Better Than New

Howard Schultz Returns to Starbucks — What Does He Do For an Encore? by morepete
January 8, 2008, 12:41 am
Filed under: Innovators


Interesting news out of Seattle this afternoon. After several years with his hands relatively off, Starbucks visionary and Chairman Howard Schultz has agreed to resume full CEO duties at the company he transformed from a regional coffee bean seller into an international coffee house titan.

Starbucks has taken a beating in the stock market and the media of late, largely because of perceive gains McDonald’s has made in starting to roll out its “McCafe” services, which include cheaper versions of lattes and cappuccinos than Starbucks is willing to sell. Just today, the Wall Street Journal reported on the possibility that McDonald’s could make further gains on Big Green, and that Dunkin Donuts will be tough to stop as well.

For his part, Schultz remains as inspiring and charismatic as ever. From his memo about the return, courtesy BusinessWeek:

Twenty-five years ago, I walked into Starbucks’ (SBUX) first store in Seattle’s Pike Place Market, and from that day forward we have taken the road less traveled. Working with an exceptional group of people and summoning all the courage we could muster, we created a new kind of place—one that served the kind of coffee that most people had never tasted, an environment that didn’t look like any other store, and hiring people who were fanatically passionate about coffee and celebrated their interaction with customers. To do this, we focused every ounce of our beings on creativity and innovation. Over the years, together we have built one of the most recognized and respected brands in the world. When we went public in June, 1992, we had 119 stores. We now have more than 15,000 stores and a significant and growing presence in 43 countries, serving 50 million customers a week. These customers have placed their trust in us, and for them and for each other we need to ensure that our future is as exciting as our past.

If we take an honest look at Starbucks today, then we know that we are emerging from a period in which we invested in infrastructure ahead of the growth curve. Although necessary, it led to bureaucracy. We will now shift our emphasis back onto customer-facing initiatives, better aligning our back-end costs with our business model. We are fortunate, though, that the challenge we face is one of our own making. Because of this, we know what needs to be done to ensure our long-term future success around the world.

In the meantime, I want to thank you for your dedication to Starbucks and for your commitment to earning the trust of our customers every day. Our success is up to us. We know what we need to do to win, and we will do it.

I’ll be interested to see what Schultz does in his second run at the top for Starbucks. If nothing else, it will provide another proving ground that it can be as hard to survive the departure of a charismatic visionary as it is wonderful to work for one when he or she is in power. Schultz is a genius, there’s no question of that. But in spite of all he has done to make everyone in Starbucks understand what the company represents, which goals matters, and how to make the Starbucks experience real, the organizations went awry when he stepped away from day-to-day leadership. His return might well prove as fruitful as the second coming of Steve Jobs at Apple (though Starbucks is far from as messed up as Apple was in the mid-’90s), but the question remains: What will either company do when its inspiring entrepreneur is really gone? What are they doing to make their cultures endure.

As a colleague of mine often says: “How do you do the job without Jobs?”

Image via BizWeek


The Sweet Sound of Disruption by morepete
October 10, 2007, 1:08 am
Filed under: Digital Life, Innovators, radiohead | Tags: , , ,


Did you hear that? The music industry’s business just got disrupted. And this time, it’s going to stick. Radiohead, a multiplatinum band from Oxford just released its new album, “In Rainbows” to tens of thousands of fans over the Internet without a hitch, just 9 days after announcing its existence and with nary a record label to be seen. This war was won quietly. Radiohead came, saw and conquered.

This is a very big deal — and not just because “In Rainbows” is Radiohead’s best album in seven years. No, this matters because they have completely eliminated the middle men between themselves and their fans. Forget iTunes. Forget record stores. Forget promoters. Just log on and start listening. Artist to fans, in one click. Every penny of revenue, straight to the artist.

It’s quite common these days to discuss Business Model Innovation casually, as if it were an everyday occurrence. It actually almost never happens, as the record industry has shown. For example, the iTunes business model is exactly the same as the one found in physical record stores: Labels license recording rights from artists, then reproduce recordings and send them to direct marketers, who sell to consumers. Everyone gets a small cut. All that changes between the digital download market and the physical market is the method of distribution. Here’s the business model for “In Rainbows”: Artist makes recording and sells it to consumers. Notice anything missing?

Radiohead will likely pair up with a record label to release a CD edition of “In Rainbows” next year, but they already have the ultimate bargaining chip — they’re fine working in direct sales. What else does the record industry have to offer? If their terms aren’t met (and I imagine those terms will include absolute right to the master recordings), they can walk away happily. This is a small gunshot across the bow of the record industry, but it could turn out to be the shot heard ’round the world. Many popular artists, including Nine Inch Nails and David Bowie, are waiting in the wings to leave their labels and follow Radiohead’s example by releasing their music directly to fans and keeping all revenue. For an established artist with a loyal following but few radio hits, record labels have nothing to offer at this point. Distribution costs nothing. Promotion is meaningless. Mindshare is everything. This, then, is the real promise of YouTube and other social media. Not just for unknowns to make it big — but for the bigs to finally be on top on their own terms.

At a certain point, the question will become not why Radiohead left EMI Records when they did, but why they didn’t leave years ago. What does this mean beyond the record industry? That remains to be seen. But if I worked in any content business, I’d get thinking quickly about how to change my model to feel more like this — and a lot less like Top 40 radio.

The Anti-Gravity Culture of Collaboration by morepete
July 5, 2007, 5:36 pm
Filed under: Innovators

Life is short; art is long. – Hippocrates

People love the story of the lone genius. The lightbulb, the falling apple metaphor of inspiration and innovation. It makes a great story. It makes us feel good about ourselves and capable of great things. These great men like Thomas Edison and Steve Jobs reflect the best in us.

They’re also more myth than reality. After all, Edison and Jobs have led innovation efforts by masterfully guiding teams, not through tinkering away at ideas in a garage until they produced the answer. Upon closer examination, almost every great innovation was not cobbled together by a lone inventor. High-performance teams put them together, refined them and brought them to market in collaboration. And the best teams endure past the membership of any single member.

That essential message is abundant in this brilliant New Yorker article by David Owen (unfortunately available only as an abstract online), recommended to me by Bill Scott, a fantastic collaborator in his own right. The article is ostensibly a profile of Cecil Balmond, deputy chairman of Arup, an unbelievably good structural engineering firm that works with every decent architect on the planet.

But when you scratch at the surface a little bit, you discover a tale of an incredible culture of innovation that has outlived its founder. Ove Arup created the firm that bears his name, but he died in 1988. Though it’s now his vision, not his decision-making that guides the company, Arup’s fingerprints are all over the organization, from the kinds of projects its people take on to the experiment in relations between members of the company.

Without question, Arup is one of the most innovative companies in the world. But what drives their success and their growth? How do they make the connections necessary to realize the visionary architecture of Rem Koolhaas? It’s not Balmond, though he’s a brilliant, diligent leader. Arup wins, time and time again, by playing to the strengths that have brought them here thus far. Ove Arup knew that he would be remembered, if at all, for what he created. Not just the buildings and bridges he engineered, though they’re often spectacular, but in the organization and culture he pioneered. That’s why, when Balmond retires, Arup will continue to be the best in the world.

They have a process and culture that endures beyond any single member. We should all be so lucky.

No, Economist. Apple is not a Network Innovation Company by morepete
June 13, 2007, 10:00 am
Filed under: Innovators

By Pete Mortensen

With Apple sailing on an all-time high stock price and mere weeks from the launch of its absurdly anticipated iPhone, the serious business press is turning even more attention to the little-Cupertino-company -that-could than normal.

Take, for example, The Economist, which has placed Apple on the cover of its most recent issue for a story titled “Apple and the art of innovation.” It’s a pretty good story, nothing careful watchers of Apple don’t already know. It does, however, get one aspect quite wrong, based on a simple misunderstanding of how Apple likes to work:

In fact, its real skill lies in stitching together its own ideas with technologies from outside and then wrapping the results in elegant software and stylish design. The idea for the iPod, for example, was originally dreamt up by a consultant whom Apple hired to run the project. It was assembled by combining off-the-shelf parts with in-house ingredients such as its distinctive, easily used system of controls. And it was designed to work closely with Apple’s iTunes jukebox software, which was also bought in and then overhauled and improved. Apple is, in short, an orchestrator and integrator of technologies, unafraid to bring in ideas from outside but always adding its own twists.

This approach, known as “network innovation”, is not limited to electronics. It has also been embraced by companies such as Procter & Gamble, BT and several drugs giants, all of which have realised the power of admitting that not all good ideas start at home. Making network innovation work involves cultivating contacts with start-ups and academic researchers, constantly scouting for new ideas and ensuring that engineers do not fall prey to “not invented here” syndrome, which always values in-house ideas over those from outside.

Well, yes and no. Apple has largely gotten over its opposition to “not invented here” technologies, sure. Macs now use motherboards and chips found in virtually every PC on the planet. But it is a shocking mistake to claim the iPod is essentially a leveraged version of off-the-shelf hardware. At a component level, the iPod is quite obviously made up of chips and boards that Apple just buys. But throwing those components into a bag does not an iPod make.

Apple is a pure design-driven company. By that I mean that they rarely produce an idea that is truly new, but when they launch a product or service, it tends to be so much better than existing products in the category that it comes off as legitimately innovative and create new markets. Personal computers existed before the Apple II, but they sucked. The Macintosh was not even Apple’s first attempt at a computer with a graphical user interface (that was the Lisa), let alone the first ever (the Xerox Alto). The iPod was far from the first Mp3 player, the AppleTV is not the first living room media set-top box, and the iPhone is about as far from the first cell phone as you could get.

Yet each product has been or could prove to be truly ground-breaking. Is it because Apple continually looked out to the world and saw a great solution in the world they could buy, brand and ship, as P&G famously did with the Crest SpinBrush? Of course not! The Microsoft Zune is a much better example of Network Innovation than the Apple iPod — the Zune is simply a Toshiba media player with a slightly different interface, new software and Zune branding. The iPod was invented whole cloth, even if it used individual pieces of tech that existed in the world.

This is where Apple excels. They take ideas that people have invented — adequate functionality, a modest market of hobbyists — and turn them into innovations by fitting them into what people need. No matter the nascent market, once Apple gets there, their solution will be simpler, prettier and just more lovable than existing ideas in the market. And that’s about building a better mousetrap, something Apple does better than anyone in the whole wide world.

It’s awesome. But it’s not a primary strategy of Network Innovation.

Via Endless Innovation.

You can learn from failure without failing by morepete
May 21, 2007, 4:21 pm
Filed under: Innovators

By Pete Mortensen

Fortune online has a reader-submitted Q&A with Netflix CEO Reed Hastings. It’s a very informative interview, but my favorite part comes in the way Hastings talks about the well-worn track of fast failure.

In your opinion, do you learn more from failures or successes? Give us an example. Juan Saldivar, Monterrey, Mexico

With failures, you learn one of 99 things to avoid. So they are not that useful. I think it is more useful to learn from others’ failures. An example: AOL failed to adapt to the broadband world and clung to its narrowband dial-up specialty.

Though I’m slightly confused by the AOL example, I agree with the overall principle here. Learning from failure means a lot more than going out and screwing up everything. It means really understanding what has and has not worked in the past for others and then figuring out how to do it better yourself.

The first Macintosh computer wasn’t a success because Apple failed with the Lisa. It was a success because Steve Jobs saw what was wrong with the overall approach of Xerox PARC in bringing a workstation to market and neatly side-stepped them all.

The cliche is mostly right: Silicon Valley is built on a mountain of failure. But it you can make sure it’s somebody else’s failures that get you there.