In 2000, Enron claimed revenues of nearly $101 billion and employed approximately 29,000 people. The darling of the stock market set its sights on innovation with visionary plans for broadband. Fortune named Enron “America's Most Innovative Company” for six consecutive years.
“We were building a—what I thought was a fantastic company. We had great people. We were changing—we were changing the way the marketplace operated. We were creating a market for natural gas and electricity that had never existed before,” said Jeffrey Skilling.
A major electricity, natural gas, communications and pulp and paper company, it started shifting parts of its business from producing energy to trading it and diversified overseas. In the 1990s, Skilling hired Andrew Fastow as Enron's CFO, who got to work to make executive team dreams come true. Just few changes to the company's business plan greatly improved its perceived profitability.
On December 3, 2001, Enron filed for bankruptcy. Skilling seemed dumbfound, “I spent probably most of my professional life helping to build Enron Corporation. I don't think there was anyone that was as shocked by the—by the collapse of the company as I was.” Under the pressure to produce results, often executives rationalize their actions.
Analysts and the media had missed the gap between what they knew and what they didn't know about the company. The gap made a big difference on the economics of the business. “When I was initially charged I still thought I was not guilty because I had followed the rules,” said Andrew Fastow.
Today, businesses are under increased pressure to deliver aggressive results. Along with “unprecedented,” the word “growth” is the most used in professional circles. Yet, while the bottom line ideology is satisfying, as it provides tremendous clarity, companies are under increased social pressure to do the right things, along with doing things right.
The business shift
How did a company with such a massive following and promise unravel? It started with a question nobody had thought of asking. At least, nobody outside the company.
On March 5, 2001, Bethany McLean wrote a simple question in article on Enron for Fortune, “How exactly does Enron make its money?” Nobody else seemed to have thought of it. In “Is Enron Overpriced?” McLean noted that the company's financial statements were “nearly impenetrable. So why is Enron trading at such a huge multiple?”
McLean's precise reporting was meant to peel back the onion layers and get to the core of a complex business. What she found was confusing—the small gaps in confidence between analysts and company executives should have been troubling. Yet, everyone was willing to rationalize the complexity away.
Enron's promise to hit a certain number of home runs in order to please investors created tremendous pressure to produce profits. While the company might have followed the letter of the law, it misrepresented the economics of the business. McLean noted:
What's clear is that Enron isn't the company it was a decade ago. In 1990 around 80% of its revenues came from the regulated gas-pipeline business. But Enron has been steadily selling off its old-economy iron and steel assets and expanding into new areas.
In 2000, 95% of its revenues and more than 80% of its operating profits came from “wholesale energy operations and services.” This business, which Enron pioneered, is usually described in vague, grandiose terms like the “financialization of energy”—but also, more simply, as “buying and selling gas and electricity.”
In fact, Enron's view is that it can create a market for just about anything; as if to underscore that point, the company announced last year that it would begin trading excess broadband capacity.
Enron was very focused on the what of business: building products it could trade and a company brand. What seemed to make sense on the surface resisted a simple explanation one level down.
The business shifted over years. But the market never saw its complexity. It was tucked into easy to digest promises to hit certain milestones. Until someone thought of asking whether it made sense.
Help us grow sales by 2.5x in 3 years
You may be sitting there thinking Enron was the exception and not the rule. That the executives got exceedingly greedy and saw profits above everything else. But that's not entirely what happened.
Bethany McLean, who went on to write The Smartest Guys in the Room, which became an award-winning documentary on Enron, says it was an odd mixture of rationalization and greed in service of ego. When you get to a certain point in your work life, your comparison becomes people in your set.
If you're in the stratosphere, then that is your reference point. Companies do that as well, they narrow their focus on a small circle of who they perceive as their competitors. Comparisons are a matter of perspective. We'll get back to this idea.
There's a stronger idea bundled with that: human beings have always had a need to be part of a group. Social identity is a powerful force. It compels people to strive to become members of a group, so they can gain a sense of identity that is:
- positive—why everyone wants to be better
- distinctive—why it's important to be different
- enduring—why “who you are” needs to be more durable
Social identity is why positive, distinctive and enduring qualities are the main levers of strategists.
When a company says, “help me grow 2.5x in 3 years,” usually followed by, “with a modest budget and within a tightly defined marketing area,” what they're really saying is, “change my inputs,” except what they mean is, “change my outputs.”
Crossing the chasm
In 1991, Geoffrey Moore wrote the first edition of his bestseller Crossing the Chasm. Now on its third edition reprint, Moore's insight is still relevant, “Trying to cross the chasm without taking a niche market approach is like trying to light a fire without kindling.”
I worked for two decades with businesses that sell to other businesses, in five industries. During favorable market conditions as in contracting markets with favorable product lines, most companies fail to execute on this simple idea. To be sure, right now, the chasm is two-fold: on one side, you have the perfect storm of social divide, on the other corporate mindset.
As I wrote nearly five years ago, companies are still confusing innovation (anything that breaks a constraint) and strategy (about the constraints you embrace), and try to solve too many different types of problems with one solution. They also confuse inputs (why and how) with outputs (what), focusing too much on the latter and missing opportunities to adapt through the former.
A sales- and product-driven company may try to hire a marketer to help build its brand and thought leadership (output) without trying to understand how capacity (input) may be an issue. Focusing on external tactics without the proper support is a recipe for failure to execute strongly enough to turn a corner.
Brand and product flow from internal alignment. When there is a major disconnect between what a company's estimated market opportunity is and its results, the most readily available place to look is inside. Are the right people in the right seats? Take a look at workflows. Are you building the right products? Are people collaborating well? Talk to customers. What's the company's collective identity? Observe the gaps.
Company fitness is a tremendous asset in what many have now called a liquid market environment. Hiring one person to do all the heavy lifting could mean setting them up to fail. Because even awesome individual characteristics like passion, purpose, curiosity and value need to align to company culture.
The potential of one person still needs to align with the capacity of a company to pull off strong execution. Fit matters, but not in the way you may be thinking.
An opportunity to build momentum
Competitive positioning means being ready for a broader set of outcomes. Many companies were caught unprepared for a crisis of the current magnitude. Of course, it's impossible to predict every potential scenario. Yet, a prominent business thought leader had talked about the risks of a potential pandemic five years ago.
Most companies weren't even ready to respond to the emergency. When work-from-home (WFH) went from nice to have to need to have, it was a mixed bag. Although most employees in desk jobs figured out a way to make things work, according to The Voice of the Crowd WFH Report most companies still overlooked things like:
- home office setup
- collaboration policies to create productivity & innovation and enhance engagement & experience
- communication protocols
Yet, these inputs are critical to inform culture and build capacity. This is the type of work I normally do with companies. My work's focus is to help create strong brands and differentiated product lines customers love. Much of it depends on alignment. Because trends typically take 5-10 years, I can usually do it alone or with few collaborators.
But now there's no time. Companies that are trying to plan as we normally would—with marketing campaigns and thought leadership—are already behind. Some companies have the luxury of capacity and lots of digital learning. Amazon and Slack just announced Workstream collaboration tools. “The future of enterprise software will be driven by the combination of cloud services and workstream collaboration tools,” says Slack CEO Stewart Butterfield.
That's why this week I announced that I joined Liminal Consulting as Partner. Though I'm grateful for the attention to the status change on LinkedIn (power to the algorithm), Liminal Consulting is exactly what it says it is: a group of experienced and time-tested digital marketing and operational pros who can help you deliver value by finding signal through noise: Insights you can act on today.
When I met this diverse and incredibly nice group of executives 7 months ago, it was just an idea they'd been talking about for more than a year. I thought it was a great idea, one that deserved to happen. As I'm known to do, I rolled up my sleeves and got to work to align thoughts with words and words with action.
You learn the most when you're working on something. Working with the group made me realize I wanted to be part of it. It had a positive, distinctive and enduring quality—and came with an opportunity to build momentum for companies, faster.
Operating in open mode
Thank you for all the public and private congratulations notes—it was great to hear from so many in my network. Now let's get to work. Because suddenly everything is liminal, or in a place of transition.
Conronavirus didn't create many of the issues we're confronting today, it accelerated them. Whether you have a competitive strength or you're working to build one, what your company needs most at this moment is velocity: speed with direction.
And from the many, many people I've talked with in the last ninety days, though everyone is producing more than they thought they could, WFH is working (but not perfect), and you found ways to stretch people and budgets, things are still pretty slow. You don't get the kind of momentum you need without capacity to move fast and clarity about your opportunity:
- Time is of the essence. Established players who are able to adapt are taking a stronger hold of their respective categories.
- Before taking a strong market position, it’s vital to know the position a company holds in the employee', customer’s and prospect’s mind, intimately.
This is another reason why I like being part of Liminal Consulting: we operate mostly in open mode. But we can also get things done. We're all experienced executives who have done (and keep doing) the work in many industries.
Here's the best part: we work at a fair price, because we accept projects based on where we can have impact and create success, not revenue for the practice. Collaborating with us is like hiring a suite of executives in your company: we have skin in your game. It's not about us. It's about you.
Enron's executives were doing many of the right things. They were building a fantastic company with great people and had a strong market position. What got them, eventually, was a certain myopic view of the world. It took a simple question asked by an outsider to shine a light onto it.
I'm not comparing your company to Enron, but I've found that it's often hard to tell what a company knows and what it doesn't know.
“What worries you the most that isn't getting enough attention?” Is a great question. I borrowed it from Dave Nadig who asked it at Camp Kotok in Maine, an annual lakeside retreat where Fed watchers discuss crucial issues without restraints. It sounds like a big question. That's because, as Barry Ritholtz says, it's several questions into one:
Tell us your thinking about the future…
What is the crowd (mostly) unaware of?
What risks are thought of as very low when they may be in reality much higher than that?
It does take a deeper view to see better. For one, comparisons tend to open up to a broader set of issues, players and contexts. Gaining perspective does help do business better—and it can result in a better business.
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