How to Outswim a Shark

When I was a defense contractor outside of Boston, I found one of the guys I worked

with was a scuba diver. I was certified as well, so we decided to plan diving trips after

work during the summer. Word got around and we added one more member to our

little band of brothers. Mark and I were fairly novice divers, but our third friend, Art

was a dive master and had thousands of dives under his belt. That first time out we

chose to go to Cathedral Rocks in Gloucester Massachusetts. As we were suiting up

Mark and I came upon the question of sharks, and what to do if we encounter one. Art

laughed “I don’t have to outswim a shark; I just need to outswim you.” Mark and I

were quite a bit younger than Art, and we decided we could easily outswim Art.

“That’s why I got a knife, I just need to stab you in the leg.” was his answer. That

started the running joke of the season with Mark and me. While we were under water

we would yell through our regulator loud enough to get the others attention, and then

like gunfighters quick draw knifes on each other, it was usually a draw. If you know

anything about scuba and how truly awkward all the gear you need to wear in the

North Atlantic is, you would think this is pretty funny.

In this case the shark is market innovation. Basically, each year the market gets

harder. You hear it all the time, about how it’s harder in any given industry to make

the returns. Be it from farming to software startup, each year the competition gets

stiffer. Innovation is the primary driving force of the market and each year, the

competition innovates and makes the value of today’s products worth less tomorrow.

It’s why cars are getting better each year and the cost either stays the same or goes

down or why my first PC cost $3k and my latest one costs $1k and it’s nicer. It’s why

we hold off on that purchase, because it will be better (and cheaper) next year. It falls

under the theory that in the long run economic profit will always drop to zero, be it in

an industry or a company; economic profit will always equal zero over time. There is

a whole bunch of economic theory in this that I am skipping over for the point of

brevity, but the general theory remains the same.

The point of business is to outswim the shark. You don’t have to be the best in the

industry; you just have to be in the top half to make a profit. If there are 10 pizza

shops in town, just make sure you’re ranking is not number six or below, and you get

to make some money this year. The pizza shops in the last spots call it quits (get

eaten) and new ones come to take their place and the game starts again next year.

To outswim the shark you need innovation, because as you move forward what

business practices you know today becomes common tomorrow. We all learn to swim

faster, because we watch each other.

In our overly simplistic example here: Our town has 10 pizza shops. Bob decides to

mount big screen TVs in his shop so patrons can watch the game. His patrons like

that, so he takes a few customers from all the other pizza shops. So now everybody

needs to install TVs to stay in business. Steve decides to give away a free appetizer

with each pizza, now everybody needs to do it. Because that’s what the market now

expects, “I ordered a pizza, I want a free appetizer.” Of course each of these little

things eats directly at the bottom line. This is where you need to innovate to continue

to outrun the market. Better pizza, better service, free beer, whatever you need to do

to outrun or at least keep up with your competitors. That’s where this gets hard,

because whatever you think up this year, the other guys will do next year.

That is the basic definition of market innovation. If you could measure this it would

be the market innovation rate. I really don’t think there is a quantifiable way to

measure this, but I know it would be different for every industry, for sure. Loosely, I

would say it correlates to the inflationary index on an industry by industry basis, but

that would be a messy assumption. If you happen to know of such an index please let

me know, it would make for some fascinating reading.

Just for the sake of argument, I’m going to say it’s 2% in our little pizza example.

Which means, every year you stay in business, you need to increase your value

proposition by 2% to retain your customers. That 2% is pretty significant, because it

comes directly from the bottom line. Wiggle that number a little depending on how

your costs play out, but it becomes significant over time. That’s why our pizza shop

was making money “in the good ol’ days” but not anymore. It can no longer outswim

the shark.

To survive, you need to innovate at least as fast as the market and remain profitable

while you do it. The basic term is you need to get better, faster, and cheaper. I make it

sound so easy don’t I? Just succeed against ever mounting competition, all the while

they are trying to succeed against you.

This is of course why you have the big title, and I make no qualms to the complexity

of the task. I of course cannot offer you any easy solution to the problem, but I can

offer some small pieces of wisdom.

You are fighting a very patient enemy, so be persistent about the details of your

business. If you accept the loss of 1% to the bottom line this year, expect 2% next

year unless you make some changes.

Every day you put off making a hard decision is one more day that hard decision takes

something from you. I really enjoy what I do, I like interacting with customers, I love

the challenge, but there are those days when I need to make hard decisions, I call

those moments “doing my job” and everything else is “doing what I enjoy.”

Plan for the long haul, because shortcutting is a quick way to ruin. Make sure you get

processes in place to have sustained gains. Every time you invest time and effort into

your business make sure you take the steps to make it stick. Do the follow up, take the

time to make sure everybody is trained, do your due diligence.

Hire some experts (this is my sales pitch) because there is an opportunity cost every

time you make and don’t make a decision. You have only two ways to increase your

innovation in your company. Make it or buy it. If you cannot make a solution quick

enough, go buy it. I have seen people lament for years over spending money on

experts, just to find out the expert saved ten times as much as they cost. Spend the

money and be done, plus save yourself the headache.

Don’t wing it. I have been to so many “day after” planning sessions where people are

trying to figure out what happened, it’s horrible. Have a plan and stick with it, it

doesn’t have to be a great plan, just a plan. Sport teams huddle constantly. They are

planning the next move, have a big plan, and then some smaller plans, and then they

work the plan. It can be as simple as what you are going to do for the next couple

hours, or as complex as annual strategic planning, just have something. Nobody plans

to fail, they just fail to plan

Last but not least, execute the plan. Do the due diligence, hold the accountability,

drive the pace, (whatever you want to call it) but say what you are going to do with

the plan, and then follow the plan. There are about a thousand books on execution,

whether you go get one is up to you, but I will tell you for fact that the number one

reason plans fail is for lack of execution.

You are the leader of your company—your small business—the responsibility of

outrunning the market rests solely in your backyard. You cannot outsource it, you

cannot delegate it, because you own it. If you look at the CEO of every Fortune 500

Company, you would see one their primary goals is to innovate faster that the market

rate, whether it comes through cost cutting, restructuring, new designs, you name it.

Everything is about innovating faster than the guy next to you. Not that they all

succeed, but they know that if they want to stay in the Fortune 500, they keep trying.

The same is true for you: if you want to survive, you must continue to innovate; it’s

the nature of the beast.

As the days grew shorter and diving season came to a close, Mark yelled through his

regulator one last time. I turned and saw he already had his knife out, even though he

had his regulator, I could tell he was smiling. He had figured out how to outswim a

shark.