product did.

Of course, Apple’s market position is currently under threat with commentators saying it has lost its creative mojo. I wouldn’t be so sure that Apple has lost its way, but what I am pretty sure about is that Apple’s future success will be built on continuing its Blue Ocean strategic thinking.

The language of strategy is more informative about Apple’s predicament than most of the chatter one hears about whether the company is still cool or Tim Cook really has what it takes. And as it fights back, take a look at this:

https://itunes.apple.com/au/app/blue-ocean-strategy-visualizer/id645511279?mt=8

On a roll: innovation is driving the bottom line in the world of toilet tissue

The title of this blog is inspired from an article written by Alasdair Fotheringham in the Independent recently, concerning Tissue World, the global gathering of the elite in one of the few recession-proof industries.

Tissue World is the most important annual congress for the soft hygienic tissue paper business. In Tissue World, lavatory paper is mournfully described as a commodity product distinctly lacking in glamour.

But why be so bashful, when tissue paper provides a few gleams of light in Europe’s singularly gloomy economic tunnel? Take Spain, where tissue paper is one of a handful of industries beating the current recession, with sales up 2% in 2012. Or Portugal, where Renova has just come up with what they claim to be the sexiest toilet paper on Earth (to me it just looks black). All this in an industry with 4% annual global growth and an $80bn turnover.

People’s preferences for their nether regions’ cleansing accoutrements chime with clichés about national character. Germans, industry insiders say, like their lavatory paper strong and uncompromising; Italians have a weak spot for pretty paper designs and a softer texture, with plenty of niche products (in more senses than one) such as handbag-sized packets. Italy is also home to the archaeologist Silvio Fioravanti, who has the world’s largest pocket hanky collection – 11,972. But that’s another story.

We Brits, true to our reputation for being sensible, are far less fussy about style, size or texture – we just want to be 100% sure we are getting value for money each time we heave a 16-roll package into our supermarket trolleys. And as anybody fumbling hopefully in search of tissue in a public conveniences knows, thanks to government cuts, lavatory paper is becoming increasingly thin on the ground.

But the recession has had some positive knock-on effects for the industry. Even in a mature market that captures the interest of few consumers beyond that as a necessity, innovation is possible, as noted above – and check this out – Kimberly-Clark’s line of mini, wet-paper packs that was introduced last year has now cornered 5% of the Spanish market, thanks to the packets’ portable nature, not to mention the unforgettable name of Culitos Besables – Kissable Bottoms.

So, if the toilet tissue business can renew itself and put product innovation on its agenda, what can you do? How can you become an innovator in your industry? Is there a model of innovation to follow from successful innovators? How do organisations like Google, Facebook and Apple build innovation as a core competence?

Apple’s model is more visible in terms of its consistency and impact, but whilst we may regard them as disruptive innovators, they are in fact more subtle, and if they hope to continue to succeed they will keep it that way.

Apple has never been a ground breaker, rather have taken the ordinary, and made it into something extraordinary, gaining product leadership whilst at the same time making complex technology products simple in terms of their user interface and utility.

They haven’t invented anything crazy, but they have pushed the boundaries and improved on breakthroughs introduced by others. For example, the iPod was an extension of the MP3 player, the iPhone was an expansion of future expectations of the mobile phone, and the iPad improved on attempts at a tablet PC made by mainstream PC competitors.

This is what makes their innovation repeatable and scalable. Most admired innovators stumble upon a breakthrough once, maybe twice, and then their product development freezes after a couple of minor iterations on product features. Apple is different. They have started with the customer, and created devices and applications to meet potential demand by either improving, simplifying or stretching existing products in new ways that no one else could imagine.

Besides being more technology marketeers than technology pioneers, they take devices that we use every day and deftly turn them into devices that we can’t live without through subtle improvements over time in terms of user functionality, usability, reliability and in essence, more commercial.

This year Apple will spend $10 billion investing in its future. Underpinning their strategy is a clear set of innovation behaviours and guiding principles, which sets them apart as a business. John Webb, Marketing Director of Rackspace Hosting, published a blog on Innovation Excellence, which captured many of the innovation drivers, and I’ve summarised them below.

Have a thirst for knowledge Apple endlessly seeks knowledge and an understanding of product design, going to extreme lengths to gain insights and learnings that will facilitate a new innovation. Head of Design, Jonathan Ive visited Japan to meet a leading craftsman of samurai swords in order to garner understanding of the principles behind how they use metal. This knowledge consequently enabled him to design the world’s thinnest and most durable computers moulded from aluminium and titanium, rather than the traditional plastic.

Keep the focus Apple are disciplined in focusing on limiting the number of projects that they work on. This allows them the time, space and attention to re-visit products again and again, iterating and refining to reach higher degrees of innovation. To think that a multi-billion dollar company only has 30 major products is astounding.

Obsess about the details Jonathan Ive’s design mantra is a devotion to detail. He will obsess on solving a tiny issue, unwilling to compromise in his quest to create a more fundamental product. This is what sets Apple’s products apart, including the packaging. Perfection, and striving for it, is as much in their culture as innovation.

Look to be wrong Apple is about being adventurous and curious, making a big deal of inquisitiveness and an interest in being wrong as Ive puts it. One of the hallmarks of Apple is this sense of looking to be wrong. It’s the inquisitiveness, the sense of exploration. It’s about being excited to be wrong, because then you’ve discovered something new. Apple works by a process of evolution, iteration and retrospectives, it’s an attitude to try out and explore new ideas without the fear of failure, a powerful combination of curiousness and optimism.

Be Better, not different The prevailing wisdom is that you have to differentiate to create and sustain competitive advantage. But in today’s markets, being different is no longer enough – it’s about being better. Better by nature dictates that the consumer is central to the development process. For something to be better, the consumer has to see, feel and believe that it is in fact better.

Successful growth companies have a deep understanding of their customers’ problems. Many are embracing tools such as the customer empathy map to uncover new opportunities to create value. This customer insight is the foundation for their lean approach to product innovation: rapid prototyping, design partnerships with lead users, advocates generate the viral buss, and the company then pivots to improve their product and business model.

As an aside, I’m constantly amazed at how few companies invest the time to get out of the office and interact with customers outside of sales situations. During the turnaround of IBM, Lou Gerstner launched Operation Bear Hug to get the company back in touch with its customers – IBM’s top 50 executives had to visit five customers per week and deliver a write-up to Gerstner. In the digital age, Apple’s equivalent is the frequent product launches, trailed by the social media frenzy ahead of the release, which highlights features and benefits of new products.

10 to 3 to 1 Apple designers expect to design 10 different mock-ups of any new feature under consideration, and these are not just basic mock-ups, they all represent different, but really good implementations that are faithful to the product specifications.

Apple’s innovation is subtle and focused as previously stated – Iterate and reduce – simplicity is an intense focus on usability and application for the consumer, making the device easier for people to use. This is the essence of Apple’s innovation methodology, creating repeated models and prototypes of the same product to see if they can improve each element again and again, re-working tiny details and solving tiny problems until they achieve the overall end solution.

Then, by using specified criteria, they narrow these 10 ideas down to three options, which they further develop until they finally narrow down to the one final concept that truly represents their best work for production.

This approach is intended to offer enormous latitude for creativity that breaks past restrictions, but it also means they inherently plan to throw away 90% of the work they do. I don’t know many organizations for which this would be an acceptable ratio. Your accountant would probably declare All I see is money going down the drain.

Leadership: You need a leader who prioritises new product innovation. The CEO needs to be someone who looks out to the horizon and consistently sets a vision of innovation for the organisation that he or she is willing to support completely with people, funds, and time. Further, that leader needs to be fluent in the language of your customer and the markets in which you compete, with a storyline for your products and services. That storyline needs to state decisively what is in bounds and what is out-of-bounds over an 18-month to 3-year period.

This storyline or strategic vision needs to be revised according to market changes and the evolution of your new product pipeline, but fundamentally search for uncontested market space and make competition irrelevant using Blue Ocean Strategy and the Business Model Canvas principles.

Steve Jobs set the benchmark for this when he launched his successful Think Different campaign, commissioning The Crazy Ones, a video that featured Einstein, Edison, Gandhi, Muhammad Ali, Hitchcock, Richard Branson, and other ‘trouble-makers’ who changed the world. Every employee understood Job’s views on risk-taking and innovation, and set it as part of the brand to attract a certain type of customer.

So, next time you contemplate your product innovation strategy, reflect on the extremes of tissue paper to Apple, and that your business probably rests somewhere between these two extremes in terms of product attractiveness.

Nothing is stronger than habit, and as Einstein said, If you always do what you always did, you will always get what you always got, we cannot solve a problem by using the same kind of thinking we used when we created them. So don’t just sit there contemplating, get up and do it!

Ultimately for a business, innovation is the ability to convert ideas into invoices, and thus it’s not how many ideas you have, it’s how many you make happen.

Bet on yourself to create your own market space

Our television screens are awash with commercials pushing the latest odds and free £10 for your first bet for online gambling. Since changes in the law in 2005, the online betting market has experienced significant growth, driven by the influx of new technologies, increase in the broadcast of live football and high levels of product innovation from betting companies.

Betting used to be the domain of traditional fixed odds bookmakers such as Ladbrokes, William Hill and Coral in smoked filled betting shops, with horse racing the primary sport. With the demise of the football pools mirroring the growth of live televised football, the rise of online betting has seen the advent of sports spread betting companies such as Sporting Index, and exchange betting companies, such as Betfair, leading the way. Putting to one side the morality, it is an interesting business lesson on how to evolve your customer offer and product innovation in a seemingly simple, mature market.

Whilst inconceivable only a few years ago, online gamblers can access a mobile betting service that allows them to see prices update in real time, place bets, view their bets and deposit funds. The rise of in-play betting has transformed betting from simply placing a bet before an event on who is going to win, lose or draw, in-play betting is effectively ‘sports trading’ where people trade bets during an event as team or individual performances ebb and flow.

Spread betting allows people to place bets during an event and close bets at anytime to take a profit or cut losses. People can trade any specific performance within a live match in the same way a share trader would buy and sell shares as a company’s share price performance fluctuated in a day’s share trading.

Betting companies have also become sophisticated in recruiting new clients and maintaining the loyalty of existing clients. Free bets are commonplace as a means of attracting new clients.

Betfair is a particularly interesting model. Andrew Black, formerly a professional gambler, and Edward Wray an ex-derivatives trader, founded Betfair in 2000. Today it is the world’s largest international online sports betting company and the world’s biggest betting community. The company has over four million registered users with weekly turnover of £50m. Betfair is the world’s largest betting exchange handling 1,000 bets a second and completing 5m transactions a day, which is more than all European stock exchanges combined. Their business model has some unique features:

Peer-to-Peer betting exchange. The key difference to traditional gambling is that instead of betting against bookmakers, Betfair customers bet against each other. Betfair was built on a stock exchange model (similar to Nasdaq) where odds function as the share price. This enables bettors to trade in and out of positions on sporting events, much like trading in and out of positions on shares. Betfair was hugely innovative in the UK sports betting market and created a new type of gambler that took advantage of market trading dynamics, without needing to have an opinion on the outcome of the sporting event itself.

No risk exposure on bets. As detailed above, Betfair differs from traditional gambling companies in that it does not bear the risk of the bet. It connects punters to each other and then pays out winnings rather than offering odds that it stands to win or lose. It makes its money by taking a commission on any winnings.

Cost advantage. The model creates an inherent cost advantage relative to the traditional bookmaker model. Because a bookmaker takes risk on the outcome of each betting event, this cost is built into the bookmaker odds offered to the public. Therefore the odds that the public sees on Betfair are more reflective of a true market, resulting in most cases, in higher odds, and thus attracts more stake monies.

Liquidity of the market. Much of the success of Betfair is dependent on maintaining high levels of liquidity, a significant proportion of which is generated by Betfair’s sophisticated and high-spending repeat, core customers. Early on Betfair recognised that the key to creating a successful betting marketplace was to improve the chances that any reasonable bet placed, would be matched.

In essence, Betfair needed to balance supply and demand the same way that a stock exchange does. They solved this by encouraging volume betting, and marketing to high volume players – and a new type of bettor, people looking for arbitrage opportunities. These bettors move large volumes of bets to lock-in a very small profit regardless of the outcome of the event, providing liquidity to the exchange.

A highly liquid exchange for bettors is a difficult barrier to entry to overcome. Creating the critical mass to have an effective betting exchange is difficult and costly, and this is reflected by the almost non-existent competition.

Rapidly, Betfair has built a business offering a new product, and created its own market space. What are the learning points we can take from this?

In a highly competitive market, Betfair’s strategy was not to compete head-to-head with opponents, but instead to create an entirely new market and offering. This way of redefining the market – and market boundaries – has been called a Blue Ocean Strategy, developed by W. Chan Kim and Renee Mauborgne.

Blue Ocean is a market that is as yet undefined, there is lots of space (literally, visualise an expanse of empty blue water) and appears when a company pursues seemingly unorthodox methods. Continuing the analogy, Red Ocean refers to a situation where the market is predefined. Companies vie for a set number of customers and in order to gain market share, companies compete on price to win, thereby depleting the resources of the other companies, and leading to metaphorical ‘bloodshed’ – thereby colouring the ocean ‘red’. Many markets can be classified as red oceans.

Another business following the Blue Ocean approach is Apple, which like Betfair, created its own market space. But don’t be overawed by Apple’s apparent continuous stream of innovations, Apple doesn’t actually do that, it’s a user-focused fast follower and a relentless improver. Patrick Barwise and Sean Meehan developed an innovation model, Beyond The Familiar, which incorporates the Blue Ocean philosophy, and illustrates Apple’s innovation strategy as creating new market space.

When Apple enters new categories, it does so not as a pioneer, but as a user-centric fast follower. It did not invent the first online music store, integrated music offering, smart-phone or tablet, yet Apple dominates these markets with premium-priced high-end offers, which combine enhanced features and capabilities (mostly created by others), backed by brand communications, product and service design and innovation, and world-class execution. All its products live symbiotically in the Apple brand eco-system, boosting sales of the entire product family.

Having entered a new market as a user-centric fast fol­lower, it then determinedly embraces incremental improve­ment. It studies the initial customer response to the pioneers’ products and then trumps them by adding more features and benefits, and a much better user experience, well beyond what customers have had before. It isn’t a pioneer but it does innovate Beyond the Familiar.

Consider the iPod. It was not the first MP3 player. Apple learned from the earlier offers that had failed that compactness was good, but not at the expense of capacity, battery life, ease of use or attractive design. The iPod did not create a new product – it was a fol­lower, but it was the first to succeed in bringing the real benefits of an MP3 player to the premium end of the mass consumer market. It was the blue ocean strategy of ITunes that made the iPod the killer app, and subsequently added a range of better and cheaper variants such as the ‘shuffle’, the ‘nano’, and the ‘touch’.

The general framework for innovating beyond the familiar developed by Barwise and Meehan reflects Apple’s obsession with the nature and effective­ness of customer orientation, to execute the four direct drivers of long-term organic profit growth:

  • Offer and communicate a clear, rele­vant customer promise.
  • Build customer trust and brand equity by reliably delivering that promise
  • Drive the market by continuously im­proving the promise, while still reli­ably delivering it
  • Get further ahead by occasionally in­novating beyond the familiar

How can your business adopt this model? Here are three thoughts:

Look beyond your comfort zone When a disruptive new competitor appears you need to respond urgently, almost certainly going outside your strategic comfort zone. Doing this is never easy, the ten­dency to stay within the comfort zone is greatest when the business is doing well and there are no obvious storm clouds on the horizon. But you need to be restless, if not agitated to counter this potential complacency, ask yourself ques­tions such as: What are our recognised blind spots? What are the mavericks and troublemakers within the industry telling us? What future surprises could really hurt us?

Focus on adjacencies. Moving away from what you know introduc­es unknown unknowns on top of the known unknowns. The implication is that the main innovation opportunities are in adjacent markets rather than newly created markets that often represent a major discontinuity in the current business model. This is precisely what Betfair has done.

Follow fast It is better to be a follower than a pioneer. The pioneers get scalped – Andrew Carnegie. Most of the time, you should drive the market by relentless­ly raising your game ahead of the competition – shouldn’t you? But what about the case of radical, new stuff, should you aim to be first to market?

Being a successful pioneer is hugely appealing: think of the fame and fortune achieved by companies such as Sony (the Walkman), Starbucks and Nintendo (the Wii). What’s not to like? Alas, these are exceptions. Research has shown that most of today’s market leaders, often widely believed to be pioneers, were in fact fast followers, the actual pioneers having long since gone bust or exited the market. Pioneer ad­vantage turns out to be largely a myth because the failure rate is so high.

The reality is that innovation is like the old story about a teenage boy’s claims about his first kiss: everyone talks about it all the time; everyone boasts about how well he is doing it; everyone thinks everyone else is doing it; almost no one really is; and the few who are, are fumbling their way through it incompetently.

From Betfair to Apple, Blue Ocean and Beyond The Familiar, if you look around, all the pieces of thinking can come together like a jigsaw puzzle in evolving and revolutionising your own business model. The good news is that you don’t have to start from scratch, simply be curious, have ambition to do something remarkable with your business, and take insights from truly great business adventurers – and create your own story of success. Can you make it happen? I’m not a betting man, but you look like an odds-on winner to me.

Be a surfer; watch the ocean; figure out where the big waves are breaking and adjust accordingly

The headline to this blog posting it taken from Jason Fried & David Hansson, founders of 37 Signals, a web development company. Their attitude to strategy was we built a company we’d like to do business with, we hope you do too; a simple and elegant way of describing an approach to developing a company’s strategy.  In the business vocabularies of many people, ‘strategy’ is frequently used, yet rarely useful. For all of our strategy statements and plans, marketing, financial and innovation strategies etc., the ideas that we label as ‘strategy’ often fail to affect meaningful change. We don’t surf.

The problem is not that strategy as a concept fails us, but rather that we don’t really understand what strategy is. Perhaps the reality is a lot simpler  – there is always a better strategy than the one you have, you just haven’t thought of it yet.

Here’s where I’m starting from: Strategy is the practice of figuring out the best way to get from here to there. For me, strategy is a perspective, a mind set of how to perceive the world, from which a pattern in a stream of ideas take shape. Then again, the key to effective strategy isn’t more or better ideas, concepts or frameworks, but developing the ability to use what you already have – find out where the big waves are breaking.

Consider Kodak, which went bankrupt in January. It is no great surprise that its film business was destroyed by the growth of digital photography. What is surprising is that it was Kodak which invented the digital camera, yet they declined to develop it for fear of damaging its chemical film business. You don’t need the benefit of hindsight to see this was a bad decision. Digital photography was the classic disruptive innovation.

Kodak didn’t need better strategic thinking. It needed better ways of seeing the obvious but unpalatable, and doing the simple but uncomfortable – in the same way as Waterstones recent decision to stock Kindles and digital books. The move marks a complete turnaround in the chain’s strategy, and newly refurbished stores will now include ‘digital areas’, free Wi-Fi access and coffee shops in a drive to get digitally savvy consumers through the door. Their customers are book lovers, so let them make their choice of formats, and don’t push them away from the bookshop experience.

Most strategy is like this, simpler than consultants and academics would have you believe. You are not reinventing the company, redefining the industry or creating the next Facebook. You are looking at what’s going on in your markets to identify what customers – mostly your existing customers – are likely to be asking for in the future.

Isn’t strategy about looking inside the company to see where you are making money and where you are not, and then doing something about it? Often you end up with something quite like what you already have, with some parts expanded, others shrunk or eliminated and a few things added. Recognise that you probably have all the strategic knowledge you need. The value is not in concepts or techniques, but in the ability to see clearly and act accordingly.

A great example of being able to see clearly and act effectively is that of Steve Jobs, and the insights outlined in his biography by Walter Isaacson.

Throughout the book, time and time again you come back to one thought: the bigger part of the strategy equation is to have the vision and skills to back up strategic thinking. Isaacson identified fourteen insights from Jobs’ strategic thinking, each a valuable perspective on his perspicacity:

  • Focus Isaacson wrote extensively about Steve Jobs’ ability to pare unnecessary products, services, marketing, packaging, and even buttons on Apple’s (and Pixar’s) products. A classic of the 80/20 principle, underpinning a focus on what makes a difference.
  • Simplify I can’t think of another company that has been able to simplify the user experience and deliver customer value. Apple simplified its devices, software and applications, yet at the same time based on disruptive thinking, took users beyond where they were already delighted – an example being MP3 players to the iPod.
  • Have end-to end customer responsibility Jobs’ preferred business model was to control the entire user experience, clearly articulated with Apple’s own hardware, software, applications, devices, content and the product/service purchase and consumption experience – that’s why Apple has so little competition in the digital music space.
  • When behind, leapfrog Jobs was mortified when he realised Apple had missed the boat on burning music CDs with its original iMac. His solution was to leapfrog the competition with the iPod and iTunes. The lesson here is that strategy isn’t about playing keep up, or even catch up, but going beyond what the competition is doing.
  • Put products before profits Jobs spoke at length that Apple’s philosophy is to focus on making great products, and that by doing so, the profits will take care of themselves. Sales and finance folks tend to focus more on profits than products. Jobs believed this a recipe for mediocrity in strategic thinking.
  • Don’t be a slave to focus groups Jobs was asked by a member of the original Mac development team if they should run something by a focus group. Jobs famously said No, because customers don’t know what they want until we’ve shown them and this underpins Apple’s strategy of creating such innovative products that ‘wow’ the market.
  • Bend reality A consistent point made in Isaacson’s book is that Apple accomplished great things – frequently things they themselves knew couldn’t be done – simply because Jobs believed otherwise. His vision and strategy were wrapped in his ‘reality distortion field’ so that ultimately there was no compromise to what he set out to do.
  • Impute It’s all about the book, not the cover, isn’t it? Not in Apple’s strategy map, it turns out the cover really does matter. Steve Jobs obsessed over packaging and presentation, not just in the products, but in the Apple Store design and layout, the Genius Bar formats and service, and even the Mac icon designs, all wrapping the core product
  • Push for perfection Back in the day when Mac vs. Windows was the platform war that mattered, many argued that what set Apple apart from the competition was that Microsoft settled for ‘good enough’. Reading Isaacson’s narrative, it’s clear that Jobs’ pursuit of absolute perfection was a big part of why the Apple strategy was so successful.
  • Tolerate only ‘A’ players Here’s the heart of the issue of Jobs’ perceived ‘rough edges’ of his personality. Being brutally honest (and frequently rude) was one of the ways he kept the ‘B’ players out of Apple. He refused to compromise on skill and talent, wanting only ‘A’ players, although his brusqueness and rudeness did cause tensions, but left no confusion or uncertainty.
  • Engage face-to-face Apple was an early adopter of the agile software development methodology – frequent face-to-face meetings mixing development, production and marketing folk – don’t collaborate via email. Equally, there are no spectators in meetings at Apple.
  • Know both the big picture and the details Here we have another attribute of strategy development and implementation that I think sets Steve Jobs apart. He had a big picture vision and the ability to hone in on the tiniest details that he thought mattered. Seeing the blue sky and washing the pots was his strategy mind map – heads up and open, hands on and busy.
  • Combine the humanities with the sciences There’s no right or wrong way to develop your strategic thinking. Isaacson believes Jobs was focused on the idea of marrying the influence and perspectives of humanities with science, and identifies the concept as a key part of why Apple and its products are so great.
  • Stay hungry, stay foolish Isaacson notes that Jobs stayed hungry and foolish throughout his career by making sure that the business and engineering aspect of his personality was always complemented by a hippie nonconformist side from his days as an artistic, acid-dropping, enlightenment-seeking rebel. Jobs was highly-strung, temperamental and clearly a man of contradictions, but that enabled the thinking.

Of the above factors to Job’s thinking around Apple’s strategy, Ken Segall in his book, Insanely Simple: The Obsession That Drives Apple’s Success, offers some intriguing insights from someone who worked closely with Jobs. He believes that Jobs’ obsession with simplicity was his greatest contribution to Apple’s strategy.

Segall was part of the team that dreamed up the Think different campaign, he also came up with the name iMac that would lead to the ‘I’ in a series of successful Apple products (Segall claims Jobs preferred MacMan!). He says, Despite the technological complexity of Apple products, the company always describes them not according to their technical specifications, like, say, a five-gigabyte drive on an iPod, but rather, as 1,000 songs in your pocket.

It’s easy to understand why simplicity gets sacrificed in strategy, for starters simplicity is often (wrongly) associated with a lack of sophistication and no one wants to be thought of as simple. But think about Apple’s iPod or Amazon’s Kindle, both are built on amazingly complex technology, yet delivered in deceptively simple, elegant designs.

Situations are rarely simple and the solutions to tough problems are usually complex, and it is important to understand all the angles and options before taking a decision, but as Albert Einstein once remarked, Things should be made as simple as possible, but no simpler.

So looking at the points on Jobs’ thinking, strategy needs to be focused and simplified if you are to stand any chance of success. Strategy does not have to be complicated. In fact, new strategic directions demand clarity and simplicity if they are to succeed – so back to the title of the blog and the 37 Signals philosophy.

Tomorrow rewards the curious, so keep demanding focus and simplicity and it will pay off. We don’t have to be out there with a lot of noise all the time. What we need to do is paint a vision for customers, promise them deliverables and go do it, because after all, a satisfied customer is the best strategy at the end of the day.