Keeping Your Team Focused on your Value-Creation Strategy
August 09, 2008
Case categories include: Human Resources Leadership Strategy & Planning
By Robert Sher
There are a lot of ways of creating very valuable businesses. But John Keagy, CEO of ServePath knows that his way of creating value is by being fast and agile: Being the first in the market with a new service or product.
He's done it over and over again. Some services hit right on, some just rolled along, and some died quickly. He’s started 13 businesses. But his average has been quite rewarding: He sold 3 of his first 7 businesses and has never lost an investor a single dollar. In 2001 he started his seventh venture that has three stable business units in it, with a fourth business just now leaping off the starting blocks. It's called GoGrid, and it's all about cloud computing.
What's instructive is that as his company grows, John has to promote and stand resolutely by his philosophy about value creation, even to his own team.
Here’s the Keagy philosophy: It is founded on the assumption that the biggest risk in innovation is market acceptance. Too many entrepreneurs focus on execution, which is a controllable risk, where market acceptance is an uncontrollable risk that must be tested to be managed. You should not risk too many resources until you have an indication of market demand. This requires shortcuts. Keagy knows from experience (the hard kind) that most exciting ideas actually don’t get validated by the market. Keagy calls this “geeking out”. It’s where technical types build amazing products and services that no-one wants. It is all too common in technology startups. He resists those on his own team that want to make the first version richer. He fights anything that will slow down the first release, knowing that competitors are likely working on alternative solutions. He fights any spiraling of development costs for that first release, knowing that it could fail in the marketplace. He won't allow any long promotion and marketing preparations. Sometimes all the departments aren't as ready as they'd like to be for the beta launch.
But out it goes and the market decides. Life is too short and resources are too precious to get tied up into a business with less than screaming demand. If it is screaming, then resources pour in to the project, and upgrades, features, and systems are created to increase the robustness of the offering and to improve the customer experience. If the product doesn't find very strong marketplace interest, it disappears.
CEOs must understand their key advantage. This is a critical and essential step. Maybe it's quality. Maybe it's your ability to customize to your client's needs. Maybe it's your service. Most companies can only be amazing at one thing, and good at all the others. Make sure you're amazing at the one thing that will drive your business forward.
The high frequency but low cost experimentation with the marketplace is what allows Keagy more chances at bat while preserving enough resources to invest heavily in proven winners. Most new products are services aren't spot-on the first time. We learn a lot from having the market's reaction to our creativity. Don't spend too much on that first version, lest you not have enough money left to make the corrections and try again.
But sales and support will still cry for more training before launches, and engineering would love to have more time to polish the applications, and product development would want much more features in the initial launch. Accounting wants more involvement in the costing and billing systems before launch too, and marketing and PR would like at least 6 weeks to properly build up interest in the new offering. Keagy fights it all. You might find him flapping his arms like wings and gesticulating in front of his 100 plus team to drive the point home, or making chopping motions to indicate the reduction of expected budgets. And you might find him personally on the phone with customers apologizing for an oversight on a just-launched feature. But he sticks to his guns, insisting on being first -- on speed and agility over perfection and bureaucracy.
The CEO must be clear about the value creation strategy and stick with it, even in the face of resistance. He or she needs to be passionate about it, and communicate it passionately. It should be everywhere and should be a part of the culture of the organization.
Teams, especially as they get larger, want stability and order. But stability and order can be the enemies of creativity and newness. Maturing products and business units do need stability and process--the market entry rules don't always apply. In every organization there is push and pull. Just make sure that tug-of-war ends up with your unique value creation strategy at the forefront.
This marketplace entry strategy doesn't apply when a business unit isn't breaking new ground. As the units mature, the investment increases and the teams create processes and predictability for all involved. This has been true for Keagy's oldest business units, ColoServe and ServePath. The new business unit, GoGrid, is the biggest and most complex launch yet, but was fashioned from experience learned on two earlier minor launches.
The CEO must be able to differentiate between dilution of the company's momentum by pursuing several value creation strategies at once, versus resistance to the strategy because it just won't work. So while a CEO must stick to his or her guns and drive the value creation strategy, the CEO also has to be paranoid enough to realize that in some situations, too much stubbornness can be a bad thing.
So what’s your value-creation strategy? Are you sure? Yes? Then stick to it, and keep your team’s energy focused on it.
Robert Sher is principal of CEO to CEO, specializing in assisting CEOs and business leaders as they navigate critical passages. He is the author of The Feel of the Deal; How I Built a Business through Acquisitions. He may be reached at Robert@ceotoceo.biz.
1. The CEO has to understand the key value creation strategy and keep the team focused on it.
2. Only being good (and not great) at secondary functions or product attributes will irritate many departments in the company, but starving those areas for resources is essential, so that they key value creation strategy is well funded and can tolerate a few mistakes.
3. Value Creation strategies are often very different that the strategies we use to broaden a stable business. Be sure to change strategies when the external environment demands it.
Company and Case Facts:
Company: ServePath LLC
Person: John Keagy, CEO
Alliance Member since: 2006
Business Founded: 2001
Annual Sales Volume: Over $20mm recurring revenue.
Head Count: 167
Service: Internet services for businesses with very high customer traffic.
Typical Customer: Fast growing Web 2.0 companies and enterprises with exciting internet business
Written: June, 2008
Address: 345 Spear St Ste 515, San Francisco, CA 94105-6156
Web Site: http://www.servepath.com.com/ and www.gogrid.com
Phone: (415) 869-7000