One of the hobbies we’ve (rediscovered) since the start of the COVID-19 pandemic has been making Lego sets.
Since none of the Legos were organized, we would take our big box of Lego mixed with several sets from Star Wars to basics, a Lego instruction guide (luckily we saved all of those), and started to build.
It is a very tedious process – great for situations where you have to stay at home- where we would go step-by-step in the instructions looking through the big box of blocks looking for the right pieces.
We’d discover pieces from old block sets, and of course the oddly detached arm or head from the Lego characters (don’t ask why).
As we progressed, there were a fair number of times that required improvisation – right block but wrong color.
We did not have “perfect” sets, so we had mechs that had only one arm or an AT-AP that had blue legs. We’ve slowly amassed a collection of Lego sets of incomplete figures and sets.
Getting it right is complex. What we were building is complex. To build what we wanted to create takes a lot of input and instruction to get there.
Complexity is good and we should embrace complexity.
Complexity Makes Us Unique
In many of our conversations with founders, the question is often centered on getting to point A to B faster. It’s about what’s the answer.
The actual answer and the reality for most is the achievement of the “10-year-old overnight success”.
Building success is complex and requires knowing what pieces are needed, how to manage those pieces, and to do that well over time, which often means many adjustments and changes along the way.
This is because solving hard problems is complex.
If we use venture capital math (see this great video by Hustle Fund co-founder and partner Elizabeth Yin for a great guide on VC math), 90% of the companies in the average VC portfolio are destined to fail. This is built into the investor’s model.
Money helps, but even the investors putting money into your company expects most to fail.
The real jewel is not in eliminating complexity, but in understanding how to navigate and take advantage of complexity.
This was the beauty of the Apple iPhone, a pair of Allbird shoes, and email marketing software by Mailchimp. None of these products or services is easy to make or deliver.
The ease of use for the end-user should not be confused with making removing complexity. Quite the opposite. This adds another level of complexity that when done right, adds to the moat of competitive advantage these companies aim to create.
Complexity Is The New Normal
If COVID-19 has taught us anything it’s that change can happen in an instant. Whole economies, human movement, and interaction can be shutdown without warning.
It also taught us just how resilient our businesses are, and in many cases what is needed to make our businesses more resilient – if not thrive – in the future.
As our society and economy begin to slowly reopen how we adapt to this new normal will depend on how we adapt to the complexity of the new rules of the game.
How businesses operate, interact with customers, and grow will evolve. In many instances, businesses will no longer be recognizable to the world before the pandemic.
We are quickly moving from simple adaptation to the swiftly implemented shelter-in-place rules, to looking to the foggy future to determine what’s next for our businesses.
This starts by understanding shifts in our inputs.
Shifts In Inputs
In our world, we think of inputs as the drivers of decision-making.
How well we collect, understand, and assess improve the decisions we make. This is true with how products are made, what markets to enter, and how we price and monetize our products.
This is not an easy process, and many will do little if any at all to sufficiently collect the inputs needed to make necessary decisions.
In the new normal, it is vital to understand how these inputs have changed for our customers not only in their personal and professional lives but also in the context of our products and services.
Learning whether the customers we believed were our “ideal” customers is still valid. If so, then what do they expect to change in how they consume our products and the perceptions they have for our category.
While there is much higher-level evidence for what is shifting in the market – such as the acceleration of work-from-home and eCommerce spending – what is less clear for many businesses is what does that mean to them and what decisions to take.
Take for example a VR software company we were asked to advise on for their pricing strategy. With shelter-in-place, more people were consuming digital media more than ever and demand for more content was as high as it has been in recent memory.
There was pent up demand for more and new. Yet when this company conducted customer research, they found that more than 45% were not willing to spend more than $5 per month for a new premium VR software the company was looking to launch. What happened? Didn’t the pandemic create pent-up demand?
This research led the company to reconsider who really is their customer. They re-evaluated what components of their offer – both the basic and premium software packages – needed to change to align with the needs and willingness to pay of those customers.
For this company, better inputs helped to reframe the questions that needed asking and re-focused the path the company would need to take.
This enabled the company to then shift focus to the business model.
Rethink Business Models
When looking back at past market-shifting events and downturns, are shifts in business models. This includes businesses changing models altogether or for others the creation of new business models. Two prominent examples are the rise of freemium and subscription-based models.
Market-shifting events create new perceptions of what is essential, and what customers are willingness-to-pay for and how they want to pay. These new realities make it critical for businesses to rethink their business models.
For the VR software company, collecting and assessing inputs during a pandemic raised important questions about the business model they looked to pursue – a new subscription model.
Pursuing a new business model made sense for the company. The benefits of a subscription model for the company included more predictable recurring revenue, more customer “stickiness”, and a business model potential investors have grown to like.
Except the company learned their customers did not understand the subscription as it was packaged, and this changed their willingness-to-pay and perception of the price. This insight put into perspective what potential challenges and requirements exist in marketing and converting these customers.
Changes to the business model will be needed. The new normal requires it. But now we take the complexity of the today, and form decisions enhanced with greater clarity
Reduce Dependencies
In the decisions we make navigating complexity, getting from A to B requires dependencies.
These dependencies are there assumptions or requirements to move the ball forward.
Sometimes there are external dependencies such as changing regulations and pandemics. Others are created internally, by businesses.
How many dependencies does your business have, that are not all necessarily in your control, to move from X to Y?
Just a few months ago, the playbook to build a growth company was to build an MVP and then raise capital.
The new normal shifted this goal post, and for many startups, this is a dependency your business may no longer be able to count on.
Investors are looking for more strength in companies as a business. Is there revenue, real revenue that can grow without a constant refresh of capital? Do customers really need and want to pay for your product?
Even prospective hires are reevaluating the companies they may or may not join. With instant layoffs at smaller companies and startups, and even the larger scale cuts in well-capitalized companies (see Airbnb), the rules are changing. Stability or a demonstration of future stability (usually by achieving financial independence) is going to be a must.
Businesses will need to adapt and create even more strength in the organization they build. One of the ways to do that is by reducing how many dependencies your business has to move forward.
There are potential trade-offs such as raising less capital or growing at a slower rate. But today’s world is forcing leaders to ask, “what are you building, and is it strong enough?”.
Final Thoughts
The COVID-19 pandemic put a spotlight on the challenges ahead of us. Rather than run from complexity, these difficult times allow us to embrace complexity and create new opportunities.
Those companies that are agile in how they re-examine and re-think their businesses will be better positioned to manage the complexity ahead.
The rules of the new game have yet to be written, but waiting for certainty and simplicity will quickly dilute any differentiation created to date, and reduce opportunities to accelerate new competitive advantages in the future.
How are you navigating the complexity of the new normal? What challenges is your business facing managing complexity? Let us know what you think!
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