Compare and contrast: incrementalism and breakthroughs.
The Incremental Improvement Strategy is based on finding things in your business that could work better and making small changes. Year after year your operations improve slightly and bit-by-bit become more efficient and more effective, producing small, consistent dividends for you and your family, and your investors if you have them.
Continuous improvement, or optimization, is always going to be a sound approach to running your business. Over time, those small but steady gains add up to solid increases in income. At 7% growth, your business will double in 10 years. At 10%, it will double in 7 years. At 15%, it will take 5 years.
If you’re risk averse, this can be very effective…
- As long as the external environment remains stable (for instance, no sweeping governmental changes in the Middle East.)
- As long as there are no oil price increases or surprise shortages of other critical raw materials.
- As long as there are no across the board price reductions (as we’ve seen in housing over the past 3 years.)
- As long as consumer tastes don’t change
- As long as there is no technological shift striking at the core of your product line.
- As long as there is no gorilla competitor altering the fundamentals of your market.
So as long as none of these things happen, it could all work out for you.
But when your market isn’t stable (and whose is?), when great sea changes are tearing at the very fabric of your environment, the only thing that is going to keep you in business is creating a business breakthrough.
A breakthrough is a discontinuous, non-gradual change in your business that shifts the revenue, production, and profit curves in a completely new direction.
Breakthroughs-the kind you’ll need if you are to compete with a global competitor or deal with a radical swing in consumer tastes-cannot come from “being reasonable” and sticking to existing business rules.
Breakthroughs are not predictable from where you currently are, and they have the nasty habit of making everyone in your organization totally uncomfortable.
Until 1983, Intel made most of its money selling memory chips. The company had come under increasing pressure from Japanese manufacturers, who were building significant capacity while cutting price to grab market share. Grove concluded Intel couldn’t continue to compete like this, and he came up with a new approach.
Intel saw that the future was in microprocessors, which until then had been a tiny portion of the company’s profits. He refocused the entire business to become a “single source” for computers-on-a-chip, increasing quality and diversifying the company not by product, but by geography, making it a more stable and reliable supplier.
He risked the company’s future on this strategy, broke every rule in the business doing it-and transformed Intel into one of the three most important players of the personal computer era.
Sometimes breakthroughs happen by accident, yet even when they do, it takes guts to pursue them, because the consequences create unbelievable levels of stress.
They are almost always – by definition – totally out of alignment with your current direction.
To deliberately set out to cause a breakthrough from scratch requires nothing less than a complete sacrifice of everything you hold to be reasonable. So what if profits are down; that doesn’t mean you should dump the main source of them, does it?
In Intel’s case, it did.
I decided to post this adaptation from my book, Be Unreasonable, to show the “other side of the coin” from my best selling programs, FormulaFIVE and BlueprintsToProfits, and even my newest program for start-ups and early stage companies, Getting Started in Business. Each of these programs use my “15% solution” combining incremental and breakthrough thinking, to reliably double entrepreneur’s businesses. These programs work so well because the incremental nature is easy to implement and pretty much failure-proof, while the breakthrough comes in combining small strategies into a blockbuster one.
It’s important to remain flexible and not get locked into one model. Think big and think small at the same time. Insure steady, incremental improvement and simultaneously, look for the breakthroughs.
I’m pretty sure not everyone agrees with me on this. If you’ve got a minutes, let me know what you think in the comments.
And stay tuned, I have some really interesting promotions coming up.