Imagination is better than knowledge. Part 2

A theory of the business is based on assumptions — the stuff of imagination. (Of course assumptions should be as realistic and as specific as possible, but they are about the future, of which no one has knowledge.) These assumptions, writes Drucker, “are about marketsГ‰about identifying customers and competitorsГ‰about technology and its dynamicsГ‰about a company’s strengths and weaknessesГ‰about what a company gets paid for.” Every company has a theory of the business. It’s either valid or invalid, known or unthinkingly accepted. It is made up of three parts:

Assumptions about the environment.

Assumptions about the company’s mission.

Assumptions about what core competencies are needed to accomplish the mission.

The theory of the business can become very powerful as it contributes to survival, growth and profitability. But its very power can turn it into a millstone when situations change. Drucker’s look at business history convinces him that companies are not good at recognizing that their theories of the business are outdated: “Every big, successful company throughout history, when confronted with such a surprise, has refused to accept it.”

Where are the companies that pioneered the huge mainframe computers? Why was every computer maker convinced the personal computer would never be a success? Why did computer makers concentrate so long on just making machines, when it turned out that software really launched the computer generation?

Success that leads to failure
Ironically, it almost seems that success carries a mechanism that leads to failure. Wasn’t it the wise King Solomon who said: “Pride goeth before a fall”? Some cracker-barrel philosopher confessed: “It weren’t what I didn’t know that done me in; it was what I knowed that weren’t so!”

There’s nothing like success to cloud your imagination of what could be. I belonged to a local gym eight or nine years ago that had a good startup and was running well, although with some old-time financial practices and attitudes toward clients that were probably handed down from the bodybuilding-name company that sold them the franchise.

I asked one of the owners if I’d see them at an industry meeting I was going to. “No,” she said, “we never see anything that makes it worthwhile to go to those meetings.” She had no idea that finding the unexpected could be the key to the future for her club.

For a few years business was OK. They bought a couple of aerobics studios. The owners prepped for their own bodybuilding competitions. Some members complained to me that they felt kind of intimidated; that the atmosphere was not really friendly. But the equipment and the space were the best around, and the coastal community is exceptionally fitness-oriented. You were not missed if you were not there, and if you were away a few weeks and were not recognized by the front desk staff, it felt a little like crossing the Iron Curtain to get it.

There was no evidence that the management was concerned to really know their own customers, and I doubt very much that they tried to know their non-customers in the market. They were satisfied. They had a place to work out and people paying to use their equipment (although clients sometimes had to wait for the owners and their workout partners to finish supersets before they could get at a key piece of equipment). Need I tell you what happened when a really creative fitness business opened three miles away? One morning 18 months later clients were greeted by a note on the door and an empty facility. Success had killed imagination, and left a competitor free to sweep the market.

Using your core competencies
What does it take to achieve success, given your market and your mission? You need to know how to do certain things. But you also need a firm idea about what areas you do not need to (or can’t afford to) concentrate on.

Another failure-follows-success story involves those daring dreamers Orville and Wilbur Wright. After their first flight at Kitty Hawk, N.C., in 1903, the brothers continued inventing and improving aircraft. By 1905 they had built the first practical airplane. With continued improvements, the Wright plane was drawing great interest, and the Wrights even opened a flight school in 1909 — the same year their creativity hit the skids.

Their focus shifted from their key competencies, designing and building airplanes, to litigation. The first of many suits was against Glenn Curtis to stop him from exhibiting or selling airplanes that used ailerons, the movable parts of the wing that control the plane in banking and turning. The Wrights contended that these infringed their patents. Wilbur died in 1912, but the suits went on, suspended by World War I when the government required the pooling of patents.

The Wrights had a theory of business that assumed they would be paid for licensing the patents they had registered; it’s likely they would have been paid a great deal more for continuing the engineering and manufacturing work that they had shown the imagination and competency for.

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