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Data is for Q4 2012. See Asmyco.com for source and notes.

Two things that I love about this chart:

1. First, it’s just a great visual representation. All data should be so beautiful.
2. It reflects how Apple truly is an ecosystem company. Note that even though the revenue of hardware sales dwarfs the combined sales of digital services (i.e., music, apps, and software sales which are still huge in their own right), it is these digital services that extend the Apple ecosystem and make it large and vibrant. And of course, the larger and more vibrant the ecosystem, the more value it creates.

You can see the same “ecosystem economics” in another great brand — Amazon. Both Amazon and Apple are in the business of getting customers into their ecosystem by creating value to customers, and then consistently reducing the friction for new transactions to occur.

Once you buy a Kindle, or sign up for Amazon Prime, there’s very low friction for you to make future purchases (i.e, it’s easy for Amazon to extract new energy in the form of money, brand clout, and capabilities from its surrounding ecosystem). And just like a Lion prefers hunting grounds with lots of Antelope, the more digital services each brand offers, the more consumers desire to be a part of that ecosystem.

Keep this concept in the front of your mind when you’re scaling your own business — think in terms of creating ecosystem economics around a core value proposition where there’s low transaction friction and high customer engagement over time. Don’t be a product company. Be a systems company.

“It’s possible to rehabilitate large-scale damaged ecosystems.”
– John D. Liu

“Green Gold” is a film documentary about how farming cultures in Africa, Asia, and South America are reclaiming once fertile land from the desert. I’m inspired to share it for three very important reasons:

It’s a great synopsis of systems thinking in action. Small changes have big repercussions. Every action has an equal and opposite reaction… even continents away. And every part of the global system is interconnected and interdependent with the rest. Once you set up the ecosystem the right way, it organically grows, prospers, and flourishes over time. In the words of an expert interviewed in the film, “The world gets more and more complicated all the time, but the solutions to fix the world’s ecosystems remains relatively simple.” The same thing is true for your business growth. If it seems complicated, the solutions are simple. Be a systems thinker, eliminate entropy, apply the right force of change, know what steps to take next. Design your system or business so that it can scale organically…even without your direct involvement.

It’s a wonderful example of an individual leveraging his strengths and passions to solve a big problem in the world. The filmaker, John D. Liu, is one of the world’s foremost experts on ecosystem reconstruction. But guess what? By background, he’s just a contract documentary filmmaker. John has no formal training in ecology, biology, farming, or permaculture. He stumbled across a solution to the complex global problem of desertification. Seeing solutions that work and inspired to take action, he learned what he needed to learn while leveraging his talents of filmmaking and curiosity. This is a very powerful example of Your Genius Zone in action.

It inspires positive, concrete action in the face of accelerating climate change. According to the UN, some two billion people depend on ecosystems in dry land areas, 90% of whom live in developing countries. The scientific consensus is that the rate of desertification is increasing around the world. As this map shows, it’s a pretty big fucking deal:

So doesn’t it make sense to invest in restoring once vibrant ecosystems? The techniques are simple. The dividends are long-term and catalyze a positive impact on every aspect of society — food and water availability, renewed harmony with the land, quality of life – and act as a powerful counterweight to climate change. As they ask in the film, “If it’s possible to restore large-scale damaged ecosystems, then why don’t we do just that?”

If you’re feeling like your business will never scale, quit it. Just look at the humble beginnings of some of the world’s most iconic brands below. Then remind yourself that nothing is more powerful than consistency of vision and action sustained over time.

The 1st Disneyland

The 1st Google

The 1st Walmart

The 1st Apple

The 1st Coke Bottling Plan

‘

The 1st Nike

The 1st Kinkos

The secret to scaling your business is to design it so that you play to your personal strengths and passions. Doing so allows you to be naturally consistent in your vision and actions over time, even against seemingly impossible odds. Then, when others look at what you’ve created over the past 10, 20 or 30 years, it’s hard for them to even conceive of the humble beginnings in which you began.

In this regard, be like Walt Disney, Larry Page, Sam Walton, Steve Jobs, John Pemberton, Phil Knight, and Paul Orfela. Don’t fight against yourself. Be true to yourself and design a business model to support it.

Nilofer Merchant speaking at Ted.

Nilofer Merchant (who I think is a smart and savvy systems thinker) wrote a piece for HBR recently titled When Ted Lost Control of Its Crowd.

It’s a good synopsis of how Ted diluted it’s brand by creating licensed TedX events around the world with little or no control as to the quality and content of the speakers at those events. Then she explains the steps Ted took to address it.

You can avoid this same mistake in your own business by thinking through how to manage/engage “with the crowd” without causing a catastrophe failure to the brand (as almost happened and could still happen to Ted).

The goal of the model I’m going to share is to clarify what should remain “closed” and proprietary to the system and what should be “open” and have more freedom and autonomy.

Here’s what you do. Draw a horizontal arrow with the words “open/autonomy” on the left and “close/protect” on the right:

“Open/Autonomy” <-------------------------------------------------------------> “Close/Protect”

Next, list the functions of your organization (i.e., sales, engineering, marketing, strategy, product development, finance, admin, operations, etc.) and place those functions on a continuum following these rules:

1) Functions that can cause systemic harm should be placed on the right side of the arrow. I.e., the greater the systemic risk, the farther to the right they get placed and the more centralized control is placed on them.

2) Functions that are closest to the customer and require flexibility/adaptability to thrive should be placed on the left side of the arrow. I.e., the “closer” to the customer, the farther left they get placed and the more decentralized autonomy they have.

For example, the function of Strategic Marketing (the act developing new markets, and developing and protecting the brand) should be placed more to the right. That’s easy to understand because if a company was to choose the wrong market strategy or engage in activities that harm it’s brand, it’s a systemic risk. The business can quickly lose everything.

But a function like Community Engagement (the act of engaging with and listening to it’s brand constituents) should be placed more to the left. Why? Because this function is very close to the customer. If you try to control this messaging, you get Corporate PR Gobbleygook that doesn’t serve the brand. You put up to many obstacles that prevent the company from actively listening and responding to the market in an authentic way. Different functions. Different placement on the continuum of control vs openness.

Now to TedX. Where TedX got off track is that it treated Strategic Marketing like an open/autonomous function when it should be treated like a closed/protected function. Then, to compensate, it treated Community Engagement like a closed/protected function (blathering PR corporate speak) […]

I love this video snapshot of Brasil’s Semco. It’s a great representation of how a CEO play’s to his strengths and passions by designing the entire business to be a self-regulating system. The “system” honors the innate human drive to be creative and productive while cutting out the BS and getting rid of the dead weight.

There are few things that will bring as much power and benefit to your personal and professional life as the practice of quietly appreciating the strengths of others.

To drive this point home, I’d like you to recall a time in your past when you weren’t accepted for who you are. Maybe this was within your family of origin, in a work setting, at school, or even on a sports team. C’mon, I know you have at least one period in your life like this. When was it?

From your vantage point today, wasn’t that experience exhausting? Didn’t you spend more time and energy worrying if you’d ever fit in than you did on working towards your goal? Didn’t that period in your life pretty much suck?

You’re not alone. A recent Gallup Research poll shows that employees who feel accepted by their managers and peers feel highly engaged in their jobs while those who get negative feedback (or even worse — are ignored all together) are actively disengaged:

Source: Gallup Research.

It doesn’t take a genius to realize that higher engagement leads to higher productivity, creativity, and job performance. When we don’t feel accepted for who we are and we don’t have the opportunity to play to our strengths, it costs us a tremendous amount of energy and saps our productivity and morale.

By the way, I think this experience is pretty common for entrepreneurs. Many of us felt like we didn’t fit into the existing structures and so we create our own. But that’s for another story.

Now I’d like you to imagine something different. You’re a fly on the wall at ACME Corp. ACME is an average-performing company with an average culture.

From your vantage point on the wall, you observe that, while everyone is professional and polite on the surface, they seem more focused on what’s happening within the company itself than in how to kick ass in the marketplace.

Specifically, you notice an undercurrent of subtle “shoulds” that the colleagues at ACME hold towards each other. True, nothing really damaging is said outright. It’s usually couched in language like this:

• “Sure, Sam is a visionary but he can’t manage his way out of a paper bag. He should be more detail-focused and a little less erratic.”
• “Sarah is a great programmer but she’s moody as hell and only works on what she wants to work on. She should be more of a team player.”
• “Yes, Mark is a good project manager but he’s not really in tune with where the market is headed. What we really need is break-out thinking.”
• “Linda is smart as a whip but she’s a bulldozer. I wish she were more aware of how she impacts those around her.”

Can you […]

“Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.”
– Peter Drucker

When was the last time you got away from the office to take a good, long look at the trends that will likely impact your business, customers, and suppliers in the next five years?

I’m willing to bet that it’s been too long. With so many pressing demands on your time, energy, and focus right now, it can feel nearly impossible to step away from the day-to-day and invest some serious thought cycles in what might happen over the long term.

Of course, you already know that the best leaders and executives do actually invest the time and energy in thinking about and anticipating the future, and they do so on a regular basis. You also know from experience that, when you do step away from the day-to-day to really think, it turns out to be time very well spent indeed.

So what should you be thinking about when you’re doing strategic planning? MBA programs have something called a PESTEL analysis for strategic planning. With it, you look at what’s happening in the Political, Economic, Social, Technological, Environmental, and Legal environments and how anticipated changes will impact your business, customers, and suppliers. I can’t argue that these are reasonable sectors to examine and reflect on when thinking about your strategy. However, the PESTEL analysis also totally misses the most important factor to address!

When doing strategic planning, the most important question to ask is this: “DEMAND: Will there be more or less demand for what we do five years from now?” This is the most important question because, as I explain in detail in the book Organizational Physics: The Science of Growing a Business the goal of every business is to align unique capabilities with growing market opportunities (you want to be in top right “Happy” quadrant below):

(If you want to learn more about this diagram and how to integrate it into your planning, see Part III, Chapter 9 of my book: Organizational Physics: The Science of Growing a Business).

Never Misread the Environment

The greatest mistake a leader can make is to misread the environment. The reasons are self-evident. If, in the future, there’s going to be less demand for what you do now, then you need to be acting on this now to steer yourself into a growing sector. If you can’t find a growth sector, it’s just a matter of time until there’s no business at all. Or, if the environment zigs to a new growth opportunity, but you’ve zagged the company in the other direction, you’re pretty much out of luck. The environment trumps all, so […]

The next time you notice yourself stuck in a rut — or any time you feel like you’re not experiencing sustained momentum towards your goals — ask yourself three important questions:

1) Am I certain this is what I want?
2) Am I expecting to get it?
3) Am I open to receiving it in new and unexpected ways?

I was reminded of these questions at a lecture I attended recently by Dr. Larkin of the Applied Neuroscience Institute. His talk was a reminder that, when you listen to and act on your inner answers to these questions, you can snap right out of a rut and get back on the road. Here’s why these questions are more powerful than you might think:

1) Am I certain this is what I want?

This is a big one. Do you really want this thing? If so, why? Oftentimes we find ourselves pursuing things because we think we have to, not because we really want to. You can’t fight against yourself, so stop trying. It just won’t work.

The hard part can be discerning what it is you truly want – and often feeling trapped by circumstances, or the belief that can’t have what you truly want. Neither of these is true. You know in your heart what it is you truly want (versus what your family, friends, the “experts,” or the media tell you to want). Ultimately, it’s a question of how clear you are on your true desire and how committed you are to making it happen. The key here is getting in touch with your higher-order goal.

Let me explain. For the past several weeks I’ve had a goal to do a dozen pre-recorded webinars. It’s been one frustrating circle jerk of incompletions.

First I wrote the scripts. Partially. Then I changed gears and started designing the power points. Again, only in part. Then I decided to hire a videographer to help me. Then I realized I wasn’t clear on my overall strategy so I canceled the shoot date (sorry for being such a futz, Jason Argyropoulos). Then I went down a rabbit’s hole designing a self-service SAAS model for the webinars to feed into. Incomplete. Let me tell you, being me for the past few weeks was exhausting. Start. Stop. Turn around. Confusion. Sigh. Rut.

I’ve been in this pattern enough times in my life to know what I needed to do. “OK, Lex, if I knew that I was supported perfectly, what is it that I truly would want?” My answer was: “I’d want three in-bound inquiries per week from people I’m excited to help.”

Now I don’t know if I can capture the difference adequately but the feeling I get between the low-order goal of “I want a dozen pre-recorded webinars” and the higher-order goal of “I want three […]

Over a decade ago, Jim Collins wrote a brilliant article Turning Goals into Results: The Power of Catalytic Mechanisms that is a must read for every CEO. It ties directly into one of the core tenets of Organizational Physics — take a systems approach to change…

“Most executives have a big, hairy, audacious goal. One dreams of making his brand more popular than Coke; another aspires to create the most lucrative Web site in cyberspace; yet another longs to see her organization act with the guts necessary to depose its arch rival. So, too, most executives ardently hope that their outsized goals will become a reality. To that end, they write vision statements, deliver speeches, and launch change initiatives. They devise complicated incentive programs, formalize rules and checklists, and pen policies and procedures. In other words, with the best intentions, they create layer upon layer of stultifying bureaucracy. Is it any surprise that their wildly ambitious dreams are seldom realized?

But companies don’t have to act that way. Over the past six years, I have observed and studied a simple yet extremely powerful managerial tool that helps organizations turn goals into results. I have recently codified it; I call it the catalytic mechanism. Catalytic mechanisms are the crucial link between objectives and performance; they are a galvanizing, nonbureaucratic means to turn one into the other. Put another way, catalytic mechanisms are to vision what the central elements of the U.S. Constitution are to the Declaration of Independence—devices that translate lofty aspirations into concrete reality. They make big, hairy, audacious goals reachable.”

Read the full article…

Yahoo is in the news this week because the board just hired Marissa Mayer away from Google to be its new CEO. Mayer, who by all reports is highly intelligent and creative, excels as a product visionary. Yet not surprisingly, short-term value investors are upset about this hire. This is because they want Yahoo to focus on cutting costs and milking the company for cash until a strategic buyer can be found. So who’s right and what’s the best strategy for Yahoo? Before I answer, let me explain how we can answer this question.

In Organizational Physics, we use a simple code called PSIU to tell what’s right, what’s wrong, and what to expect from situations or decisions. Like DNA, PSIU explains why things “show up” the way they do. It can be used to understand individual styles, analyze organizational design, and even to anticipate organizational problems well in advance of when they occur. PSIU can also be used to understand and design a business strategy in a simple, elegant, and effective way.

Effective strategy design starts with a simple premise. Play to your strengths. What is your organization exceptional at? Basically, a business can have a strategy that capitalizes on:

• Better customer service than its competitors (P)
• Cheaper costs than its competitors (S)
• Higher innovation than its competitors (I)
• Stronger organizational culture than its competitors (U)

No single company can be the best in all four. Why? Because any given strategy consumes finite time and energy. It’s expensive and time consuming to invest in any given track. Great companies recognize where they will place their focus and what they will sacrifice.

For example, Zappo’s focuses its strategy on having a stronger organizational culture (U) and providing better customer service (P) than its competitors. They’ve done a great job of using those strengths to their advantage so far. Can you get cheaper shoes (S) elsewhere? Yes!

Amazon (which owns Zappo’s and seems to allow it to operate autonomously), on the other hand, focuses on providing the lowest cost (S) possible and providing great customer service (P). Is Amazon an example of great organizational culture (U)? Not according to insiders.

Walmart excels at delivering cheaper costs (S) than the competition. But notice that Walmart doesn’t also focus on providing a personalized shopping experience (P) or showcasing the most innovative hot new fashions (I) like a small boutique store must do. Nor is it recognized for having a great organizational culture (U). You can’t be all things to all people. Don’t even try.

In order to make sacrifices to play your strengths, you must first and foremost understand what’s happening in the environment. What type of industry do you operate in? Is it growing or aging? Are your current strengths still relevant and will they be relevant […]

In his thought-provoking book The Genius of the Beast: A Radical Re-Vision of Capitalism (2010), author Howard Bloom introduces the concept that nature explores and consolidates information using fission-fusion strategies. Fission refers to splitting apart. Fusion refers to bringing together. According to Bloom, fission and fusion are relevant to human systems as well. In other words, they apply to both human individuals and organizations. This is a powerful metaphor and it’s also useful for looking at tendencies within your business. Beyond the level of scientific frameworks, these two metaphors can help you to better lead and manage your organization.

Organizational “fission” and “fusion” don’t happen at the same time. Like a heartbeat, they happen in a rhythm. In-out, in-out, in-out. If your business is demonstrating a lot of activity involved in making new discoveries and attempting to drive things forward, we can describe it as being in “fission” mode. If it’s digesting its discoveries and consolidating people around them, we can refer to this as “fusion” mode. In other words, we can map fission and fusion onto our PSIU matrix.

If you look at the PSIU matrix of Organizational Physics below, you’ll see that Producing and Innovating forces are really fission strategies, while Stabilizing and Unifying are fusion strategies. Your organization needs a mix of both but, by law, these forces compete for available energy. Understanding that fact alone will help you to recognize and accept what forces (more fission or more fusion?) are really required for your organization and team at any given time – and why – and then give the system what it needs.

As a manager, you want to create a conscious rhythm for your business and your teams. Team meetings, strategy sessions, and group events are tactics for improving team fusion. On the other hand, giving your team the time, space, and autonomy to execute on the daily work, while tracking progress and giving clear feedback, are tactics for improving fission. What strategy should you deploy when?

If it feels like your team is too fragmented — like a clutch of chickens running around with their heads cut off — it’s a sure sign that there’s a need for more fusion. You’ll need to invest more time and energy on getting everyone on the same page, step away from the daily work, and seek to create team-wide alignment. Or, if it feels like your team is too consolidated — bogged down in bureaucracy, process, and pointless meetings — then break some glass and set them free. Get them out there mixing it up in the world and getting shit done.

While both fission and fusion are necessary for […]

Technical skills are the knowledge and skills specific to a particular occupation. Programming is a technical skill. But so are sales, marketing, writing, customer service, accounting, and so on. The best way to evaluate high technical skills in any area is to not to interview for them but to test for them.

I first saw the testing approach many years ago by watching interviews for software engineers. A potential new hire gets invited to the company to meet with one or two trusted members of the existing software team. The interviewee is given a laptop and a series of software problems to solve. Right there on the spot, the interviewee must code solutions to those problems.

Two things struck me when I first saw this interview technique. One, it’s a fast method to assess someone’s technical skills. Two, why in the heck wasn’t this same approach being used when hiring for every other position in the company? Need a VP of Marketing? Test their technical skills on the spot by having them write a press release or create an ad campaign. What about a VP of Sales? Have them pitch the room as if it were a sales prospect. Need a secretary? Have him or her answer the phone and deal with an emergency.

Of course, assessing for cultural fit, PSIU style fit, and aligned vision and values are a different interviewing challenge. But using a technical skills test allows you to quickly assess someone’s capabilities so that you can focus on those other areas of alignment. So the next time you’re interviewing a candidate and it’s time to assess their technical skills, remember to use this simple approach: “Don’t tell me; show me.”

Don’t be like this schmuck. You can learn how to create real rapport with people when you stop trying to create rapport. For example, have you ever been in a conversation with someone who you could tell was making a conscious effort to build rapport with you? It’s got to be one of life’s more unpleasant experiences. I remember one example in particular because I was actually speaking with a famous NLP (Neuro Linguistic Programming) expert — someone who supposedly had mastered the art of making others feel comfortable, developing instant rapport, and creating an environment for powerful influence. And oh, did he make my skin crawl.

During this brief conversation, I couldn’t help but notice the guru practicing his craft. I’d cross my arms, he’d cross his hands. I’d tilt my head, he’d tilt his head. I’d speak in a rhythm, he’d follow along. Then, in an attempt to really show me how much he really cared, he even touched my shoulder and nodded his head empathetically. Wow. I finally found a person who really cares about me!

I couldn’t help but think to myself, “You know, this schmuck is what gives the study of influence and rapport a bad rap. If he’d quit applying ‘tactics’ and instead just calm down and approach each conversation with an attitude of curiosity, openness, and empathy, he’d do himself and all of his students a great favor. Heck, I might not even feel nauseous in his presence.”

If this is you, if you feel sick and tired of all the rapport-building “tactics” out there and seek a superior way to create harmony, rapport, and influence with those around you, then I have something for you to try…

Real Rapport is Not a Sales Technique

Most rapport building gurus focus on teaching you how to match cues from words, eye movements, and body language while using precise spoken language patterns. Their goal is to get their “influencees” to be receptive to whatever it is they are selling, to more easily overcome any objections, and quickly get them to say “yes.”

But I want to let you in on a little secret. You can throw all these tactics out the window if you can just allow yourself to be genuinely interested, curious, and empathetic with those around you. In other words, be open to their point of view. See and feel the world as they see it. That’s enough. Stop focusing on rapport tactics and getting what you want and instead, embody rapport as an attitude of empathy that you carry with you everywhere.

Basically, rapport is most effective when it comes from an attitude and an intention to see the world as others see it, rather than a sales or management technique used to get what you want. […]