Geoffrey Moore is chairman emeritus of three Silicon-Valley-based consulting firms he helped found: The Chasm Group, the Chasm Institute, and TCG Advisors, all of which provide market development and business strategy services to many leading high-technology companies. He is also a Venture Partner with Mohr Davidow Ventures, a California-based venture capital firm investing in IT, bioinformatics, and clean tech, where he provides market strategy advice to their portfolio companies. Geoffrey is a frequent speaker and lecturer at industry conferences and his books are required reading at Stanford, Harvard, MIT and other leading business schools.
Escape Velocity is Geoffrey’s sixth book. His first two, Crossing the Chasm and Inside the Tornado, focus on the challenges of market development for disruptive innovation, with his third book, The Gorilla Game, co-authored by Tom Kippola and Paul Johnson, address the investor implications of these models. In the past decade Moore shifted his focus to the challenges established enterprises face in keeping up with technology disruptions, resulting in a second trilogy, made up of Living on the Fault Line, Dealing with Darwin, as well as his latest book, Escape Velocity: Free Your Company’s Future from the Pull of the Past.
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Morris: Before discussing Velocity Escape, a few general questions. First, who has had the greatest influence on your personal growth? How so?
Moore: I’d have to say my wife Marie, and my three children, Margaret, Michael, and Anna. Each one of them exemplifies character traits I aspire to (and regrettably fall short of all too often!). Some of these traits include the ability to be silent (hardly my strong suit), to produce art both as performers and creators, and to empathize in situations where it would be far easier to criticize.
Morris: The greatest impact on your professional development? How so?
Moore: My very first boss in business, Don Parr, hired me as a training director into a software company. completely on the basis of all potential, as I had no direct experience in business and certainly none in technology. I remember telling him after a few weeks on the job that the only person who did not have a training program was me. He said, “Oh no, you do have a program. It’s called the pretend method of training.” I asked, “How so?” His reply: “Well, when you applied for this job you pretended that you knew how to do it, and I pretended that I believed you, and now you have to make it so or you will make us both look foolish.”
Morris: Was there a turning point (if not an epiphany) in your life that set you on the career course that you continue to follow? Please explain.
Moore: I was teaching literature at Olivet, a small college in Michigan, and Marie and I realized we wanted to raise our family closer to our families on the West Coast. There was no chance that we would be able to do that and have me stay in my chosen profession. So we sort of just jumped and trusted that something good we be there at the other end. It certainly has worked out that way, which I think is a testimony in part to a good liberal arts education preparing one, really, for anything.
Morris: To what extent has your formal education proven invaluable to what you have accomplished in your life thus far?
Moore: Literary criticism is all about inference, analysis, and synthesis—and so is marketing. Both are all about understanding and creating stories, testing them for appeal, credibility, consistency, and so forth. Particularly in venture capital, the story is the most credible part of the pitch—the spreadsheets by far the most fictitious.
Morris: In your opinion, who should be centrally involved in formulating an organization’s strategy?
Moore: Strategy has to be owned and sponsored by the CEO—period. How much the CEO engages the rest of the team is a matter of culture, style and preference. There is no right answer. That said, in our practice we have found that when people are involved in creating strategy, they are much more likely to commit deeply to implementing it.
Morris: By what specific process should it be formulated?
Moore: As outlined in the book, we propose taking three passes at it, the first focused on vision¸ to set the context, the second on strategy per se, and the third on execution, to ensure its implementation. We believe that these dialogs are typically best conducted on an annual basis, and scheduled the quarter before next year’s annual planning and budgeting process begins.
Morris: What are the most common misconceptions about what strategy is…and isn’t. What in fact is true?
Moore: Strategy is all about aligning with forces in the world so that you can accomplish your mission or goals. It must start with an act of description¸ therefore, in preparation for an act of prescription, that specifies how you are going to act in order to achieve the alignments and outcomes you desire. The most common mistake with strategy is to start with a focus on what you want, and even worse, what metrics you want to achieve, and then to go out and try to impose that on the world without other considerations.
Morris: Here are two of my favorite quotations. Please respond to each. First, from Peter Drucker: “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”
Moore: Possibly redoing it might trump this, but not much else. So yes, doing the right things has to take priority over doing things right. But strategy should not denigrate staying the course or steady as she goes. There are times and places where that is by far the most effective path forward.
Morris: And next, from Michael Porter: “The essence of strategy is choosing what not to do.”
Moore: I disagree. I do think this is a good litmus test for testing an organization’s level of commitment to strategic action—if you won’t give up anything, then you are not making much of a commitment. My nominee for essence is the asymmetrical bet, doing something that your direct competitors simply will not copy because it goes beyond what is reasonable and prudent. The only justification is that it defines your core so directly that it is worth the risk to you—but not to anyone else.
Morris: In your opinion, what is the single greatest challenge that CEOs will face during (let’s say) the next 3-5 years? Any advice for them?
Moore: Two challenges in tandem—globalization, which will reward them for taking the long view, and financial markets, which will drive them to take the short view. Like Odysseus, they have to sail the right path between cave of Scylla and the whirlpool of Charbydis.
Morris: Now please shift your attention to Velocity Escape. When and why did you decide to write it?
Moore: After a decade at TCG Advisors consulting to large enterprises, it became clear that the Hierarchy of Powers framework provided a critical anchoring point for all our dialogs and the various models that informed them. So we were looking for a vehicle to publish it. I decided to write it in April of 2010, handed it in the last day of the year, and it appeared in print nine months later (reflecting one of several challenges the book industry is currently grappling with).
Morris: Were there any head-snapping revelations while writing it?
Moore: No, this was more the culmination of a decade’s worth of head-snapping challenges—it was actually the reduction in whiplashes per unit of time that brought it on, giving us the confidence (or perhaps the delusion) that these methods are proven.
Morris: To what extent (if any) does the book in final form differ from the one you originally envisioned?
Moore: In the first draft, the book was more about strategic planning models and methods. In the second draft, the whole narrative around freeing your company from the pull of the past came into being, and that gave the book its story arc and its emotional relevance. Prior to then it was more about us. I think the final book is more about our clientele. I certainly hope it is, at any rate.
Morris: Please explain the meaning and significance of the book’s title.
Moore: Escape velocity is, of course, the result of applying sufficient power to an object to get it beyond the gravitational field of the planet to which it is captive, whether that be putting it into orbit around that planet, or sending it off into the universe at large. That came from the whole metaphor of launching a new businesses and the all-too-frequent discouraging experience of watching them fall back into the old businesses. Indeed, it was so commonplace, it was beginning to generate a “So what?” response. That’s what led to the subtitle. We believe that the world is asking companies to join it in a new future, based in part of the company reinventing itself, and we think a lot of management teams would like to accept this invitation but feel held back by their lack of track record in succeeding with next-generation initiatives. Hence this book.
Morris: Why specifically should any company (whatever its size and nature may be) free its future from “the pull of the past”?
Moore: The early adopter reason is to create breakout growth by entering a new business. The forcing function for pragmatists is a disruptive change in the sector or category that marginalizes the old ways. In either case, staying the course, while still part of the mix, must not constitute the entirety of the mix. But for reasons that are all too familiar to my readers, it often does. Over the past several decades this has led to the demise of dozens and dozens of Fortune 500 tech companies.
Morris: Most change initiatives fail and, more often than not, the resistance to change is cultural in nature. In Leading Change, James O’Toole says that cultural resistance tends to be the result of what he so aptly characterizes as “the ideology of comfort and tyranny of custom.” Presumably you agree. How specifically to avoid or overcome such resistance?
Moore: Yes, these are some of the “entitlement” forces we call out, but it is important not to be contemptuous of them. There are four very well known causes for these effects, each of which deserves our respect. They are: 1) the innovator’s dilemma (which binds you to your legacy customers), 2) the asymmetry of risk (the more successful you are, the less you have to gain, and the more you have to lose), 3) the pragmatics of annual planning (which take last year’s plan as their starting point, thereby privileging legacy businesses from the starting gate), and 4) the short-term nature of the financial markets (the average holding period for a share of stock having slipped below one year). So let us not trivialize the challenge.
That said, it must be met. The book advocates creating a dialog around power to complement and counterbalance the ever-present dialog around performance, and to conduct that dialog in the quarter prior to beginning next year’s annual planning process. As an output, the team must declare its power initiatives in advance of its performance commitments, and hive off the entire tree of resources needed to bring them to fruition. Given that performance commitments escalate every year, the team has to understand that its pool of human and financial capital for power initiatives is much smaller than it may appear, hence the importance of Porter’s idea about strategy being a lot about what you are not going to do.
Morris: Here are two separate but related questions: What is the Hierarchy of Powers?
Moore: The Hierarchy of Powers is an organizing model for having a comprehensive dialog about power. What we learned is that power manifests itself at multiple levels, of which we call out five: Category Power (a result of the growth dynamics of the sector one is in), Company Power (a result of the market position one has relative to competitors), Market Power (a result of the market position one has relative to customers), Offer Power (a function of the differentiation of your offers) and Execution Power (a function of your ability to take transformational initiatives past their tipping points). We use the Hierarchy of Powers both to diagnose the current state and to design the desire future state for any given enterprise, regardless of size or maturity. That said, Escape Velocity is focused primarily on the concerns of large, established enterprises seeking to revitalize themselves through breakout growth initiatives.
Morris: How and why is hierarchy “a framework of frameworks”?
Moore: To analyze power at any given level, we leverage a library of frameworks and models we have developed over the past twenty years in all the books leading up to Escape Velocity. Thus, for example, the Technology Adoption Life Cycle, at the core of Crossing the Chasm and Inside the Tornado, is a key framework for category power, where as the Return on Innovation models in Dealing with Darwin are key to our view of offer power. Each chapter delivers frameworks for diagnosing and prescribing power at one of the five levels in the hierarchy.
Morris: What is the relevance of escape velocity to the category maturity life cycle?
Moore: As just noted, it is the underpinning model of category power. What becomes clear is that, while there is great power to be tapped here, it is very difficult for established enterprises to do so. That’s because new categories typically are led by organic innovations that may take the better part of a decade to mature, and most established enterprises cannot get permission from their shareholders to invest that long or that deep. The great ones still do—Amazon and Apple are strong examples—but typically over the objections of the financial markets, and perhaps more importantly, over the objections of the executives in the core businesses that are funding these forays into the future. More often than not, these forces block the migration.
Morris: Please explain the reference to “crown jewels” in Chapter Three.
Moore: Crown jewels are an ingredient of company power. They represent unique assets that are closely held by your enterprise and capable of generating customer-capturing differentiation and thus sustainable competitive advantage. Examples can include proprietary technologies which are often patented, domain expertise in one or more customer industries, business process expertise, brand power, and the like. It is critical that power strategies be anchored in crown jewels, else they are too easy for competitors to neutralize.
Morris: Insofar as market power is concerned, in which situation(s) is a segment strategy most appropriate?
Moore: Segment strategies are fundamental to any B-2-B business where complex systems represent the focus. These systems inevitably take on different characteristics depending upon the customer’s specific use cases, and these use cases tend to segment by vertical industry. This allows companies to increase their offer power by specializing in the finer details of any particular use case. By contrast, in volume operations businesses, which are often B-2-C, segmentation, while still relevant, is much less central because use cases are much less demarcated.
Morris: In Chapter Five, you identify and discuss a Six Levers model that can provide a “playbook for productivity innovation.” What specific benefits can this model help to achieve?
Moore: The six levers represent a sequence of actions that can ratchet up the yield on any business process where differentiation is not the goal, but performance and productivity are. The six levers are Centralize, Standardize, Modularize, Optimize, Instrument, and Outsource. They are essentially the backbone activities of what we used to call business process reengineering. In order to reclaim resources for innovation, you have to attack mission-critical non-differentiating processes and squeeze. Because there is risk involved, organizations are reluctant to yield resources in this area, but this is where all the waste occurs, so like it or not, you have to take it on. The Six Levers is a framework to help make sure you do the right things in the right order.
Morris: For those who have not as yet read Escape Velocity, why does offer power take up more of the total management conversation than any other element in the Hierarchy of Powers?
Moore: Offers are the only thing that customers can buy. They are the immediate source of all revenues. So you can see why management, particularly performance-focused management, would always want to be checking in on them. The problem with that is that management also needs to be attending to the power agenda, but since this is not directly and immediately reflected in performance outcomes, and since most managers are compensated largely on performance, the power dialog tends to get marginalized. We believe that offer power is best managed lower in the organization, closer to the customer, and closer to the means of production, and that upper management should spend less time in operating reviews and more time shepherding a handful of strategic initiatives past their tipping points.
Morris: How specifically can executives make a difference in offer power on a daily basis?
Moore: When you invest in offer power, there are three desirable outcomes one can achieve, but interestingly, they are not very compatible with one another. And therefore it is very important to get clarity and agreement about which of the three is the core metric for success. The three are: Differentiation, Performance, and Productivity. The first is measured by customer preference in competitive situations, the second by lack of negative feedback in customer satisfaction tests, and the third by output per unit of cost. Most companies get the first and the third but do not focus properly on the middle one. They eschew being “good enough,” spending a lot more time to be better than that, but not enough to be truly differentiated. This creates waste (there is no return for being mildly different) and worse leads to a huge backlog of maintenance tasks that, over time, creates customer dissatisfaction.
Morris: What are the three phases of “The Arc of Execution” and what does each involve?
Moore: It is a very simple model defined by a beginning (Invent), a middle (Deploy) and an end—or at least a stabilized state—(Optimize). The point of the model is that there are two tipping points along the arc, one between Invent and Deploy that determines where scaling in fact truly kicks in or not, and the other between Deploy and Optimize, determining whether productivity initiatives really stick. Both are essentially adoption issues, the former typically occurring outside the company in the marketplace, the latter inside the company in its processes, systems, and governance. Escape Velocity depends on managing initiatives beyond their tipping points, which seems obvious until you realize we rarely have any explicit metrics for knowing where we are in that journey and when or if we have arrived.
Morris: During which of the three phases do most companies encounter the most serious challenges or problems? Why?
Moore: The Invent-to-Deploy tipping point is the huge value creator (or detractor, if it is not met). Inevitably there is a J-curve operating here, where we have to sacrifice to get future rewards—not the human race’s strongest suit. Giving up in the middle of a J-curve is quite understandable and sometimes necessary but it represents a painful write-off not only of sunk costs but of opportunity costs as well.
Morris: For more than 20 years, it has been my pleasure as well as privilege to work closely associated with owner/CEOs of hundreds of small companies, those with less than $25-million in annual sales. In your opinion, of all that you offer in Escape Velocity, what will be of greatest value to leaders in companies such as these as they attempt to free their company’s future from the pull of the past?
Moore: I think all the forces in the book apply to any company that has had enough success to feel it has something to lose. At any given point in time, I believe that one of the five levels offers greater returns than the other four, so I would encourage your clients to apply the Hierarchy to themselves, pick out the level they think is most in play, and then apply the frameworks associated with that level with the goal of creating one or more strategic initiatives that they can then drive to their tipping points.
Morris: As I indicate in my review of Escape Velocity for various Amazon websites, I think it is your most valuable book…thus far. In it you offer thirteen different models of frameworks within one or another level of the Hierarchy of Powers. Once someone has read your book and begins to review these models as candidates for selection, what should that person keep in mind?
Moore: This may be a nice way of saying, Boy, there sure are a lot of frameworks here, and this could get pretty confusing, huh? In that context, I do think it is important to the let the present situation drive the subset of models and dialogs you engage in. The next thing is that these frameworks work best in open dialog where the goal is to acknowledge the elephants in the room and actually apply strategic initiatives to take them on. Political or dictatorial dynamics pretty much destroy the value models can provide, so if it is not in the cards to have an open dialog, I would not try to use this approach. But if it is, then I think these frameworks can suggest options that were not previously on the table and point to tactics that will have a better chance of succeeding than past efforts.
Morris: Which question had you hoped to be asked during this interview – but weren’t – and what is your response to it?
Moore: Actually, you asked a LOT of questions. I am feeling kind of proud to have come to the end of them!
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To read my first interview of Geoff, please click here.
Geoff Moore cordially invites you to check out the resources at these websites:
Tags: Crossing the Chasm, Dealing with Darwin, Escape Velocity, Escape Velocity: Free Your Company’s Future from the Pull of the Past, Geoffrey A. Moore The Chasm Group, Harvard, Inside the Tornado The Gorilla Game, Living on the Fault Line, MIT, Mohr Davidow Ventures, Paul Johnson, Stanford, TCG Advisors, the Chasm Institute, Tom Kippola