The Six Centers

All individuals and groups have finite attentional resources.

These attentional limits constrain what organizations can do, including their efficiency, ambitiousness, insightfulness, and success. As I’ve said elsewhere:

“In his wonderful and occasionally heady book The Ecology of Attention, Yves Citton writes that ‘we never have the means to pay enough attention’ and so we end up paying attention to what preoccupies others. Limited attention leads to groupthink: we pay attention to what others in the group pay attention to, reacting to and in the context of other people’s priorities, in an endless feedback loop. Attention, in other words, is ‘an essentially collective phenomenon: “I” am only attentive to what we pay attention to collectively.'”

 
When I work with businesses as a consultant, coach, or embedded team member, my implicit task is often to expand or redirect the group’s attentional resources. Typically the biggest blind spots and opportunities reveal themselves within marketing or in any related functions that live within an organization’s relationships and revenue engine (e.g., sales, brand, customer success, donor management, etc.).

Inattention or misdirected attention internally makes effective relationship-building externally that much more difficult.

How “customer centricity” falls short

The phrase “customer centricity” has become very popular these days, and one might think I’d be all for it. As a marketer who believes in connecting all functions of the business in a deep and intentional way, I fully support having a clear view of the customer across multiple systems and touchpoints, with optimized experiences, journeys, and stories to engage and deepen the relationship at every step.

That said, I’m not a big fan of “customer centricity.”

My first issue with “customer centricity” is that it appears to be a utopian ideal rather than a proven best practice. Empirical observation will quickly show that all organizations regularly do things that are at odds, sometimes flagrantly, with what their customers actually want. Netflix recently canceled Luke Cage. American Airlines and United have both gutted their customer loyalty programs. SaaS platforms regularly kill features and raise prices. Capital One in a cheery, dissociated way, drives its customers into poverty.

The idea that an upwelling of empathy or a belief that “the customer is always right” will lead to a healthier financial position is a just-so story: true sometimes, in some contexts, to some extent… but in no way an objective reality or proven best practice.

I’ve shared this Art Kleiner quote before, and it bears repeating:

“‘The customer comes first’ is one of the three great lies of the modern corporation. The other two are: ‘We make decisions on behalf of our shareholders’ and ‘Employees are our most important asset.’ Government agencies have their own equivalent lies: ‘We are here to serve the public interest.’ Nonprofits, associations, and labor unions have theirs: ‘Above all else, we represent the needs of our members.’” (Kleiner, Who Really Matters?)

 
My second issue with “customer centricity” as a term is that it ignores the fact that all organizations have multiple “centers” that compete for priority and attentional focus, like warring families in Game of Thrones, or the various guilds and factions in the early Dune novels. The existence of multiple centers is a feature of human organizations in a capitalist system, not a bug. Customer centricity is never the complete answer.

My third issue with “customer centricity” as a term is the self-serving intentions and agendas of those who are promoting the meme. It’s notable that many design firms and enterprises pitching “customer centricity” these days are also pitching products and services. Selling “customer centricity” is not part of their selfless mission to make the world a better place: it’s a mediasphere hack to earn more revenue themselves.

CMO.com magazine, for example, is an enthusiastic popularizer of customer centricity… and it’s owned by Adobe, a self-proclaimed Customer Experience company that sells high-cost “CX” solutions that regularly leap up further in price beyond the means of legacy customers.
 

 
Adobe isn’t the only guilty party here. Many consultancies sell “customer centricity” solutions (sometimes with that moniker, or with “brand,” “experience design” or some equivalent) with no conscience or parameters as to how, or to what extent, their offerings will actually help a business. Not everyone needs ethnographic research, a highly finessed and beautiful cross-platform design system, an award-winning logo, buckets of Big Data with AI bots sorting through it day and night, combined with dynamically personalized landing pages and automated marketing follow-up. Those things are necessary or not, monetizable or not, to different degrees, depending on the context.

“Customer centricity” in other words is often a principle (in this case, a believable lie) connected to a specific tool (an organization’s products and services) that supposedly but not really will lead to a predictable result. Before any organization makes the leap from principle to tool—say, by hiring a big name UX firm for an expensive waterfall project—it would be good risk insurance to have a super solid methodology first. In other words, be sure you’re asking the right questions in the right order and only giving attention to customer centricity to the extent that it makes sense.

Getting centered

I said above that “customers” is one of several centers.

In fact, it is one of six:

External — Strategic— Growth Centers

  1. Investors (constraint + object)
  2. Goals (telos)
  3. Customers (object)

Internal — Cultural — Static Centers

  1. Homeostasis (inertia)
  2. Core Group (object + strange attractor)
  3. Shadow (strange attractor)

 
Culture eats strategy for breakfast, as they say, so it’s helpful to think of the external “centers” as an organization’s steering wheel and the internal “centers” as the brakes or backseat driving. Attention is the fuel.

Note: I’m going to ignore for now some additional levels of epigenetic complexity that kick in at enterprise scale, including issues related to internal bureaucracy, corporate strategy, and cross-sector collaboration and interdependence. Those are real and important, but they build on the foundation above.

Let’s look at each of these six centers one by one.

 

THE EXTERNAL CENTERS

 
1. Investors (constraint + object)

All enterprises, small businesses, startups, and nonprofits in a capitalist system run on money, so the will and intentions of the investors will determine the context for the organization’s overall business goals. For example, a solo designer running a lifestyle business will work within their personal financial limits, while Jay-Z will dump millions into Tidal and hope for the best. A startup will accept the steroid-driven growth requirements and milestone evaluation criteria of its VC investors, while a SMB will keep its books very clean for its next loan application. Public enterprises will take dramatic action to secure the good graces and ongoing financial contributions of their shareholders, even if these actions endanger the long-term health of the company.

Tip: Follow the money. Think outside-in.
 
2. Goals (telos)

As I’ve discussed previously, goal-setting and goal-tracking creates efficiency within a business. Clear, defined goals optimize internal attention, making sure everyone is paying attention to the same thing and the right thing. Appropriate goals are constrained by investor realities, and they prioritize external achievements over internal ones. Appropriate goals help organizations optimize (i.e., balance) long- and short-term revenue, not maximize either one.

Clear, measurable, and appropriately ambitious external goals provoke change, and for complex systems (including human individuals and groups), change is always resisted. Thus, many organizations rationalize getting by without concrete goals, which reduces short-term stress… until the stress of the work avoided becomes overwhelming.

Tip: Ask every business what its goals are. The (often incomplete) answers will be illuminating and will constrain and create context for any customer relationship-building activities or communication efforts.
 
3. Customers (object)

Customers (including nonprofit donors and anyone else who contributes to revenue) are the last of the three external centers. Asking a business “what do you want?” (the second center above) is often paralyzing. Asking them “who is your customer?” can be even more stressful. Clear customer segmentation is mandatory for any sustainable, scalable business, yet the competing pull of the other five centers can make the “who is our customer?” question a challenging one, and sometimes even a job-endangering one, to ask aloud.

Investor constraints, business goals, and customer goals are often in conflict with each other—a Business 101 reality that is sometimes lost in all the hype around “customer centricity.”

Tip: Ask every business who its customers are. Apply the four lenses of (1) demographics, (2) psychographics, (3) occasions and (4) categories.
 

THE INTERNAL CENTERS

 
The internal centers are more powerful and harder to work with because human beings are incredibly social, and social dynamics can quickly override what we see and how we see.

4. Homeostasis (inertia)

The first of the three internal centers is self-preservation… which by definition is in dynamic conflict with growth—i.e., all three external centers. Organizations must build in stability, sustainability, and repeatability to survive, but inertia in any complex system unavoidably becomes an end in itself due to positive feedback loops, which can endanger the health of the system. Though many organizational consultants won’t or don’t say this, equilibrium is not (only) achieved by cultivating peaceful stability but by continually confronting new challenges and threats. Equilibrium is dynamic.

Excessive internal focus prevents organizations from seeing or understanding their customers: the internal dramas and realities become all-consuming, and the view of the customer, to the extent that it exists at all, becomes a projection of the internal reality onto the outside world.

Per Pournelle’s Law, this Homeostasis center is always stronger than the Goals center. (H/t to Venkat Rao for making me aware of Pournelle’s Law.)

Tip: Advocates of homeostasis will furiously defend their position and ignore calls to change, even if it endangers the overall health of the business.
 
5. Core Group (strange attractor)

In his book Who Really Matters?, Art Kleiner coined the term “Core Group” to refer to the clique who is secretly in control, no matter what the org chart or objective, external goals might say. A give-away feature of the Core Group is that it cannot be discussed plainly within the organization. Employees who successfully align themselves to the Core Group may say things like “Charlie really gets it” or “Jo doesn’t understand how things work around here.” But “it” can never be defined aloud, and how-things-work-around-here can never be spelled out and evaluated.

Examples of Core Groups include:

  • Deceased former members of the company or board set up systems long ago that are now treated as sacred for no reason.
  • Only men or white people at a given organization succeed, because the leadership team is guilty of systematic and unconscious bias.
  • There is a clique that unites several powerful positions across functions or levels of the organizations: e.g., a group of friends, family members, or people who share an outside affiliation or allegiance.
  • A CEO runs important decisions by their spouse, and whatever the spouse says goes. The “spouse” card beats all other cards, including core values, RACI matrices, etc.

Savvy consultants and other outsiders can sense these dynamics almost instantly. They reveal themselves in how people breathe, hold their bodies, congregate in physical spaces, what they don’t say, and where and how important communications happen (e.g., in public meetings vs. 1-on-1 vs. Slack). There will be clear patterns of deference and omission that siphon attention away from some of the other centers.

At the same time, the Core Group always has allies. The Core Group will always act in service to one or more of the other centers, which strengthens its invisible influence. To this extent, the Core Group functions like the Bene Gesserit in the Avalon Hill board game version of Dune:

“The Bene Gesserit player may coexist with other players’ units without causing a confrontation, and may command other players to use or not to use certain cards during combat (representing their use of ‘the Voice’). At the beginning of the game the Bene Gesserit player secretly records the name of another player and the turn at which they think that other player will win the game. If the Bene Gesserit correctly guesses who will win and when, they win the game instead.” (Wikipedia)

 
By the way, this is a lame and annoying rule in an otherwise excellent game. Core Group dynamics can likewise feel ridiculous or inconvenient, but like it or not, they are encoded in the rules of play.

Tip: The Core Group, like the other internal centers, cannot be confronted directly; its defenses—and defensiveness—are too strong. However, a savvy advisor or new internal leader can shine a light on whichever external centers the Core Group is currently de-prioritizing (investors, goals, customers) and use this as a forcing mechanism to get the Core Group to adapt to a new attentional ecosystem. Also, the Core Group can be forced to evolve when its allegiance to Homeostasis or the Shadow is exposed, or when an organization is in crisis and self-preservation (Homeostasis) is in jeopardy.
 
6. The Shadow (strange attractor)

The Shadow, like the Core Group, is undiscussable and its undiscussability is undiscussable. The Shadow and the Core Group might seem like the same thing, but I think they are actually somewhat distinct. An organization’s Shadow, in the Jungian sense, is whatever emotional energy the organization has failed to recognize or confront and, in fact, is always actively suppressing, at high cost. The Shadow is different from the Core Group in that there isn’t necessarily a group one can point to, only a group dynamic or emotional contagion.

The Shadow can be interpreted, but it can’t be isolated or proven, which makes it a wily beast. It can also never be fully eradicated: most thoughts and feelings are unconscious and our neurobiology is inherently interpersonal. There will always be a Shadow.

Here are some examples of organizational Shadow:

  • A CEO with an active addiction or addictive tendencies will provoke codependent relationships around them.
  • A CEO with a specific personality will force unconscious emulation of, or reaction to, that personality throughout the organization.
  • The physical working environment will warp and create culture in ways that are taken for granted.
  • Emotions that the CEO is not comfortable feeling will be projected onto others or dramatized in relationships to others.
  • The likely or imminent failure of the business, or its external destructive impact, are unacceptable realities and are therefore never discussed in a forthright, manageable way.

The danger with the Shadow is that it feels like vitality for those who tap into it and try to align to it, but it is in fact depleting. It stretches an organization’s attention away from all its other centers. (The collapse-in-progress of the WeWork IPO this month is one example of Shadow run amok.)

Outsiders who are strongly empathetic will intuitively pick up on the Shadow center quickly. They will start feeling feelings that they recognize as “not their own” and can then backwards-engineer what secrets and patterns would lead to those emotions having free reign.

“The underlying assumption here is that the patient who cannot (or will not) articulate his own dissociated and disavowed experience will evoke it in others, enact it, or embody it.” – David J. Wallins, Attachment in Psychotherapy

 
Unlike the Core Group, which supplies a secret battery pack to one or more other centers in a Bene Gesserit -like way, the Shadow supplies only lip service: it only exists to serve itself. Also, importantly, the Shadow is by definition hidden from view: many organizational dysfunctions might seem like the Shadow, but anything an internal employee is able to see and discuss is by definition not Shadow: the real Shadow is always hidden.

When the Shadow is named by an external viewer, the reaction is usually silence followed by an abrupt topic change, an angry attack, or a wave of sadness and stress as unconscious incompetence shifts into conscious incompetence. Working with Shadow is delicate work but also very powerful in expanding organizational attention capacity.

As Raphael Cushnir said: “You’re only able to proceed successfully as fast as the slowest part of you can go.”

Shadow is every organization’s slowest part.

Closing thoughts

Some bad news and good news here.

The bad news: The Six Centers exist for every business, from a single individual to a multi-national corporation. They are intrinsic wherever human social nature and capitalist macroeconomic constraints intersect. They cannot be eradicated.

The good news: Because the Six Centers are a universal phenomena, they can also be predicted in advance and used as a framework to forward organizational growth. An organization can see its external centers by looking outward, and it can bring in outsiders to gaze towards them to see what’s inside.
 
I was recently reading Jean Baudrillard’s Fragments and stumbled across the following phrase:

“There are two-way mirrors which allow you innocently to spy on people. This is one of the finest metaphors for consciousness. There is no two-way screen because there is nothing to see on the other side of the screen, nothing to see without being seen.”

 
Nothing to see without being seen.

Shortly after starting the Baudrillard book, I watched the great mezzo soprano Joyce DiDonato interview Dame Janet Baker about her craft. Baker used a very similar metaphor to describe her work:

“A glass is not a mirror. It’s something you do not see yourself in. You look through it—at something else, either the audience or at the responsibility which you have to the composer and the liberettist. You’ve got to keep the glass clean. You’ve got to be able to see out to that purpose, which is bigger than you are. And you’ve also got to allow people to look in. There is a sense of nakedness, actually. It’s a very brave thing to do, to stand up in front of other people isn’t it, and bare your soul. It’s not the sort of [thing] that’s usually done, and yet that is what we are required to do. That kind of responsibility is enormous, and one can’t expect it to be perfect. We can’t keep the glass clean all the time, but that’s what I think performing is about: you’re serving something much, much, much more important and bigger than you are, and yet you have an important role to play. So, we have to keep the glass clean.”- Dame Janet Baker

 

 
To organizations everywhere: The best way to nurture, respect, and understand all six centers is to keep the glass clean.


Scaling a small business

It’s very easy these days to start a small business.

It’s very difficult these days to scale a small business.

In my earlier post “Becoming #1,” I used a crude model to talk about the competitive environment and growth trajectory for all organizations:

 

 

I noted that every organization, at every level of scale, must become either the market leader or the thought leader for their niche or category.

And I was almost but not-quite explicit about the zigzag path all organizations take as they grow:

 

 
To sum up:

  • An organization starts as a niche player with a narrow and precisely defined value proposition.
  • Then it grows to become a disruptive thought leader, trying to create a new category around its provocative idea.
  • Over time, it becomes the market leader of a category that it has helped coalesce around its own distinctive point of view.
  • Then, if possible, it ascends higher, disrupting and creating new categories along the way, aiming for monopoly status.

The easy road gets harder

The kind of marketing needed at each stage of growth is very different.

In my article “What is positioning?” I depicted the following progression in how an organization tells its story at each growth stage:

 

 

I want to point out that this transition from a niche player to a thought leader requires a much higher investment in time and energy dedicated to marketing and brand (as well as, of course, operations and product).

Telling a thought leadership story requires clear, differentiated ideas, repeated loudly and consistently, with ritualized behaviors and signature moments to make them compelling and believable… all working against the inertial biases of an audience who doesn’t know about you, doesn’t care, or has an existing mindset that you are trying to shift.

An organization making this transition can’t just incrementally add to its existing value proposition or present a confusing buffet of value propositions across multiple offerings and audiences. It needs to have a noteworthy and ownable Big Idea. (As a marketer, I can tell you that no value prop statement is more deadly or forgettable than “We offer baby toys, fishing tackle, pilates classes… and more!“)

Graduating from the niche market leader to the mid-level thought leadership position is, in other words, a predictable “oh shift” moment in every organization’s lifecycle, where the only way to go after the expanded market is to injure your existing profitability and efficiency:

 

Going after a new Total Addressable Market at some point requires exponential investment, not incremental investment. Small organizations that cannot invest appropriately will cease to grow.

 

Almost every organization I work with is in this exact position: fixated on short-term revenue or impact with an existing audience… while needing to grow towards that next big opportunity.

The peculiar and particular challenge facing small businesses these days is that there is no longer an obvious growth ladder from niche brand to mid-sized disruptive player status. Startups can use mega doses of VC investment to rapidly ascend to the next level, but most SMBs don’t have access to those kinds of resources.

In Curtains: The Future of the Arts in America, Michael Kaiser writes:

“My experience consulting to a range of corporations in a myriad of industries, coupled with my own observations over thirty years in arts management, have created a deep-seated discomfort with the current state of the art world. The many trends at work now are going to change our art ecology forever. We have been fortunate to live in a remarkable era of arts accessibility, a true golden age. But it is coming to an end… [T]rends in technology, demographics, government support, and arts education are working against us. It is going to be increasingly difficult to thrive, or even survive, as an arts organization in the coming decades. There will be winners, for sure, but I am equally certain there will be a larger group of losers.”

 

The gathering storm that Kaiser depicts is for the most part not limited to arts organizations, or even nonprofits, but to any small business that finds there are fewer paths to ascend on the way to long-term success.

Monopolies are now dominating the landscape, and the hardy winners that make it to the middle stage, or are already there, are more surefire bets for investors, donors, and customers than building and supporting new and possibly-redundant infrastructure from below. Doordash and Square/Caviar succeed, while individual small restaurants fail.

 

The hard road gets easier

The proliferation of interesting micro businesses, gig economy side hustles, and startup success stories is to some extent distracting from the unique difficulties of small businesses (including small nonprofits) in our current environment.

That said, some small businesses are indeed growing and thriving: ones I keep my eye on include CB Insights, Venkat Rao‘s mini media empire, and the many “turnaround” nonprofit success stories that Michael Kaiser describes in his books. Mergers also remain a viable exit for SMBs who find they can’t grow on their own: across industries and sectors, we’re seeing a lot of them.

Luck, industry, skill, and resource availability of course all play a role, but the small businesses I see succeeding these days are willing to embrace experimentation—failing forward into new products and services, marketing, and operational practices—while standing in the future and foreseeing an expensive and perilous climb ahead.

p.s. For more on the growth path of small businesses, see my partially-dated, but still mostly-valid 2014 post “The future of consulting.”


The Three Machines: Nonprofit Edition

In an earlier post, I shared a model, adapted from Brad Feld, that describes all contemporary organizations as having “three machines.”

 

Each of these machines is in fact a funnel—moving clients along a journey, turning interested parties into brand advocates and dollars into sustainable strategic advantage.

 

With a few nomenclature tweaks and clarifications, this model works not just for private sector organizations, but for nonprofits, too.

The Programs machine

Though some nonprofits sell products, most are primarily services businesses, so our Product machine needs a new name.

An arts organization might label this machine “Programming,” and some other nonprofits might use “Services” or “Offerings.” But “Programs” is the label that fits best for most nonprofits and matches the language that they already use.

A private sector professional coming to the nonprofit world for the first time will need to adjust their expectations for what the Programs machine actually produces. Whereas private sector organizations can measure their products and services success using metrics like NPS, MAU, and others, most nonprofit organizations can’t use those measures to evaluate their impact. Social sector organizations exist by definition to solve things the private sector can’t: the measures of success tend to be different.

As the economy tightens, and new technologies proliferate, there is a major trend in nonprofits to have quantitative, evidence-based outcomes data for their core programs. However, having rigorous impact data is desirable but not always fully possible: for example, the data might be fiendishly difficult or expensive to collect, or no dominant paradigm may exist to know what kind of data to track; outcomes replicability across widely varying contexts might be a serious challenge, etc. etc.

To navigate these ambiguities and uncertainties, many social sector organizations articulate a specific Theory of Change. “Theory of Change” is the standard terminology to describe the intent of a nonprofit intervention or suite of interventions. The Theory of Change describes, unifies, and prescribes a nonprofit’s program strategy and also determines its program success measures. It’s equivalent to “product strategy” in the private sector. The ToC may or may not be evidence-based or fully evidence-based—i.e., it might be speculative. Hence, it’s a theory. Over time, ideally both the theory and the execution could be tested.

Note: A ToC is often critical to securing funding, since major private and corporate donors typically invest in organizations that reflect their own Theory of Change.

Nonprofit Relationship functions

Like any organization, a nonprofit needs to maintain tight relationships with a wide range of external stakeholders—strategic partners, community leaders, press, employee recruits—but the three relationship activities that tend to matter the most for most nonprofits are Marketing, Development, and Board Composition:

  • Marketing is critical to communicate clearly the value and unique point of view of the organization.
  • Development (aka fundraising) is critical to secure revenue from appropriate, segmented, and prioritized sources.
  • Board composition is important to ensure that the leadership of the organization advances those messages credibly while supercharging the efforts of the staff.

In his many excellent books, Michael Kaiser describes how the proactive, ongoing refreshing and up-leveling of nonprofit boards is essential to ensuring organizational health:

“Unfortunately, many of the board members who were helpful when the company was founded may not be able to give or develop resources; different skills are required. But too many organizations do not explicitly recognize the need for change, and the members of the board not able to make the transition are allowed to stay on indefinitely.” – Michael Kaiser, Leading Roles

 
Kaiser also talks about how institutional marketing and programmatic marketing must both be strong, and work together—an insight that has obvious parallels to the private sector. (See my previous posts on product marketing and growth marketing.) As was true for the private sector, this distinction between program, institutional, and performance marketing layers naturally across our “three machines” model:

  • Institutional marketing = promoting our organization’s long-term revenue and brand (e.g., the San Francisco Opera)
  • Program marketing = promoting individual programs (e.g., this season’s production of Romeo and Juliet)
  • Performance marketing = optimizing short-term revenue (e.g., Friday night ticket sales)

Balancing these three kinds of marketing, as always, involves difficult tradeoffs in messaging, channel investment, and funding predictability.

Note: The Relationships machine could also be labeled Revenue. Both names work equally well.

Putting it all together

When I work with nonprofits, I often use this “three machines” model diagnostically to assess where an organization is strong and where it has room for improvement. Some organizations I work with have very solid programs but no operational engine to scale their business. Some have strong marketing engines but weak boards (or vice versa). The three machines model makes it easy to isolate what’s working well and what’s not.

But the three machines don’t work just isolation—they need to work together synergistically for an organization to maximize its longevity and impact.

Michael Kaiser once again talks about a Cycle that connects an arts organization’s programs to an ever-expanding, ever-deepening “family” of supporters, who in turn drive a stable and scalable financial model. This same basic idea applies, I think, to all nonprofits. Finding this cycle, synergy, or flywheel is key to maximizing a nonprofit’s long-term opportunity.

Nonprofits have several different filters they can apply to discover and define bold, integrated strategies:

  • Mission: Why do we exist? What is our primary interest and moral responsibility and how does that deepen, expand, or shift over time?
  • Vision: What is the external impact we seek to create? Are we stretching from a short-term, known opportunity into new areas? Could we?
  • Theory of Change: How does our Theory of Change guide us to decide what we do and what we don’t do? What new hypotheses could we test for the good of our populations served and/or for the many other organizations doing cause-based work in our space?
  • Development: What are the fundraising realities of our space? What are the requirements of the private and public funding sources we currently enjoy or potentially could, with organizational changes?
  • Operations: As a nimble, small organization, what can we do uniquely well? Or, as a larger organization with significant infrastructure, what worthy goals can we take on that will lead to greater impact or more efficient allocation of philanthropic capital—particularly in today’s challenging economic and technological landscape?
  • Core Group: Do we have the right team in place internally and on our board? Is who we are limiting what do we do, and if so, how do we need to evolve our board composition to better serve our mission?
  • Leadership: What new business partnerships, business models, ventures, and programs can we envision that connect our three machines in new and powerful ways?

The need for leadership is critical: solid strategy development requires a leader who can see unique opportunities and marshall resources and energy to pursue them, working against the homeostatic internal culture.

Closing thoughts

I work extensively with both for-profit and nonprofit businesses, and I think it’s helpful to have models that apply equally well to both. The two sectors are deeply intertwined and must become even more so to pursue worthy societal goals.

For those who have been following The Next Us for a long time, you know that this “three machines” model is the culmination of a long series of frameworks related to vision, business strategy, audience segmentation, brand strategy, marketing strategy, marketing planning, and board optimization. With occasional tweaks here and there, all of these component frameworks work equally well for private sector and social sector businesses.

Nonprofits, indeed, are fundametally businesses. They sometimes have a reputation for being fluffy and unfocused, but in reality, they are highly entrepreneurial, perhaps even more so than private sector organizations:

“Effectuation is an idea with a sense of purpose – a desire to improve the state of the world and the lives of individuals by enabling the creation of firms, products, markets, services, and ideas… Effectuation articulates a dynamic and iterative process of creating new artifacts in the world. Effectual reasoning is a type of human problem solving that takes the future as fundamentally unpredictable, yet controllable through human action; the environment as constructible through choice; and goal as negotiated residuals of stakeholder commitments rather than as pre-existent preference orderings.” – Society for Effectual Action, Batten Institute, UVa. Darden Graduate School of Business [emphasis added]

 


Growing up

Note: This article is the concluding post in a four-part series about growth.
 
Following World War II, the United States enjoyed unprecedented economic success as a victor of the war and the only major nation that did not suffer homeland infrastructure losses. In the US, the post-War period included an expansion of worker rights but hit a turning point in roughly 1968 which began the dismantling of those same rights. We now refer to the dominant monetary-economic philosophy of the past 30-50 years as “neoliberalism.” Among other things, it included a commitment to private sector deregulation, financialization, elimination of worker protections, and globalization of the labor economy.

In the UK and the United States, this paradigm was embraced whole-heartedly by the major political parties of the right and the left. As a worldview, it was in other words “hegemonic.” Envisioning alternatives outside a neoliberal paradigm was undiscussable if not unthinkable.

This paradigm has stopped working. The built-in error of neoliberalism was that it allowed capitalism to eat through vital social, political, and natural resources to such an extent that life became unlivable or unlikable for too many people within and outside the Western system. Voters on the left and right are increasingly voting the neoliberal establishment out, and activists and terrorists are attacking its built systems and moral authority.

Neoliberalism lives on, of course, but although it still controls attention and investment in some spheres, it is no longer a functioning paradigm or hegemony. The worthy debate at this point isn’t whether neoliberalism is good or bad, but what will replace it.

When an ideology breaks

Thomas S. Kuhn wrote a seminal treatise about this back in 1962. He said what scientists do when a paradigm fails is… (guess what)… they carry on as if nothing had ever happened. If they don’t have a paradigm, they can’t ask the question. So they say, ‘yes, it’s wrong, but supposing it was right’… and the only other option open to them is to stop asking the questions.” – Elaine Morgan

 
In a democratic political system, society holds the state in check via elections, and the state holds the private sector in check via law. When the state ceases to set limits for the private sector, the private sector will innovate in ways that are massively disruptive to society (for better or worse). As the private sector begins to exert soft or hard control over the political process—and through it, society in general—democracy will give way to corporate oligarchy and corporate feudalism.

The danger as companies grow in search of new fuel—ever upwards, ever to the right—is that they begin to eat away at the social, natural, or political substrate. If they don’t, their competitors will, so it’s illogical to think that the private sector will police itself. Private sector organizations are not inherently benevolent: some government regulation, taxation, and basic social protections are essential to ensure that private sector growth is healthy for society in general. Unchecked capitalism does not lead to prosperity.

This should in no way be a surprise, as unchecked growth is bad for any complex system: it’s fatal for the original species if not the ecology as a whole. The word “growth” calls to mind for me not just a noble oak tree or flourishing forest, but also a cancer cell, the non-native ice plants that choke the shorelines of California, and the monster in John Carpenter’s The Thing that mutates through one grotesque incarnation after another. It’s both intelligent and moral for us to treat the word “growth” with a bit of skepticism and sensitivity to context.

Many people these days believe (with very good reason) that the world is falling apart. An alternate perspective, to borrow a phrase from Mark Epstein, is that it is instead “falling together”… in the sense that we are re-cohering and falling into place, a renewed sense of place.

The illusion of neoliberalism has collapsed, not just for those who protested it, but for everyone. With one illusion gone, we are able to see a bit more of reality, a bit more clearly.

What do we see?

A riddle resolved

The trilemma of the world economy, Dani Rodrik. All rights reserved.

Dani Rodrik first argued back in the year 2000 that democracy, deep economic integration, and the nation-state can never be equally sustained, and our tough choice is to pick which two we care about most. The end of the neoliberal era has knocked hyper-globalization out of the running, reverting the dominant paradigm to the “nation-state + democracy” axis that governed Western policy after WWII. This is in fact our only available option, as there are no current mechanisms to combine global democracy with a global labor force—nor, as Rodrik notes, would this be a win for social justice. (In a global democracy, minorities would always lose; the North American population would always outvote the Maldives.)

But this axis shift is only part one of how we are “falling together.” The current backlash against globalization has meant not only the rapid dissolution of trade agreements and other international ties, but also intranational disintegration into all-vs.-all social competition. We see this playing out in Brexit, in U.S. race relations, in Facebook’s turn towards private filter bubbles as its core design strategy, in the carving-up of the mediasphere and built environment, in myriad migration and refugee crises, in our politics in general, and most crucially in the widening gulf between the 1% and everyone else. For the private sector, this fragmented economic-social-political-physical landscape jeopardizes global supply and distribution chains, so ignoring or waiting out the storm is also not possible.

The freedom to make idiosyncratic, local choices also means that individual countries are free to abandon democracy or fail to embrace it. In an authoritarian political system, the state directly controls the private sector and society at large (for better or worse). Unchecked power in any system leads to fast, dislocating changes, whether that looks like Facebook, the Three Gorges Dam, or the recent purging of Poland’s Supreme Court.

The given of where we are right now in 2019 is that the riddle posed by Dani Rodrik can no longer be answered: the nation-state, democracy, and globalized labor are threatened increasingly (though not fatally) by transnational and intranational tribes. We can see, with a more subtle reading of history, that this has always been the case. What’s “really going on” in any event is weirder and bigger than what one can see through the lens of any one sector, discipline, industry, or subjective perspective.

We’re gonna need a bigger framework.

Believing what we know

“And so I knew. And next, of course, came believing it. Knowing it — knowing it’s true is one thing. But believing what you know… well, that’s the tough part.” – Edward Albee, The Goat, or, Who is Sylvia?

“Upton Sinclair wrote that it is difficult to get a man to understand something when his job depends on not understanding it. How does this work? Not as a direct psychotic foreclosure of a part of the subject’s knowledge but more in the guise of a fetishist denial: while the subject understands the thing very well, he suspends the symbolic efficiency of his understanding.” – Slavoj Žižek, The Courage of Hopelessness

 
I mention all of this as an ambivalent conclusion to my blog series on growth in general.

In a world that’s splintering into tribes and localities, we must assume that all actors in the system will make contextual, subjective, imperfect choices. We all participate in the current neoliberal system to varying degrees as consumers, workers, voters, citizens, protestors, investors, and community members. Imperfect human beings working in imperfect human situations make imperfect choices.

At the same time, I personally care about and want to work towards a new era of collective, positive social change. Today’s tribes and splinter groups may realign—quickly—in novel and socially positive ways, within and across sectors. New technologies hold enormous potential. I believe the most inspiring organizations in human history have yet to be created.

Inspiration, in fact, is a word that I think about a lot. In its etymology, it suggests both the breath and the divine. I always think of inspiration as connecting a person with their own breath, dropping them deeper into their own grounded reality. Inspiration, in other words, is not about filling another person with your own expelled air. (When I’m exposed to adrenalized, gushy marketing around “growth”—or really, anything else—I always pause and think: “What is this person or entity trying to sell me? What are they trying to sell themselves?”)

Many people struggle daily with the pain of believing things they know to be untrue, about their own moral goodness, their families, their workplaces, the world in general. This is understandable and very human, but ultimately, it’s much more efficient and effective to believe what we know, rather than believe things we know to be false.

Postscript

Every new subscriber to The Next Us newsletter receives the following message from me…

I recently had reason to remember the following definition of “intelligence” from the Hitchhiker’s Guide to the Galaxy text adventure game, created by Douglas Adams and Infocom:

“Thirty million generations of philosophers have debated the definition of intelligence. The most popular definition appears in the Sirius Cybernetics Corporation android manuals: ‘Intelligence is the ability to reconcile totally contradictory situations without going completely bonkers — for example, having a stomach ache and not having a stomach ache at the same time, holding a hole without the doughnut, having good luck and bad luck simultaneously, or seeing a real estate agent waive his fee.'”

 
May we all be able to navigate contradictory realities with grace.


Hypergrowth basics

Note: This article is part three in an ongoing series about growth.
 
The past twelve years have seen major changes in how Silicon Valley startups talk and think about growth.

Around the time of the 2007-2008 financial crash, a set of integrated technologies (mobile, wifi, cloud, open source, HTML 5) reached what Carlota Perez calls the Deployment phase of maturity, sparking a new, long boom of technological innovation and VC investment. The FANGA companies and their children—AirBnB and Uber, and dozens of SaaS startups—have been the most obvious beneficiaries and leaders of this new phase.

With this change in the hardware and software environment came a shift in language. “Innovation” suddenly was out; “growth” and “hypergrowth” were in. When the startup community talks about growth these days, they don’t typically mean growth-in-general, they mean the specific opportunities and practices associated with this new technological infrastructure. Within the startup ecosystem, Andrew Chen, Brian Balfour, and David Skok in particular have contributed detailed, nuanced thinking to this conversation.

In an earlier article, I shared my own take on how I see internal org structures evolving in the coming years as they continue to absorb these new technologies. In my general, future-state diagrams, there were no growth marketers, growth teams, growth designers, or growth hackers in sight.

This was deliberate. I think today’s proliferation of “growth” roles and titles is part of a genuine and important transformation but one that is still in progress. As these waves crest and alter the landscape, we will be left with org structures that assume and facilitate ongoing growth rather than restrict it to certain individuals, teams, or moments in an organization’s history.

My prediction, in short:

The new “growth” thinking will become a pervasive and assumed part of all product, relationship, and operational strategy—across industries and sectors—but in doing so it will cease to be an independent or unique skill set.
 
“Growth” will thus join a long lineage of successful management paradigms. As I wrote a few years back:

“[Art Kleiner in The Age of Heretics] describes an almost-linear progression of 20th century heretical ideas— from balanced scorecard and scenario planning to quality management and lean manufacturing to re-engineering and knowledge management— each of which was absorbed, metabolized, bastardized, and discarded by the general business culture… These ideas are all worthy, but what’s notable of course is that they all have expiration dates. Once the intended clients have grokked the essential concept, and incorporated it… there’s nothing for an idea-centered consulting firm left to sell, perhaps other than simple training.”

 
Before we write the epitaph for hypergrowth, however, let’s look at what it has contributed and is still contributing. From my perspective, the new thinking around “growth” has emerged in several distinct, overlapping waves:

Let’s look at each of these one by one.

1. Growth hacking

Following the 2007-2008 financial crash, a general ethos emerged in Silicon Valley that the best way to work with and within the new media ecologies was to iteratively test small experiments and then scale the successes. Sean Ellis, Tim Ferris, agile development practitioners, the chaos engineering movement, Lean Startup, and design thinking all came to this conclusion at essentially the same time.

The trend became dominant, and in doing so, ended. Growth hacking became the default paradigm for managing data-driven hypothesis testing in a VUCA environment. For example, today a “growth hacking” mentality is implicitly woven into all digital marketing, online attention arbitrage, evidence-based social sector work, and AI-related product development. Growth hacking in 2019 is neither a formal role nor an Area of Responsibility: it’s just a general job expectation.

Five years ago, Mark Suster wrote a good article summarizing the debate at the time as to whether growth hacking was really a “thing.” Depending on your perspective, everyone involved in this conversation either lost the debate, or won it: good growth hackers must understand marketing in general or else they make painful errors, and good marketers must understand growth hacking or else their skills aren’t contemporary.

Growth hacking is dead. Long live growth hacking.

2. Growth marketing

“Growth marketing” has been a stronger and more enduring wave than growth hacking. “Growth marketer” jobs today are everywhere and in high demand.

Definitions vary, but in general growth marketing involves hypothesis-testing new product ideas and customer funnel refinements to (a) increase short-term sales and retention and (b) inspire new, sustainable business models. Growth marketing, in a way, is “growth hacking” grown up and turned into a repeatable playbook and driver of strategic advantage.

Growth marketing was at first highly associated with two specific GTM strategies: (1) low-touch acquisition at the top of the funnel and (2) built-in virality at the bottom of the funnel. Self-service, freemium SaaS products understandably have been the big winners and drivers of the “growth marketing” trend—Dropbox and Slack are just two of many, many examples. Once this marketing/product handshake or “growth loop” is figured out, it is easy to scale it quickly.

And yet…

If growth marketing sits at the intersection of Product and Marketing, how is it different from just product marketing? My belief is that there is no difference. There’s only one skill, one discipline here.

Freemium SaaS companies and their investors have driven the grittiest, most repeatable playbooks related to growth marketing, but its lessons are applicable and urgent to businesses of all kinds, sizes, and GTM strategies, since we all share the same economic and technological context. For example, the NYT recently profiled symphony conductor and composer Esa-Pekka Salonen and his ideas for shaking up the current programming and distribution of live classical music… connecting this “product” to audiences and donors in new ways, with new business models, in the current economy and mediasphere, with real-time feedback loops.

Sounds like growth marketing to me.

At this point, growth marketing and product marketing—no matter what we call them—are essentially the same thing.

3. Growth teams

It’s become common these days in Silicon Valley to have designated “growth” teams. I have seen many variations, including:

  • Independent units within Product
  • Independent units within Marketing/Sales
  • Independent units that bridge Product and Marketing
  • Independent units that run entirely separate funnels
  • Separate business units

Notice that a pattern is repeating here. First, across companies, “growth” heretics emerged, advocating for a new way of doing things. Now, within companies, growth teams are being established to incubate and leverage these heretical ideas. This is how new thinking often spreads. Creating a separate, designated team is the typical and probably necessary first step whenever a business finds it must disrupt itself to survive.

This first step though is never the last. GM eventually re-absorbed Saturn; the instantiation of DevOps overwrote legacy job descriptions for both Dev and Ops; acquired companies infect their host parents and then subtly or not-so-subtly change them. It’s unsustainable long-term for a company to have disjointed or adversarial internal teams, not because it’s uncomfortable but because it’s inefficient. As corporations get very large, they develop strategies for balancing conflicting priorities. The stepwise progression is always from separation to synergy.

If you have a Growth team today, fantastic—that might be just what you need. Here though is how that team will likely evolve, as you evolve:

  • A sub-functional Growth team within a larger function—e.g., a “Growth SEO” team within a larger SEO team—will over time merge back into the SEO team as internal processes and tools related to SEO get more efficient, and as arbitrage opportunities related to SEO become harder to find.
  • A Growth task force made up of cross-functional leaders will become indistinguishable from the leadership team itself.
  • A Growth team that is effectively playing the role of Product Marketing will take over Product Marketing or merge into it.
  • A Growth team running an independent funnel will either become a separate business unit or absorb the legacy funnel team. Penetrating new markets often involves important synergies with existing markets, and having duplicative resources spread across multiple funnels is often operationally unsustainable.
  • A Growth team that functions as an ongoing incubator for new thinking will slowly become indistinguishable from R&D, a center of excellence, or some other standard entity that in today’s large organizations already plays this role.

SaaS tools like JIRA, Asana, Slack, Airtable, and zillions of others make it very easy to atomize tasks, each of which theoretically can then be handled by an optimally allocated, precariat specialist. But over time, an army of specialists requires a higher allocation of management oversight, and any task that’s purely executional can eventually be codified as a process if not automated away. When new roles and teams proliferate within an organization, there is usually soon after a culling. Decentralization is a precursor to centralization.

“Growth” teams can be essential in the short term, but they are not permanent structures.

4. Growth phases

The so-called “growth phase” of a startup can be a source of great excitement. The organization is succeeding and scaling, huge piles of money are showing up, the team is rapidly expanding, and a big payout is on the (long-term) horizon.

Hockey stick growth, however, is also a strong signal that an organization must begin disrupting itself and creating an engine to go after a new and bigger TAM. In today’s competitive markets, Product Market Fit is becoming a day-to-day ground war, not a watershed moment. Early-stage investment is getting more complex and complicated. The overall economy is a bit frightening. In other words, the exponential growth curve crashes back into the sigmoidal one pretty quickly.

If you’re fortunate to be at a stage of organizational growth where you’re suddenly hiring new people, building new systems, chucking old ones, and raising your visibility, this is all new and a strain on attentional resources… but also entirely expected. It’s like childrearing or marriage… it’s only bewildering if you haven’t been there before, or had unrealistic expectations.

I usually choose to believe that there is no spoon (i.e., hockey stick). There’s just work that gets increasingly complex and complicated. Treating this phase as enchanted or unusually stressful is often less productive that adopting Jeff Bezos’s mindset that every day is “Day One.”

5. Hypergrowth business models

In this article, I’ve suggested that most trends related to “growth” are either cresting or receding. But there’s one particular wave left, and although it’s been building for a long time, I suspect it’s just getting started.

Way back in 2006, Umair Haque wrote frequently and intelligently about the differences between networks, communities, and markets:

  • Networks scale as a function of the number of nodes in the network. They thus tend to grow very fast. Facebook and Google both started as networks, and many SaaS businesses grew quickly due to network effects. It’s relatively easy to layer communities and marketplaces on top of networks, as both Google and Facebook have done.
  • Communities scale as a function of the size and depth of the conversation. They thus scale more slowly than a network, and are more difficult to maintain. Digital communities create noteworthy social value—Wikipedia, Reddit, 4chan, Twitter, Second Life (RIP), Quora—but so far, limited economic value for the private sector company that creates them. This no doubt is due in part to the slower growth rate.
  • Marketplaces scale as a function of the number of buyers and sellers in the market. Many successes of the Web 1.0 and Web 2.0 eras like AdWords, Amazon, iTunes, and eBay were marketplaces, as are the leading companies of our current era: Uber, AirBnB, Lyft, etc.

Networks and marketplaces have business models that inherently lead to hypergrowth. It feels like everyone got the memo a decade ago with regards to networks, but there is enormous untapped potential in marketplaces. Andrew Chen in the past month, for example, has been writing passionately about the future potential of marketplaces. And the intense, widespread VC interest in crypto is in part driven by the desire to create new marketplaces… and also to finish installing and deploying a next-gen layer of technological infrastructure that can inspire a new boom of innovation and creativity.

Hypergrowth startups can have negative social consequences. Marketplaces built by the private sector are concerning because they disrupt existing businesses and ways of life so quickly, and because the house always wins: the company (whether it’s Uber, Amazon, or eBay) privatizes a significant percentage of the gains to the detriment of the buyers and sellers on the platform. This is intrinsic to how capitalism works. Rather than expecting these companies to police the ingrained consequences of their business models, society and the political system must ensure that all the companies of the hypergrowth era are appropriately taxed and regulated.

Although marketplaces are changing our lives and our communities in sometimes-scary ways, they still hold bright promise. The book Radical Markets by Eric Posner and E. Glen Weyl, for example, is full of intriguing ideas for how marketplaces could be applied ambitiously to property rights, democratic voting, cross-border migration, data ownership, and other complex challenges in ways that could be socially positive and revolutionary.

Regardless your sector, org size, or political views—or whether you’re an investor, entrepreneur, citizen, or worker—there’s still time and reason (potentially) to be excited about hypergrowth.
 
Next article: Growing up