Entrepreneurial vision

The last thing IBM needs now is a vision.

Lou Gerstner, CEO IBM, August 1993

When Lou Gerstner joined IBM as its new CEO, he famously quipped that "the last thing IBM needs now is a vision". Four or five years later, the company announced a new vision symbolized by the letter “e” and backed by a huge advertising campaign. Four or five years after that we were told, again through a massive advertising campaign that is still with us, that the company's vision was expressed in the “On Demand” tag line.

This is clearly abusing the term “vision”. A vision doesn’t change every few years. A company’s strategy for achieving the vision may change every four or five years, and its portfolio of products and services and the markets in which it sells them may change more frequently. But the vision is, or should be, the guiding principles that steers the company through a changing marketplace without loosing its identity.

What Mr. Gerstner intended to say with his statement was that the problem IBM was facing was primarily in execution. IBM had the core capabilities to succeed in the market, at least in the short term, and management focus had to be squarely on realizing these immediate opportunities. Time spend sitting around the round table articulating and communicating a shared vision for the company was management time wasted.

The vision was Mr. Gerstner. It was his vision that eventually became articulated and communicated as executable strategy through the letter “e” and the “On Demand” messages.

This situation, where the company vision is embedded in a single person, is typical in start-up companies and turnarounds; what Mintzberg in the Strategy Safari [references in a later post] calls the entrepreneurial strategy school. Typically, these companies are characterized by being both deliberate and emergent: deliberate in the broad lines and in what the founder or leader want to achieve but emergent in the details of how this is implemented, allowing for flexibility and experimentation.

This manifests itself as a strong vision and a rapidly changing approach to how this vision is executed in the business environment, just like we saw with IBM.

The company vision is especially important for entrepreneurial companies both for the successful execution of this phase of the company and critically for the transition to the next stage of the company development. Entrepreneurial companies include start-up and turnaround companies, but also established organizations that face disruption in their markets through innovation or other events.

This role of the company vision is what we consider in this note.

What is a vision?

At its simplest, a vision is a representation of the company’s core values and purpose – its identity, if you like – combined with a visualization of the company’s envisaged future. The vision serves both to provide inspiration and a sense of what needs to be done; a guiding principle. In entrepreneurial companies, the vision is often a mental representation created in the mind of the founder or leader.

True to its name, a vision often tends to more of an image than a fully articulated plan. That leaves it flexible in how it is executed, so that the company can adapt it to its experiences.

“We invent, engineer and deliver technology solutions that drive business value, create social value and improve the lives of our customers.” – HP

“Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.” – Amazon.com

“We will grow by helping our customers win - through the ingenuity and responsiveness of people who care.” – 3M

A vision is not a strategy. A strategy is the outline of a plan embodying specific choices for achieving the vision. HP has a very clear vision articulated in The HP Way. The vision may be summarized as making people’s lives better through technical products. This vision may initially have been implemented through a strategy of developing electronic test equipment, but over the years it has taken the company into many other, unrelated areas.

Amazon could have articulated their vision as being “The Earth’s Biggest Bookstore” but that fails on the longevity test: a vision should essentially be unreachable. It is there to guide you and give you identity and direction, somewhat like a navigational star on the horizon which you always sail towards but never reach. The current statement of being a single source for all you shopping needs online does pass that test and provides plenty of inspiration for extending the implementation strategy. Expect to see many more tabs on the web site interface representing different shopping areas.

The Amazon vision also passes the second test: it helps define what the company does not do. It is an online store, not a high-street outlet. In this way, the vision actively helps the company’s managers deciding among investment opportunities.

Similarly, 3M does not define itself in terms of yellow Post-It® notes but rather through helping its customers to win by solving previously unsolved problems through innovation and creativity. This led the company so sell a number of mature business units in order to better focus of the core of innovation and ingenuity.

We have seen too many so-called vision statements that essentially boils down to “maximizing shareholder returns”. Perhaps this is an occupational hazard from frequently being called upon to support companies at a time when they are looking for new finance through private equity or other investors. Let me make my experiences clear: it isn’t a vision statement and it will not help you raise funds.

It is not a vision statement because it doesn’t help you make decisions about what to do and what not to do. It doesn’t limit you and it doesn’t guide you. It doesn’t motivate your company: do you really know anybody who will put their heart and soul, long hours and a sizable fraction of their natural lives into your next project solely on the prospect that it may add another few cents to your earnings per share?

It is not lasting: if you won the lottery, if everybody in your company won the lottery, and you had no investors and no financial concerns, would you still get into work the next day?

Similarly, a vision along the line of “we exist to make widget X” fails the tests. It is not lasting: what happens when there is no market for X? It is not unattainable. And while it may be motivational in the short or even medium term, the motivation does not last over periods where they may be no demand for X, or when Y turns out to be better. Five points for a successful core ideology

So your vision, your core ideology, has to be:

  1. Lasting and unattainable (the 100+ year plan, no matter what happens)

  2. Unattainable and inspiring (the guiding star)

  3. Inspiring and limiting (what we do and what we don’t do)

  4. Limiting and motivational (why do we go to work?)

  5. Motivational and lasting (a reason, now and tomorrow)

Warren Bennisi puts it more succinctly: if it really is a vision, you’ll never forget it. That, and perhaps adding “and you’ll never want to forget it,” is the golden rule for vision statements. A vision should first and foremost rouse the organization’s emotional and spiritual resources and leave it to research and strategy to speak to the analytical and intellectual capabilities within the organization.

How to discover your vision

Typically, a company discovers its vision. It is not something you can create. It is certainly not something you can fake.

The key question is “what is our vision” not “what should it be”. A vision, the core ideology for your organization has to be authentic or it is meaningless and will only be a source of cynicism as opposed to coherence.

There are two ways that we have used in the past to help organizations discover their values and vision. One we have already alluded to. It consists of asking key members of the companyi how we could express the purpose of their organization in such a way that if they all won the lottery tomorrow and never had to work again, they would nevertheless keep working.

Charles Handy uses a similar technique by asking executives what company they would most like to be like and then probing them as to why they would like to be like that company. What are the qualities they admire?

Amazon as an example of the “Seven ‘Why?’” technique

We have never done this exercise with Amazon, but of the three vision statements we discussed in the previous section, their statement of building the online store with the largest selection strikes us as one that could do with a few more “why?” questions. It still sounds too much like a goal and not enough like a core purpose.

If we try to put ourselves in Amazon’s shoes and answer the “why?” question, we may end up focusing on different areas. Perhaps the key element is the large selection, everything under one roof (or banner, rather). Similar to Wal-Mart but focusing on the selection rather than the price. Why? Maybe because searching for the right products is hard, and Amazon wants to bring convenience to our lives, rather like Google is pursuing in its Froogle (http://froogle.google.com/) service through a different approach that is probably more suited to the search engine. This would tie in with the customer reviews on the site and may lead to a vision about giving consumers better and more convenient ways of shopping. It will be particularly interesting to see how Amazon will expand into the services market to fulfill their “anything they might want to buy” promise.

Or maybe it is not the search that is the core issue, but the trust. Customers can not really be expected to know and trust all the online retailers that are presented when you search a service like Froogle. Many customers are still wary of shopping online. With Amazon, you only need to trust one name, to give your credit card details to one company. If this is the core element, then perhaps Amazon will consider online payment systems and other trust networks as possible future strategies, competing with the likes of PayPal (owned by eBay) and perhaps Friendster.com.

Could it be that “online” is the keyword? Perhaps there is a vision of creating a true global market through the Amazon brand. Bringing together sellers and buyers from all the world on a single platform could have tremendous social, economic, and political consequences. Establishing a true global economy certainly seems to meet the “unattainable” criteria for a vision.

Bringing it all together

Having made it this far, it is probably worth putting a little more structure in place. The model proposed by Collins and Porras has proved to be useful in many situations, and we are indebted to them for many of the ideas in this section.

What we call vision they call core ideology and it consists of two parts:

Core values

Core values are the fundamental beliefs to which an organization subscribes. It should not be confused with operating principles. A good test to see if a value is really core is to ask if you would still do it if it hurt. If the markets drove down your share price, if your margins were eroded, if the company went bust – would you still hold those values?

We suspect that even if 3M did not exist, many of its engineers would still be innovating, tinkering in the garages or wherever they could, solving other people’s problems in innovative and imaginative ways. Harnessing the joy of innovation and problem solving is, I suspect, a core value to 3M.

In contrast, a high technology startup we were working with was wondering if excellence in customer support should make it to their list of core values. “Would you still do it if your customers were not willing to pay for it and in fact preferred cheaper products with less service?” was my question to them. If you are Rackspace.com, a hosting company priding yourself on your “Fanatical Support™” then your answer is undoubtedly a resounding “yes”, but in this case the company decided that, no, customer support was not a core value. It didn’t mean that they would not offer excellent customer support as part of their strategy for going to market, but it was a strategy, subject to change. Innovation and helping other companies to succeed did make it to the list of core values.

Typically, an organization has no more than a handful of core values

Core purpose

The core purpose is a reason for existing. It is usually a single sentence. It should not be descriptive and must not be confused with a goal or with your business strategy.

3M does not exist to make yellow Post-It® notes, but to help people win by solving their problems through innovation and ingenuity. Amazon does not exist to sell books to Americans, but to provide an environment were anybody can find anything they want to buy.

Again, as if the purpose will stand the test of time. Imagine the future 100 years from now. Will people still be buying books? Maybe, maybe not, but they will probably still be buying and still be facing a choice of products that they want to buy.

Do not confuse the purpose with a statement of the purpose. A company may have a very strong core purpose without having ever formally articulated it. Collins and Porras mentions Nike which at the time did not have a formal statement of purpose but which nevertheless has an exceptionally strong core purpose that permeates the entire organization: to experience the emotion of competition, winning, and crushing competitors.

Do not confuse the core purpose with a goal. Wal-Mart may have had a goal of becoming the largest quoted US company, and if so, has spectacularly succeeded. But its core purpose is to bring everyday low prices to consumers.

Now you know what your vision is. Now is the time to share it and use it as a catalyst for change within the organization.

The envisioned future

A vision is good. It gives cohesion to the organization and provides shared values. But to really mobilize the organizations you need a strategic goal (or possibly a few goals).

The vision is unachievable and permanent. Your goal achievable and temporal. It may not look achievable when you first set it and all the best strategic goals seriously stretch the organization, but it is achievable in principle and in a fixed period. Goals that are ten to fifty years in the future are most effective.

NASA, the US National Aeronautics and Space Administration, was founded on a goal: put a satellite in space. Then followed another goal: put a man on the moon by the end of the decade.

If NASA ever had a vision it didn’t extend beyond “beat the USSR at the space race”. The problem with that is longevity. After the Americans had well and truly won that race, and arguably the Cold War, the agency floundered. Drifting between goals without a clear vision to steer it, the bureaucracy and budget overruns grew out of control.

Recently, President G.W. Bush has announced a new “vision” for the agency. However, the speech sets out three goals, not a vision. In summary, the goals are:

  1. America will complete its work on the International Space Station by 2010

  2. United States will begin developing a new manned exploration vehicle to explore beyond our orbit to other worlds…. The new spacecraft, the Crew Exploration Vehicle, will be developed and tested by 2008 and will conduct its first manned mission no later than 2014.

  3. America will return to the Moon as early as 2015 and no later than 2020 and use it as a stepping stone for more ambitious missions.

As goals, they are exemplary. They have a fixed time and the sixteen year time horizon fits with our 10-50 year recommendations. They are certainly ambitious, especially considering NASA’s track record of delivering project on time and budget.

But they do not answer the question of what is NASA for? It is not a vision. A vision might be “to fulfill Mankind’s destiny and colonize the Universe” , another “to provide fast and cheap access to space for scientific experiments”. Both a valid visions, but they lead to vastly different organizations. The challenge NASA has been facing (badly, as it happens) is that it is all things to all men.

You can launch a company (or a government agency) on a goal but you need a vision to sustain it in the long term.

A goal is not a business plan. At best, the business plan shows how the goal will be achieved within the time frame. The business plan is certainly useful when raising finance, whether internally for a project or department or externally for the company, but you need to get the goal across to whoever is buying. We have seen many business plans and the first question we ask to spot the bad ones is always: does the plan work toward a coherent goal?

A goal should be ambitious. People’s first reaction when they understand what is involved in achieving it should be “surely you are joking…?” It is ambitious in the extreme for a small, regional bank to set the goal of becoming “the most powerful, the most serviceable, the most far-reaching world financial institution that has ever been,” as City Bank did in 1915.

Communicating the goal: The envisaged future

The best way, we have found. to communicate the goal is through what Collins and Porras call the envisioned future. Paint a picture of what the future will look like when you have achieved your goal. With one group of executives we literally painted a series of pictures on flip charts showing life in 15 years time somewhat like a movie storyboard. It showed how people’s lives were different because of the company’s products, and was later turned into a Flash presentation for internal use.

More typical is a written visualization of the future, perhaps supplemented with a presentation.

However it is done, the purpose is to present the goal in a way that everybody can envisage. Imagine Ford dreaming up a world where nobody would travel by horse and everybody could afford a car. Wouldn’t that be something? Imagine Boeing envisaging the future of the jet age.

Who needs a vision?

A vision must have a purpose. Too often companies engage in an exercise to create a vision statement without a good reason. This only leads to cynicism among the people who know the company.

That is a shame because at heart the purpose of discovering and articulating the vision for the organization is very simple: it is to achieve long-term commitment. Commitment from employees, investors, customers or other people associated with the organization.

Employees, investors, customers: in one sense that are all investors. Are all contributing something they value, whether it is time and effort, money, or their trust, to the organization.

This commitment is typically sought at definite and identifiable stages in the organization’s evolution: when a startup reaches a certain size and needs commitment from employees far removed from the founders; when an organization is seeking external investors; and in a turnaround situation when the organization is implementing a new strategy and requires commitment from both employees and investors at a time when both groups are probably feeling hurt. This is summarized in the table below.

Identifiable stage in the organization’s evolution Seeking long-term commitment primarily from
Startup company grows beyond the immediate circle of the founders Employees
Company is seeking new or additional investment capital Investors
The company is in a turnaround situation Employees and investors; possibly customers

It may be useful to create a vision in other situations (as Collins and Porras would argue) but in our experience it is in these three stages in the organizations evolution where the vision becomes essential.

These stages in the organization’s life correspond to the stages where Mintzberg et al. identified what they called the “entrepreneurial school” as the most effective leadership form. This form of leadership is characterized by its emphasis on the vision and the visionary leader. What we add to their analysis is an understanding of when an articulated (“written down”) and clearly communicated vision is an important leadership tool.

Let us consider each stage in turn.

Growth of a startup company beyond the immediate circle of the founders

Typically, the founders of a new company recruit their first employees from their immediate circle of friends and past colleagues. These employees have a wealth of shared experiences and a common vocabulary with the founders. They are recruited directly by the founders and it is not difficult for them to understand and commit to the founders’ vision even when it is poorly articulated or defined.

This works as long as the company is small and everybody works closely together. It is as if the vision for the company is shared by osmosis: by being in the environment and by being a small, tightly knit group that is in constant contact and communications a shared understanding is built and maintained.

However, as the company grows this effect becomes more difficult to maintain. There are two effects. One is that the organization starts recruiting from outside, bringing in people who do not have the same shared experiences and common vocabulary as the founders. This puts a strain on communications because it now has to be much more precise and explicit.

The second is that as the organization grows communications become less intense. All the people are not together all the time, and there are simply more people to communicate with in the same amount of time. As management layers are introduced and not everybody are in direct daily contact with the founders the problem gets much worse.

However, the commitment of the employees to building the company is as important as ever. Lippitt and Schmidt in their classic Crises in a Developing Organization identified the transition from creation to survival as a key crisis point in an organization’s evolution. It is a difficult time of “soul-searching and constant reassessment of long-range aspirations,” and is often the very point at which companies start to look inward and discover their true vision, as we discussed in a previous section.

The development of an articulated vision is in our experience an important milestone in an organizations development. It shows that the organization has evolved beyond the clique and has responded to the need to bring cohesion of purpose to a larger group.

The size at which this crisis point happens varies between organizations. We worked with one company where it became critical when the fourth employee joined the organization. This consulting organization had two projects, one on either coast of the United States, and separated into two teams, each initially of two people. Over what was for the founders a surprisingly short period of time, this physical separation lead to differences in vision and objectives for the company. By the time the founders were aligned again the company had lost about a year without any growth. Two years after that, it employed 80 people.

Another company with which we were involved showed no signs of diminishing of the implicit consensus you find in small teams even though the organization was over 30 people strong. The company was a software startup and close physical proximity in a single office and the purpose implied by the software that was being developed were probably instrumental in achieving this.

However, in our experience organizations typically face this milestone sometime around the 6-12 employee mark.

A similar situation would seem to be the case of company mergers or takeovers, where the joined organization have to discover their common purpose and define their goals. We would expect this to be another situation where the articulated vision becomes an essential management tool. However, we not not yet have enough primary research to prove this or even to be sure that the entrepreneurial leadership style is the most effective in this situation.

Company is seeking new or additional investment capital

All men dream: but not equally. Those who dream by night in the dusty recesses of their minds wake in the day to find that it was vanity: but the dreamers of the day are dangerous men, for they may act their dream with open eyes, to make it possible. This I did.

― T. E. Lawrence (of Arabia): Seven Pillars of Wisdom

In essence, every company that is seeking capital is a startup company. Our experience is predominantly with private equity (and to a lesser extent debt) financing but from our observations we expect the situation to be broadly similar for initial public offerings (IPO) and new public share issues.

In any of these situations, though most strongly in the two first, you are seeking long-term financial commitments, usually from strangers.

Some care is required here, however. The vision is not the idea behind the company, which is a good thing since “the idea has no value” is a common mantra among venture capital and other private equity investors.

The continuation of the mantra is “execution is everything” and that gives us the connection back to the vision. As we defined it here, the vision is the guiding principle for the company. It provides direction and limits. It is the principles behind the execution.

For sure the investors are going to want a whole lot more than a vision statement. You do not get off the hook of having a reasonable strategy (including an exit strategy for the investors) and a set of operational principles that will enable you to achieve that strategy. You still need a solid business plan.

However, all the financial and detailed execution plans are essentially a gatekeeper. If they don’t stack up then you are out, but just because they look good that doesn’t mean you get investment.

At the final analysis the investors are betting their money on the management team. Can they execute? What happens if, or rather when, the going gets tough? What really motivates them and will they stick with it? The core values is one way of answering this motivation question while the vivid visualization help to describe your dreams and share them with all who are involved with the company.

As mentioned previously, the articulated vision is also an important milestone on the development of the organization and its management team, showing that it is progressed beyond the clique.

In practice we find that companies who are seeking finance for the first time go through a vision definition phase as part of preparing for the investors. It is not the main element – the business plans and other elements of the presentations and documentation are – but it acts as an internal catalysts to make explicit what had hitherto been mostly implicit.

For later financing rounds (e.g. B- or C-series financing) we find that the vision is usually updated. Again, it is not the main part of the documentation to prospective investors, but again it serves as an internal status-taking exercise: where were we, to where have we gone, and where are we going?

Where the financing round includes bringing in new executives the vision becomes an essential communications tool for setting context and expectations.

Summary

Two components are key for effective communication of an organization’s raison d’être: the vision and the envisioned future.

The vision is the organization’s reason for existing and consists of core values and core purpose. Core values are the fundamental beliefs to which an organization subscribes while the core purpose is closer to the traditional vision or mission statement: a summary of the organization’s purpose, usually in a single sentence.

The envisioned future is a vision of the future, often presented using both words and pictures, that shows how the world will be different because of the organization’s activities, typically looking 10-50 years ahead. It has two components: the long-term goal and the vivid visualization. The long-term goal is a bold objective for the organization while the vivid visualization is a powerful image of what the future will be like when the long-term goal is achieved.

Arguably, any company needs a vision, but the point of an articulated vision in the sense that we have defined it here is to communicate. The point of communication is persuasion and the vision being per definition long-term is a proven management tool to persuade people to commit long-term investment, be it money or effort, to the organization.

The key situations in a company’s evolution where the articulated vision becomes an essential management tool are those where such a commitment must be explicitly made. Research has identified three primary such situations, namely where:

  1. A startup company grows beyond the immediate circle of the founders.

  2. The company is seeking new or additional investment capital.

  3. The company is in a turnaround situation.

Summary of the summary

The components of an effective vision are:

  1. Vision – the reason for the existence of the organization, its raison d’être.

    • Core values – the fundamental beliefs to which an organization subscribe.
    • Core purpose – the vision statement summarizing the organization’s fundamental reason for being.
  2. Envisioned future – the shared vision of how the world will be different because of the organization’s activities, typically looking 10–50 years ahead.

    • Long-term goal – a bold objective for the organization.
    • Vivid visualization – a powerful image of what the future will be like when the long-term goal is achieved.

The situations when a vision is essential

Whenever an organization is seeking long-term commitment, especially when:

  1. A startup company grows beyond the immediate circle of the founders

  2. The company is seeking new or additional investment capital

  3. The company is in a turnaround situation