Bahaa Moukadam on growth in today’s disruptive environment
For twenty years, Bahaa Moukadam, Founder and Head Coach at SeeMetrics Partners has held executives roles ranging from Vice President at Spirent Communications, a network test and measurement equipment manufacturer, to CEO at Sunrise Telecom. At Sunrise he re-structured and re-focused the company resulting in immediate profitability after a failed merger and acquisition attempt and years of heavy losses. His mission at SeeMetrics Partners is to coach business leaders on innovative ways to successfully navigate their companies through a world in which the fourth industrial revolution and numerous other technological disruptions are happening simultaneously.
What is it about the corporate world that has changed how leaders need to view their roles and maintain a competitive advantage?
It used to be that every 50 or 100 years, an industrial revolution would occur, but change is happening at a hyper-rapid rate. There's a big industrial revolution happening now with about 20 new technologies emerging simultaneously. That's causing a lot of disruption. In some cases, it's causing so much pain that the companies being disrupted are going out of business. That trend is going to accelerate unless business leaders step back and try to figure out how to reinvent not only their business, but their business model, before they get disrupted by somebody else.
They have to fundamentally solve a different set of problems. Many big companies have been solving legacy problems that may not exist anymore with everything going digital. There are so many industries being overwhelmed because now it's much easier to build a new company than it is to transform an existing one.
It used to be that an S&P 500 company lived about 67 years and now that timeframe has shrunk to 15 years. Over the next 10 years, it's expected that 40% of those S&P 500 companies will not be on the list anymore. There's a lot of upheaval happening, and many business leaders are not well equipped to react to the tsunami of change happening now. Even enlightened leaders can be undermined by their company’s immune system that works so hard to attack and kill new transformative ideas and initiatives from within.
How can business leaders maintain growth and uncover the root causes of their companies stalling out? Talk to me a little bit about that.
One of the key things is to recognize this is not business as usual anymore, it is not. Once they are awakened to this reality, they can start actively exploring “OK, what do we do now?”. How do we start looking externally at what's really going on that could be totally disruptive, and how could we put internal initiatives in place and free up some of the smart people internally to create edge initiatives?Not how do we make our current business better; that will only incrementally improve things. What's going to save them ultimately is coming up with one or multiple edge initiatives that are disruptive to their core business and that are connected to a Massive Transformative Purpose. That's a hard thing to do because their current business has made them successful. The reasons their immune systems resist those ideas is because they say, “Hey, we're a $10 billion company, we've been doing this for a while.” They don't recognize that things are turning and changing in drastic ways.
Can you give me an example of what an edge initiative would look like for a particular type of company?
One good example is Netflix. Netflix started out physically mailing DVDs, disrupting Blockbuster. Blockbuster didn't want to partner up with Netflix because they were dominating the industry and either naively or arrogantly thought they will continue to do so. People were coming to the store, renting a tape. They took it home and forgot to return it. They had 9,000 stores. They thought, hey, that's how things are, only to be disrupted by Netflix mailing DVDs. You could keep it as long as you want, and you send it back. Then within Netflix, the next disruption was streaming. They created an edge initiative that totally killed the physical mailing of DVDs business. They disrupted their own business model.
The next initiative within Netflix is spending billions and billions of dollars on original content. They used to only stream movies and TV shows made by somebody else, now they're spending about $9 billion a year creating their own movies and TV shows. This is an example of how continuing to innovate is so necessary. Netflix is a relatively young company in the scheme of companies like IBM or Hewlett Packard.
The other example of an edge initiative that's even simpler to understand for most people; is Apple. It used to be a computer company, and everybody agrees now that when you think of Apple, you think iPhone first before you think computers. That's an edge initiative going from computers to phones that happened back in 2006, and now the new initiative is bigger than the original company in terms of revenue. Services is next.
What are some common reasons that a company can stall out?
There are three key reasons why a company could stall out. One of them is leadership; the inability for leaders to continue to grow more leaders and to be able to delegate and predict. At some point in the life of a company and at a certain size, your key role as a CEO becomes to grow more leaders, otherwise you become the bottleneck.
The second reason is processes and systems or lack thereof. If you don't have repeatable, efficient processes, tools and technology internally to run your growing business in a smooth way, you will hit a wall and stall out or collapse to the ground.
The third reason is marketing. There are two aspects to this. First, it’s an inability to identify a fundamental shift in customer or market needs. For example, Blockbuster. Or, it is an inability to attract enough of the right customers.
What about capital?
Capital? Cash is like oxygen, right? Certainly, for a startup or a company that's growing, but many big companies are extremely profitable, then over time their profitability starts shrinking. Revenue starts flattening out or declining. And when the immune system succeeds at killing new initiatives, many companies experience the boiling frog phenomenon as they slowly (or rapidly) realize they’re in trouble while at the same they’re unwilling or incapable of doing what is needed to avoid the valley of death.
What are some of the actions that you suggest to leaders to build a business without working harder or hiring more people?
That's really the key question. There's a whole Scaling Up methodology called the four decisions: people, strategy, execution, and cash. Based on Scaling Up 2.0.
For each decision, the leadership team must ask the uncomfortable and thought-provoking question. On the people front, the key question is, “Would you enthusiastically rehire everyone on your team?”. Every leader has to ask this. The answer is almost always no. Right? So, what are you going to do about it? Many leaders don't want to confront that reality. We guide business leaders to the realization that the People Decision is to commit to “building the best team possible”. This has to be done through an active and comprehensive approach to talent management including Recruiting, Onboarding, Assessment, Development, and Retention. In addition to doing this well, you’ll have to create a cohesive team that runs like a well-oiled machine.
Strategy is the second of the four decisions. The key question leaders need to answer is, “Other than employees, will anyone care if my business ceased to exist tomorrow?”. The answer in many cases is unfortunately, not too many people will care because they will just go to the competition, right? If that's your answer, you have a lot of work to do. The Strategy Decision you must make is to commit to “do whatever it takes to become indispensable to your customers”. There's a whole strategic planning process we guide leaders through to make this a reality. To become highly differentiated and irreplaceable in the minds of our customers. How cool would that be?
Execution is the third decision. The key question here is “How many months in a row have you reached or exceeded your business goals?”. Of course, then the decisions flowing out of this is to do whatever it takes to reach or exceed your goals. There's a whole process for execution that comes down to three key things: Prioritization, metrics and data, and communication rhythm.
The final key question, or the Cash decision is “Are you pushing and pulling on the right profit levers?”. And the decision flowing out of this question is to commit “to embrace 10% net income as the new break-even”. This allows you to absorb the inevitable fluctuation in any business over time. There's a whole set of tools and techniques we guide people through to significantly improve their profitability, including profitability analysis by product, or by geography, or whatever the case may be. The total P&L lies to you or hides a lot of information. You have to go beyond just the P&L and do a detailed profitability analysis. If you have a different product, you have to do analysis by product line. If you have different categories, you must analyze it by category, by employees, by country, by customer, whatever the case may be.
Please elaborate on your advice, “Transform from a traditional to an exponential operating model by moving away from a scarcity mindset toward one based on abundance.” Is this loosely based on the law of attraction from the book The Secret?
Maybe a little bit. Actually, the framework we use here is based on Abundance: The Future Is Better Than You Think by Peter H. Diamandis and also on Exponential Organizations by Salim Ismail. In Exponential Organizations, the author, Salim Ismail, wanted to uncover what is unique and different about exponential organizations. Remember, people used to use the term unicorn for companies with a billion-plus, and many of those grew exponentially. He wanted to find out if there were any common threads across all those rapidly-growing companies versus regular companies that grow in a linear way. He documented all the findings in his book. It really comes down to attributes. What he discovered is all the exponential organizations have one thing in common; they all have a Massive Transformative Purpose. They're trying to solve a massive, massive problem in the world.
They have clearly identified a massive problem they want to attack and then they have 10 additional attributes that they implement. Not too long ago, people used revenue per employee as a metric, if you recall, which is kind of interesting. The idea is exponential organizations think very differently about this. What they do actually is they use staff on demand, which is in a way the opposite of building a big empire with a lot of employees. Instead they use external employees where they can flex in and out as needed. Think of Uber and other gig economy companies. Details about the other attributes are well documented in the book.
Right, I was just going to say that.
Then another technologically-enabled example is the concept of community and crowd, like TED. They're able to build communities and crowds that have bought into their Massive Transformative Purpose. TED used to be a closed society, then they opened it up and created a community and started doing TED Talks around the planet. It exploded in terms of reach and impact.
Sure. Tell me about the Rockefeller Habits 2.0? What is that?
The Rockefeller Habit is a set of best practices, like the operating system for a company, right? It's a way, if you implement those habits, for you to basically have almost guaranteed sustainable success. By implementing those habits actually you're avoiding all the risks we talked about earlier.
Can you give me an example of one Rockefeller Habit?
One habit is, “Is the executive team healthy and aligned.” There’s a set of things to do to make this happen. I ask people to go through those habits one by one. Each senior leader in the room ranks each from zero to ten individually. Then we put it up on the board and say, “Hey what does that look like?” We're looking for the actual scores, but we're looking for any disconnects too, like do some people think it's an eight and some people think it's a two, and why?
A second habit is to have a communication rhythm established, and ensure information flows fluidly.
A third example is ongoing employee input collected on a regular basis to identify obstacles and opportunity. Most companies don't tap into the collective intelligence of the employees. Valuable information, especially from people on the frontline, helps make the company more successful.
Is there anything that we have not discussed that you would like to share?
Well, the key thing, Alyson, the way I think about this whole thing, is that probably the only way to save humanity is through business. The biggest opportunity is for more and more business leaders to recognize that actually you can do better by doing good in the world, and that profitability and doing good are actually congruent. For folks who think it is not a good idea to focus on anything else other than profit, it has been well-documented now that companies guided by a purpose beyond making money are actually much more profitable than explicitly profit-driven rivals. So, having a core purpose that solves real issues in the world actually is supportive of, and leads to more profitability. We are on a mission to make sure every business leader understands this and is guided by it.
My purpose is to work with business leaders to create impact, and to spread happiness. Because businesses are in the best position to make a significant positive impact on society, when they are managed the right way.