Execution and Strategy
Having stood on both sides of the line – analyst and corporate executive – I have done a lot of thinking about how companies succeed and what characteristics an outsider can use to predict success. The past two years I spent working inside a company did not lead to any epiphanies or clear answers, but it helped inform my internal conversation.
I think that if you speak to most venture investors and many people in the Valley, they will tell you that ideas are easy, but execution is hard. Maybe that is a simplification, but it is clear that having a great idea alone does not guarantee a billion dollar company. Many, many companies struggle with that execution piece. It takes so many factors to build a successful company. A cursory examination of the tech press should drive this point home. And one of the reasons that the Valley is so tolerant of past failures, is the recognition that failure brings many lessons on how to execute better next time.
By contrast, large companies have worked out the execution problems. They have systems and processes in place to get things done. Most of the start-ups I know are constantly juggling spinning dinner plates. While even small public companies can get from a plan to production without too much fuss.
I am starting to believe that the big difference between a “start-up” and a “mature company” comes down to this difference. Start-ups are built around a good idea and need to build up to good execution. By contrast, mature companies have gotten down the execution piece but struggle with strategy.
Now, I am deliberately conflating the words “good idea” and “strategy”. I believe that strategy is the art of sacrifice, knowing what matters most and what needs to be given up to achieve that. For a start-up, the core idea is strategy since that is all they can do, and it is always a warning sign when start-ups try to do two things at once. For mature companies, knowing what to do next is always tricky.
Many people argue that the difference between a start-up and a mature company is an excess of labor. Too many people with too much time on their hands creating too much bureaucracy. I see that as a symptom of a broader problem of strategy. Mature companies get bloated because they have lost some sense of strategy and do not know what to cut. Often, this leads to certain parts of the company capturing too much influence and stunting the company’s future.
One example to make this concrete is Nokia. The company rose to prominence, in part, on the back of its ultra-efficient manufacturing operations. With time, the size and urgency of this arm took the rest of the company ‘captive’ with all decisions viewed through the lens of keeping the operations guys fully utilized. This was a big part of the reason the company never succeeded in the US, despite 50% share in the rest of the world. US carriers each wanted certain customizations to their phones, and customizations are anathema to ultra-efficient manufacturing. Ultimately, of course, the focus on feature phone hardware manufacturing blinded the company to the shift to smartphones, which then led to the end of the Nokia brand entirely today.
Nokia could execute better than anyone, but they missed the strategy piece.
I am not arguing that all big companies lack strategy. Instead, I think of strategy as being the scarce resource at mature companies. Just like execution is the scare resource at start-ups. In both cases, companies need to tender closely to what is scarce.