Around the globe and across many industries, headlines are plentiful about CEO ousters. We see exits in auto, retail, energy, transportation, advertising, and even in non-profits. The CEOs of these companies, which included the leaders of Ford, Whirlpool, and it seems any large competitor of Amazon, excelled in understanding organizational processes, financial gearing, and harvesting technology to massive installed-base customers. These were strong, smart leaders who knew how to close business. So why the exits?
At the Board-level, directors focused their angst on how each CEO wasn’t moving as fast as the technology and market models were moving. Particularly during the last five years, next-generation innovators were picking off loyal customers. The adoption of cloud-based solutions, the advent of the Internet of Things, fin-tech, clean-tech, tech-on-tech—each innovation is a mounting threat to the franchises and cash flow of the “Big Iron” players.
The reaction of the typical reader of this blog may vary from “I live this every day” to “Isn’t disruption exciting as both an investment opportunity and as a builder of companies!?” In other words, what happens in these next-gen companies that is not happening within many F500 companies?
The CEOs we see who excel are very good in two areas of building a great business: product market fit and alignment/scale.
Your Product Must Fit
Product-Market Fit is a wily concept, hard to define, but easy to recognize. We know we have it when the sales start spiking and customer retention is over 100% in the first few cohorts. Great companies do many things well across their organization. Product-Market Fit is certainly one of these things. The best companies have a culture and a process of implementing a continuous customer feedback system that runs like water to Sales, Marketing, R&D, Finance, Product and Dev/Ops.
The CEO has wired the place to have a good ear to hear insightful use cases from customers early in the product experience cycle, and the product management teams match these use cases to macro trends in order to ensure they are ahead of the curve. There is plenty of cheap instrumentation today to wire your people with surround sound for monitoring product market fit.
Your Model and Motion Must Align and Scale
Having only Product-Market Fit will not get you to the next level. Great “scalers” also match the business model with customer segment decisions and their buying behavior preferences (e.g., on demand pricing versus maintenance costs). These “scaler companies” sweat their sales and marketing funnel economics within each specific customer segment, and they ensure the product experience matches the pricing.
Building a model and motion across the company in concert with Product-Market Fit is where the magic starts to happen. CEOs find a formula and map a tight interdependence across teams. The highly successful companies today track usage intensely and then compare it to their hypotheses from their customer feedback system. Those insights are shared quickly and across departments. They expand their feature sets in concentric circles of value creation in a disciplined customer segment sequence. For an old-school example, Walmart owned the Arkansas market, and then the Oklahoma market, and then another geo-expanded circle; similarly, Amazon focused on books before socks. They were quick with product fit and then created the scalable merchandising models.
Many of the Big Iron players with exiting CEOs have both problems. They do not have good processes for determining product market fit, and they cannot orchestrate the model and motion fast enough. They lack a tight stitching across Sales, Product, and Development, so the customer voice is muted and the pace of innovation wanes.
I see many strong venture and growth equity portfolio companies nailing the fit and now those companies must scale the model and distribution formula for becoming a leader in their space. It’s a game of execution. I like your chances against the Big Iron!