New to Big

Introduction

In today's fast-paced business world, established companies face a significant challenge: how to stay innovative and competitive in the face of disruptive startups and rapidly changing markets. David S. Kidder's book "New to Big" offers a solution to this problem by teaching large corporations how to think and act like entrepreneurs while leveraging their existing resources and scale.

The book explores how traditional businesses can adopt a startup mindset, embrace risk-taking, and focus on solving customer problems rather than just maximizing shareholder value. Kidder argues that by implementing these strategies, even the most established companies can reinvent themselves and achieve sustainable growth in the long term.

The Decline of American Capitalism

The Golden Age of Corporate Responsibility

In the late 19th century, American capitalism was characterized by a sense of civic duty and patriotism. Large corporations, led by figures like Rockefeller and Carnegie, focused on providing reliable products and maintaining strong connections with their customers. These businesses were seen as pillars of society, serving both consumers and the country at large.

The Shift Towards Profit-Centric Business

However, by the 1960s, a significant change occurred in the corporate world. Many mega-corporations began prioritizing profit accumulation over serving consumer needs. This shift led to a disconnect between businesses and their customers, as well as a growing focus on paying executives exorbitant salaries rather than addressing societal problems.

The Shareholder Revolution

In response to economic challenges in the late 1960s, businesses began prioritizing shareholder interests above all else. This shift was influenced by economists Jensen and Meckling, who argued that appeasing shareholders should be the primary goal of corporations. As a result, many businesses abandoned activities that didn't directly boost stock prices, leading to a decrease in innovation and long-term growth.

The Consequences of Shareholder-Centric Business

This obsession with shareholder appeasement had severe consequences for businesses and society as a whole:

1. Reduced innovation: Companies focused on cutting costs rather than investing in new products or services.
2. Short-term thinking: Quarterly results became more important than long-term growth strategies.
3. Disconnection from customers: Businesses lost touch with the needs and desires of their consumers.
4. Stagnation: Without innovation, many established companies began to decline or become obsolete.

The Rise of the Startup Mindset

The Importance of Continuous Innovation

Just as a great white shark must keep swimming to survive, businesses must continue innovating to thrive in today's competitive landscape. Modern startups understand this principle and have developed a more dynamic approach to doing business.

Focusing on Customer Problems

Unlike established businesses obsessed with shareholder returns, startups look to provide new solutions to customer problems. They seek to identify "pain points" or "friction points" for consumers and develop innovative products or services to address these issues.

Examples of Successful Startups

1. Facebook: Mark Zuckerberg identified the need for people to connect and share their lives online, leading to the creation of one of the world's largest social media platforms.
2. Deliveroo: Founder Will Shu recognized the lack of delivery options for restaurant cuisine, creating a successful food delivery service.

The New to Big Philosophy

This approach to business, which focuses on identifying and solving customer problems, is known as the "New to Big" philosophy. It emphasizes:

1. Embracing risk and facing the future
2. Seeking solutions for endless customer problems
3. Continuous innovation and growth

The Success of the Startup Mindset

The top five companies by market capitalization in 2018 (Apple, Amazon, Alphabet, Microsoft, and Facebook) all share a common thread: they have adopted this startup mindset and continue to innovate and seek new customer solutions.

Microsoft's Reinvention: A Case Study

The Decline of Microsoft

Microsoft, once a dominant force in the tech industry, experienced a period of decline in the early 2000s:

1. Bill Gates stepped down as CEO in 2000
2. New CEO Steve Ballmer focused on incremental improvements rather than innovation
3. Microsoft fell behind competitors like Google and Apple

Satya Nadella's Turnaround

In 2014, Satya Nadella became Microsoft's new CEO and approached the company as if it were a startup:

1. Shifted focus from lagging indicators (revenue, profit) to leading indicators (customer love)
2. Promoted bold new ideas and encouraged experimentation
3. Emphasized long-term growth over quarterly returns

The Hybrid Approach

Nadella successfully transformed Microsoft into a hybrid organization, combining:

1. The resources, capital, and brand recognition of a corporate behemoth
2. The entrepreneurial risk-taking and innovation of a startup

Results of the Transformation

Microsoft's reinvention under Nadella led to:

1. Double-digit profit margin growth every quarter
2. A return to the top five companies by market capitalization
3. A renewed focus on innovation and customer needs

Total Addressable Market vs. Total Addressable Problem

The Total Addressable Market (TAM) Model

The TAM model has been the dominant framework in the corporate world for decades:

1. Focuses on the size of existing markets
2. Aims to capture a share of known markets
3. Prioritizes modifying existing products or services
4. Emphasizes short-term financial success and stock prices

Limitations of the TAM Model

While the TAM model can be useful in certain situations, it has several drawbacks:

1. Leads to stagnation and potential obsolescence
2. Fails to identify new market opportunities
3. Ignores emerging customer needs and pain points

The Total Addressable Problem (TAP) Model

The TAP model is a more dynamic approach to business growth:

1. Focuses on discovering brand-new customer problems or needs
2. Aims to uncover and create new markets
3. Emphasizes innovation and long-term growth
4. Prioritizes solving customer pain points

Benefits of the TAP Model

Adopting the TAP model can lead to:

1. Exponential growth by tapping into untouched markets
2. Greater innovation and adaptability
3. Improved customer satisfaction and loyalty

Example: The Mobile Phone Revolution

The evolution of mobile phones demonstrates the power of the TAP model:

1. Initially targeted at high-powered executives (small TAM)
2. As phones became smaller, lighter, and more affordable, they addressed a larger problem (mobile communication for everyone)
3. This led to the creation of a massive new market and exponential growth for mobile phone manufacturers

Rethinking Market Research

Traditional Market Research Limitations

Conventional market research methods often fall short:

1. Customers may provide socially desirable answers
2. Reported intentions don't always match actual behavior
3. Focus on tweaking existing products rather than identifying new needs

The New Approach to Market Research

To effectively address customer problems, companies need to:

1. Observe what customers actually do, not just what they say
2. Be prepared to abandon initial ideas based on research findings
3. Adopt a flexible and dynamic approach to observation

Example: Voice of the Customer Approach

The voice of the customer approach can be misleading:

1. Customers may report liking a product and willingness to pay
2. However, they may not actually commit to purchasing when asked directly
3. Companies need to look beyond surface-level responses

Embracing Flexibility in Product Development

Companies should be willing to pivot based on customer insights:

1. Start with an initial product idea (e.g., sugar-free candy)
2. Conduct research to understand customer motivations (e.g., "treating themselves")
3. Be open to exploring entirely new product categories based on these insights (e.g., makeup, houseplants)

The Importance of Productive Failure

Learning from Failure

Embracing failure as a learning opportunity is crucial for innovation:

1. WD-40 took 40 attempts to perfect its formula
2. Bubble Wrap was initially conceived as wallpaper before finding success as packaging material

The Fear of Failure in Corporate Culture

Many established companies struggle with admitting and learning from mistakes:

1. Executives are often highly competitive and averse to failure
2. Employees may avoid voicing concerns about doomed projects
3. This can lead to prolonged investment in unsuccessful ventures

Creating a Culture of Productive Failure

To foster innovation, companies should:

1. Encourage small, fast, and cheap failures
2. Allow employees to experiment and learn from mistakes
3. Empower leaders to kill off doomed projects early
4. Create an atmosphere where it's acceptable to confront superiors with the truth

Benefits of Embracing Failure

By incorporating failure into the innovation process, companies can:

1. Learn valuable lessons quickly
2. Avoid wasting resources on unsuccessful projects
3. Foster a culture of experimentation and creativity

Building the Right Team for Innovation

Identifying the Right Candidates

To implement the New to Big philosophy, companies need to assemble a team with specific traits:

1. Adaptability: Ability to change direction when faced with new challenges
2. Curiosity: Skill in detecting patterns and building innovative ideas from diverse sources
3. Humility: Willingness to work collaboratively and put the team's success above individual ego
4. Passion for experimentation: Determination to find solutions through relentless testing and iteration

Looking Beyond Traditional High-Performers

The ideal candidates for an innovation team may not be the typical high-performers in a TAM-oriented company:

1. Seek out iconoclasts, free-thinkers, and contrarians
2. Look for individuals who may have been passed over for promotion due to their unconventional thinking
3. Value creativity and adaptability over smooth operation within existing systems

Creating a Diverse and Collaborative Team

To maximize innovation potential, companies should:

1. Bring together individuals with diverse backgrounds and skill sets
2. Foster a culture of open communication and idea-sharing
3. Encourage cross-functional collaboration and knowledge exchange

Empowering the Innovation Team

To support the innovation team's success, companies should:

1. Provide resources and autonomy for experimentation
2. Create a safe environment for taking risks and learning from failures
3. Establish clear goals and metrics for measuring progress and success

Intelligent Risk-Taking and Investment

The Need for Flexible Funding

Traditional budgeting processes can hinder innovation:

1. Annual budget allocations may be too rigid
2. Bureaucratic approval processes can kill new ideas before they reach senior leadership

Implementing a Growth Board

To facilitate investment in new ideas, companies should consider creating a Growth Board:

1. A small team at the top of the company
2. Quickly judges the merits of new ideas
3. Allocates funding and monitors project development

The Step-by-Step Funding Approach

Rather than allocating large amounts of funding upfront, companies should:

1. Invest small amounts at the beginning of each project
2. Allocate additional funding as the project progresses and shows promise
3. Be prepared to withdraw funding if the idea fails to gain traction

Benefits of the Growth Board Model

This approach offers several advantages:

1. Allows for multiple projects to be explored simultaneously
2. Reduces risk by enabling early termination of unsuccessful ventures
3. Creates a sense of urgency and competitiveness similar to that faced by startups

Hedging Bets Through Multiple Investments

Given that most new business ideas fail, companies should:

1. Invest in many ideas at once
2. Recognize that failures can provide valuable insights and learning opportunities
3. Increase the chances of discovering a highly successful venture (like Uber or Airbnb)

The Always-On Mindset

Embracing Continuous Innovation

To thrive in today's business environment, companies must adopt an "always-on" mindset:

1. Constantly seek new opportunities and customer pain points
2. Encourage ongoing experimentation and learning
3. Remain agile and adaptable in the face of changing market conditions

Balancing Short-Term and Long-Term Goals

The always-on mindset requires companies to:

1. Maintain focus on current operations and profitability
2. Simultaneously invest in future growth opportunities
3. Strike a balance between incremental improvements and disruptive innovations

Fostering a Culture of Innovation

To support the always-on mindset, companies should:

1. Reward creativity and risk-taking
2. Provide resources and support for employee-driven innovation
3. Celebrate both successes and productive failures

Staying Ahead of the Competition

By adopting an always-on approach, companies can:

1. Anticipate and respond to market changes more quickly
2. Identify and capitalize on emerging trends and technologies
3. Maintain a competitive edge in rapidly evolving industries

Final Thoughts

"New to Big" offers a compelling roadmap for established companies looking to reinvent themselves and achieve sustainable growth in today's fast-paced business environment. By adopting a startup mindset, focusing on solving customer problems, and embracing intelligent risk-taking, even the most entrenched organizations can unlock their innovative potential.

Key takeaways from the book include:

1. The importance of shifting from a shareholder-centric model to a customer-focused approach
2. The power of the Total Addressable Problem (TAP) model in identifying new growth opportunities
3. The need for a more dynamic and flexible approach to market research and product development
4. The value of embracing productive failure as a means of learning and innovation
5. The importance of assembling the right team of adaptable, curious, and passionate individuals
6. The benefits of implementing a Growth Board and step-by-step funding approach for new ideas
7. The necessity of adopting an always-on mindset to stay competitive in today's business landscape

By implementing these strategies, companies can create a permanent operating system for growth that allows them to innovate like entrepreneurs while leveraging the resources and scale of established organizations. This hybrid approach offers the best of both worlds, enabling companies to remain agile and responsive to customer needs while maintaining their market position and financial stability.

As the business world continues to evolve at an unprecedented pace, the ability to adapt and innovate will become increasingly crucial for long-term success. "New to Big" provides a valuable framework for organizations looking to navigate this challenging landscape and emerge as leaders in their respective industries.

Ultimately, the book's message is clear: to survive and thrive in today's competitive environment, companies must be willing to challenge their existing assumptions, embrace risk, and continuously seek out new opportunities to create value for their customers. By doing so, they can transform themselves from stagnant, shareholder-focused entities into dynamic, customer-centric organizations capable of achieving sustainable growth and long-term success.