Burn the Boats, Preserving your difference, Afterpay, Oura, Clubhouse & Leaders Ambassador role
18th July 2021 Evolution Partners Newsletter
“A company can outperform rivals only if it can establish a difference that it can preserve.” Michael Porter
Hope you’re Thriving!
It’s been a busy week with a 2-day annual workshop and several impactful meetings. Five years ago, when I first met the CEO whose leadership team I worked with this week (for the 2-day annual workshop), we discussed how he wanted to fundamentally change his business, start a new offering and switch 100% of his revenue to a new business model. And last quarter after five years we achieved that. The business is very different, and the Gross Margin percentage has almost doubled. And in business Gross Margin percentage is everything. Even better now, the strategic risk is significantly lower. We’re not finished, and it’s tough at the moment, but it’s done.
During our time together this week, we discussed the concept that we ‘burned the boats’ and how retreat is easy when you have the option. The courage that it takes to pivot 100% into a new business model without any revenue can’t be underestimated. I’ve spoken about burning the boats as a concept a year or two ago, but here’s a refresher.
Burn the Boats
In 1519 Captain Hernán Cortés landed in Veracruz, Mexico, with hopes of claiming the land for the Spanish crown and defeating the ruling Aztecs. Unfortunately for Cortés, his expedition contained some folk who were perhaps a little more loyal to the Spanish crown than they were loyal to him. They were considering borrowing a ship from his fleet and heading back to Spain, which seemed like a viable option. But, of course, Cortés wanted to gain the fame and glory of conquering the mainland and beating the Aztecs, so he disagreed with the idea that they should exercise their option to return to Spain but instead believed that they should join him to fight the Aztecs.
So he burned all the ships so that no one could return to Spain.
Here’s the lesson. Retreat is easy when you have the option.
It might have been a good idea to keep a ship or two from the fleet to get back to Spain and have a safety net just in case. But by keeping that option, it means that people are not completely committed to success.
Today, some people have the option of retreat. Of a safety net. Or they think that they have.
Burning the boats often seems like the worst thing to do. It’s really scary. It takes courage and determination that is perhaps illogical.
But sometimes, it is the best option, and real success comes from that courage.
Strategy means preserving your difference
For the intro quote in today’s newsletter, Michael Porter states, “A company can outperform rivals only if it can establish a difference that it can preserve”. If you can’t preserve the difference you introduce to the market through your products and services, it’s not a strategy; it’s only a tactic. And if you have great success with your tactics and gain market share, but you can’t preserve that position or success, then it’s unlikely your firm will endure.
Furthermore, a great strategy doesn’t make sense for the competition to copy.
This week I came across a few interesting examples of companies who can’t preserve their difference. These are companies with much larger competitors who can crush any competitor that thinks they have a successful strategy due to their market share.
Firstly Afterpay, an Australian fintech firm that launched the Buy Now Pay Later (BNPL) business model, and whose stock price was just $24 two years ago and peaked at $160 in February 2021 but then lost around 9% on Wednesday, closing at $103 on Friday when rumours leaked that Apple was set to launch a product called Apple Pay Later. On the same day, this rumour came out that PayPal launched its Buy Now Pay Later BNPL product in Australia called Pay in 4. BNPL products are appealing as they appear free to the consumer but are annoying to retailers as they shift some of the debt servicing cost to the retailer. Afterpay charges around 4.17% merchant fees and they claim to justify the high fees due to their BNPL market share and popularity amongst consumers. The average merchant charge in Australia is 3.9 per cent, and the new PayPal ‘Pay in 4’ is 2.6 per cent of the goods plus a 30¢ transaction fee. Across all transactions, this affects the retailers Gross Margin. And in business Gross Margin percentage is everything.
Afterpay, whose market cap is $30 Billion, may have innovated to launch the BNPL product, and they may have gained market share, but now that the heavyweights have entered the arena, they don’t have a difference they can preserve.
The second is Oura, the maker of a wearable ring about the size of a wedding band, that can measure heart rate and body temperature, as well as signals of a person’s overall health and recovery. Oura, who recently raised $100m against an $800m valuation, may have tech options that competitors like the Apple Watch and Fitbit have been unable to match with their wrist-based bands. Last month, however, Fitbit, whom Google owns, lodged a patent for a new ring that could measure biometric data including blood oxygen saturation (SpO2), pulse, blood pressure, glucose levels and more. And the research that Fitbit is conducting is likely to quickly make redundant any difference that Oura currently have.
The third is Clubhouse, the much-hyped audio-only app with no revenue, a $4 billion valuation as of April, and has seen app downloads drop by 90% since February 2021. Once in the app, users simply join a room and hear people talking or join in the debate. Beyond the fact that it has descended into mostly religion, politics, race, or some other controversial debates, there simply isn’t a difference that Clubhouse can preserve. Of course, this has been made materially obvious in the fact that in the last month, Facebook, Twitter and Spotify have all launched live audio room options.
US share valuations
Speaking of high valuations, I came across the chart below this week that I thought you might be interested in showing how US shares are at their highest value ever across several measures, including price to book value and price to peak earnings.
Leaders Ambassador role
On the podcast this week, Kevin and I talk about the importance of the leader’s Ambassador role, a concept from my book Made to Thrive and why even though in a leaders mind it might not seem worthy to perform ceremonial or ambassadorial duties, they are significant to others. More on the podcast below, but first, I found an extreme example of what can happen this week where it seems an inability to acquire sufficient Pfizer vaccine in Australia has been created by the Prime Minister not performing Ambassadorial duties. The excerpt below from this ABC article explains why Israel was so successful in acquiring Pfizer vaccines, and Australia has been unable to secure enough.
“Senior Pfizer executives told the businessman that if Australia was to make a more serious effort, after its treatment at the hands of relatively junior bureaucrats, it would have to come from much higher up, expressing their astonishment that Prime Minister Scott Morrison had not directly spoken to the Pfizer chairman and chief executive Albert Bourla, as former Israeli Prime Minister Benjamin Netanyahu had done on multiple occasions.”
The base premise of Made to Thrive is that leaders should stop doing other people’s jobs and focus on doing their job as leaders well. In the context of the Ambassador role, leaders should not be doing deals; they shouldn’t be buying or selling because other people are accountable for that job. Instead, they should ask how can I serve the people who are accountable for those jobs in the best manner. And often, simply opening doors or making calls can have fantastic consequences.
This week on The Growth Whisperers podcast
One of the most important things leaders must do in order to build a high performing culture is to activate the pride within their employees. Pride for their team, their product, their manager and pride for their company. Within this, a key to activating pride is the leader’s Ambassador role. For if the head of a company doesn’t have a face, it is a faceless corporation. And faceless corporations are very difficult to trust.
This week we discuss the five parts of the leader’s Ambassador role and why CEOs and leaders need to understand and perform the role of an Ambassador in their business.
Why CEOs and leaders need to perform an Ambassador role
Listen to The Growth Whisperers
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