You see it all the time. An executive leader is scared to make bold decisions required to grow the firm. We call it “Incrementalism.” They quickly review minor successes of the past year and re-up. The meagerly reallocate funds towards buzzwords like “IoT” and “Big Data.” These bets, while safe, seldom produce results required to hit ownership growth targets. “Let’s try harder” or “Hire an ‘A’ Player” are telltale signs.
It’s the equivalent of the safe bettor at the Roulette wheel. They have 20 chips. Instead of a few big bets, they spread all 20 of their chips across the board. If they hit, it’s a modest amount, encouraging the same strategy. They don’t look stupid, but it’s a hopeless strategy. If they lose, they’re out of luck. If they win, it’s too modest to have a meaningful impact.
As an executive, you have an advantage over the Roulette wheel gambler – information. You have access to customer requests, internal financial reports, and feedback from the field. Top firms collect this data and distill it into insights. Then they push the chips in. Think this is aggressive?
Amazon’s Big Bet
Here’s what Jeff Bezos, CEO of Amazon.com, wrote in his 2018 letter to shareholders:
“If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle… We will work hard to make them good bets, but not all good bets will ultimately payout. This kind of large-scale risk-taking is part of the service we as a large company can provide to our customers and to society. The good news for shareowners is that a single big winning bet can more than cover the cost of many losers.”
Amazon Web Services (AWS) was a big bet in 2006. The information that amazon.com had obtained came from customer requests and market intelligence. Thirteen years later, in their 2019 first-quarter report, AWS represented 13% of total sales and an astounding 50% of operating income. Big bets pay richly when they hit. Download our big bets presentation tool to present the What, How, and Why of these big bets to your organization.
Common Bet Failures
Here are three of the most common big bet failures:
- Bets based on Poor or Anecdotal information
- Project Bets vs. Program Bets
- Organizational Roll-Up Bets
1. Bets Based on Poor Information
Some bets don’t have a chance. They are created internally by gut instinct. A CEO has an idea based on an anecdotal conversation with one customer. Product development read a report on the blockchain. Marketing chooses a “hot channel” outside of their customer preferences. Sales wants to use team-based quotas. Before any bets are made, companies should know the odds. They won’t all be winners (see Mr. Bezos’s comments above), but they have a better chance.
2. Project Bets vs. Program Bets
A project is conducted within a singular functional unit. A program, on the other hand, works across functions. Think a new product is going to be a revenue generator? If so, a series of concurrent projects need to be added into a cohesive program. Marketing needs to know the benefits and target audience to plan campaigns. Sales needs enablement and dedicated sales experts to ensure the value is clearly communicated. Big bets don’t happen within a department. They are made across the entire organization. Our Big Bets presentation tool shows the effort required for every major initiative. Download it here.
3. Organizational Roll-Up Bets
Many leaders think that rolling up an organizational issue will solve alignment issues. Sales doesn’t think marketing is providing adequate leads? Roll it up under a new Chief Revenue Officer. Usually, this CRO is a sales leader who knows even less about generating leads. Top organizations know that alignment is an issue. But they don’t try to solve it with hierarchy. They create a Growth Transformation Office to ensure alignment across the entire organization. They conduct consistent meetings to ensure alignment and progress on the big bets.
What Should You Do Now?
If you haven’t been collecting the market-driven insights you need, now is the time. Read our annual research report on how firms are making these decisions. Get confident about the best you will place and plan accordingly. Big bets require collaboration and coordination. From the Ownership to the CEO to each functional unit, everybody must row in the same direction. Gather the data, select the best bets, and get going. The decisions you make in the next two months can make your next 13 years. And most importantly, put chips in necessary to get there.
Still think you need help? Contact us at SBI to set up an Annual Planning Session at the Studio. There, we’ll help you make sense of the market, competition, and where to place your high probability best.