Simplify: How the Best Businesses in the World Succeed
Richard Koch
Description
Investor and successful entrepreneur Richard Koch and venture capitalist Greg Lockwood have spent years researching what makes successful companies—such as IKEA, Apple, Uber, and Airbnb—achieve game-changing who status. The answer is simple: They Simplify.
Key words: Business
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My Notes
Those people who deliver the most benefit to humanity are simplifiers, the people who bring the fruits of invention and discovery to the mass market. Benefit x People Affected = World Change.
We should celebrate those people who bring extraordinary value-for-money to millions. This is the cult of the simplifier.
Henry Ford said of his model T car: “its most important feature was its simplicity…I thought it was up to me as the designer to make the car so completely simple that no one could fail to understand it”.
Jobs made devices simpler by eliminating buttons, software better by eliminating features, and interfaces simpler by eliminating options. Jobs’ task was to solve incredible complex problems and make their resolution appear inevitable and incredibly simple, so you have no sense of how difficult this thing was.
A designer knows he has achieved perfection, not when there is nothing left to add, but when there is nothing left to take away.
Two ways to simplify
Price and proposition.
Price (simple to make)
Requires cutting the price of a product of service in half.
The way to cut prices by 50-90 per cent is usually not provide an inferior product, but rather the delivery of the product in a way that allows much higher volume and greater efficiency.
Focuses on simple to make, relying on spectacularly low price to generate a mass market.
Price is everything, everything else is just tactics. Ford went back to the function of the car ‘fast mobility’. Subtract everything that is not absolutely essential. Doing so will leave you with nothing more than the core function. Subtract size & weight.
Standardise the product or service so it can be repeated automatically, so that it demands fewer resources, requires less management and allows operation at a great scale.
If you have a well-designed, low cost product that can be sold for half the price of a comparable product, got for it, even if that rival product is technically superior.
Examples: Ford, IKEA, McDonalds, Southwest Airlines, Honda,
Proposition (joy to use)
This involves creating a product that is useful, appealing, and very easy to use.
Proposition simplifying creates a large market that did not exist before.
These products usually command a price premium.
The overwhelming innovation and advantage lie in the proposition of the product or service, not its price.
Make the product a joy to use – easier, more useful and more aesthetically pleasing.
It requires empathy with the user.
Eliminate, make intuitive, make faster, make smaller, make easier to obtain.
No causes of possible frustration from the device.
Steve jobs said: “I want it to be as beautiful as possible, even if it’s inside the box”. Job’s also said: “each screen of the interface should be accessible in three clicks, and it should be intuitive”.
Examples: Apple, BCG Strategy consultants, Uber, Spotify, Airbnb
Businesses that simplified
Henry Ford - Price
His first idea was to re-design the product and make just one standardised, simple model. His slogan was “anybody can drive a ford”. Similar to Job’s “1,000 songs in your pocket”.
IKEA – Price
The Ikea idea came too Ingvar Kamprad from taking the legs of furniture so he could move it in his car. The charm of his new business system was the way it all fitted together. Once rivals really understood how it worked, it was too late for them to imitate it.
Good design costs no more than bad design.
The overriding objective is to cut prices yet offer ‘cheap’ or ‘free’ benefits to draw in more customers. These benefits can be categorised as ease of use, greater usefulness and art. The other principle weapons are;
Ingenuity & Scale – seeing the business from the customers perspective
Customer segmentation – seeing the target market carefully and knowing who is within it and who is outside it.
Being hardnosed about cutting any non-essential features that cost extra or complicate the business system.
BCG strategy consulting – Proposition
When asked what was different about their practice “Basically, we have a model, which guides our consulting”.
BCG sold distilled intellect via the ‘Boston box’ (below). The best companies BCG could work with were ‘stars’. BCG’s model greatly simplified the advice for any firm.
Previously business strategy was either not considered at all or was considered too complex to reduce to a simple model. But now with the ‘Boston Box’ it was possible to determine ‘the position of any business’ and what to do with it, with two simple bits of information.
Market share relative to largest rival
Future market growth rate
Because the ideas were simple, they could easily be taught to new consultants. So those consultants did not need decades of experience.
BCG – created a new high end ‘strategy’ product, and condensed ideas, so that devising strategy becomes memorable and fun. They selected a few principles so that any properly trained person could use them, communicate the shared framework throughout the firm, prioritise actions and standardise projects.
Bain & Company Consulting – Proposition
Their simple and audacious process;
Bain only ever worked for the group top CEO. Only the top dog had the power, so Bain refused to talk to anyone else.
Right from the start, even as a tiny firm, this gave them elite status.
Its sole objective was to increase market value of its client’s companies and thus grow itself. Results would follow from the right strategy – which Bain promised to work out – but only if that strategy were implemented wholeheartedly.
We (Bain) put the technology we possess – the vast power of strategy exclusively at your disposal.
His statement to the CEO was “we will never work for any of your competitors. We will advance your interests – both your personally and those of your firm – since, with our advice, you will be following the right strategy and you will be the right pilot. So, you can trust us with all your secrets.
But we require something in return that you never work for our competitors either.
Since our proposals are based on data and logic, you can challenge the data and logic. But unless you can prove us to be wrong, you must follow our suggestions.
If we deliver good continued increases in profit and market value – and you get a good return on the money you spend with us – you should follow our recommendations for the next steps, including our budget.
Bain then assumed responsibility for explaining the strategy down the line. Before any new strategy and recommendations reached the CEO and the board, Bain outlines everything to everyone – from the lowest to the highest managers - correcting any mistakes and securing consensus along the way. The process of securing consensus for its recommendations flushed out any disagreement from powerful ‘barons’ within the management structure.
Apps
Something is happening here. Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world largest accommodation provider, owns no real estate.
All these apps do is connect people. People with a need, to people with a solution.
Restrictions to simplifying
It is not that firms cannot simplify. Rather, there are deep managerial tendencies that make firms reluctant and slow to do so. Key traps are:
The overhead trap – unwilling to spend money as increase overhead.
Cannibalisation trap – the leading firm does not want to eat its own lunch, which allows a challenger to do it for them
Customer trap – the firm rejects the new product because its best customers do.
Complexity trap – managers naturally love complexity, or become accustomed to it, believing it is the only route to progress.
Skills trap – the firm may not have the right skills for simpler products, but it also fails to appreciate that these can be acquired, often quite cheaply.
