Why Many Companies Fail, and How to Avoid It

0:00When someone comes to my door, I know, because I'm using SimpliSafe. I get an alert straight to my phone and I can see, is this someone I should unlock the door for because I know them? Or is it someone I need to tell to get lost? But here's the thing I love most about SimpliSafe. It works when I am not looking at my phone too, because when I'm not keeping an eye out, SimpliSafe is. SimpliSafe is proactive with a double layer of defense that stops crimes before they start. First, AI-powered cameras spot potential threats outside. And then live agents step in, talking to the person through the camera and letting them know they're on video and police will be dispatched if they don't leave.

0:45They can even trigger a loud siren or spotlight. That's how you help stop a crime before it starts. And SimpliSafe makes it easy to use. There are no long-term contracts, no hidden fees. You can cancel at any time. It was named Best Home Security Systems by U.S. News and World Report for five years running. It offers a 60-day money-back guarantee, so you can try it and see the difference for yourself. This month only, take 50 % off any new system. This is one of the best prices you will ever see for SimpliSafe, so don't miss it. Just go to simplisafe.com slash problem solvers. Again, that is SimpliSafe, S-I-M-P-L-I, S-A-F-E, simplisafe.com slash problem solvers and lock in your discount.

1:33There's no safe like SimpliSafe. From Entrepreneur Media, this is Problem Solvers, a show in which entrepreneurs do what entrepreneurs do best, solve unexpected problems in their business. We were completely wrong. And I'm just like, it's not selling. It was like, we have to start from scratch. I'm Jason Pfeiffer, the editor-in-chief of Entrepreneur Magazine. Younger listeners won't remember this, but smartphones were once dominated by a company called Nokia. People were wondering how any other company could ever rival Nokia, or why anyone would ever buy a phone from anyone other than Nokia for the rest of time.

2:15So, what was it like working at Nokia during those heady times? They had one inherent assumption that they ran their business on. This is Arjun Singh. He was involved with Nokia for a long time, running their market research, market intelligence, and competitive intelligence. And he says that this fundamental assumption that drove the entire business was... That we have the experience in the mobile space. No one is going to be able to come anywhere close in terms of capabilities of being able to service that marketplace. But most importantly, big assumption they had was that you can never recreate a desktop browsing experience on a mobile phone because the screen size is so small.

2:58And that, of course, proved to be untrue. The assumption made a lot of sense if you were Nokia because you had designed your phones the way that a laptop was designed with a screen and then a keyboard underneath it. But, you know, what if there was another way to design the phone with maybe the entire thing being a screen and the keyboard not always being there if you didn't need it and navigating the thing just with your finger like the iPhone? Obviously, I am describing the iPhone. We all know that. But Nokia couldn't see something like that coming because they had some fundamental assumptions that they never challenged.

3:36And today, Arjun is in the business in many ways of helping businesses find and challenge those assumptions. I am a consultant, do a lot of war games for companies globally, and I'm an adjunct professor at the SMU Cox School of Business in Dallas. Arjun is also the author of a book called Competitive Success, Building Winning Strategies with Corporate War Games. It teaches organizations of any size how to use war games in their planning process because he says if you're not running war games, you're leaving yourself too blind to what your competitors are doing and how to respond to major changes in your market.

4:19The whole notion with a war game is that you simulate your external environment and that's going to affect your competitiveness. So it can be various different stakeholders and how they're going to react to activities that your organization does. And the whole idea is that you role play this in a safe internal environment versus finding out the hard way in the marketplace that your strategies may not work or that you may get attacked differently. So it's really around hoping for the best, but preparing for the worst. There are a lot of situations in business that could be wargamed, anticipating market disruptions, refining go-to-market strategies, preparing for mergers or acquisitions and so on.

4:58But today, I wanted Arjun to really zero in on one specific thing to Wargame, and that is identifying strategic blind spots. That is ultimately what Nokia suffered from, strategic blind spots. It was blind in so many ways to what was keeping it dominant in the marketplace and what was about to change. And this is something that every company carries. These blind spots, these things that we have built our entire businesses upon, fundamental assumptions about why we're special or why our customers love us or how we will thrive in the market tomorrow. And if we're not stepping back and really, truly reconsidering it, if we're not pressure testing our assumptions, well, we can end up like Nokia.

5:52And that is the problem we are going to solve today because Arjun is going to walk through exactly how to war game your blind spots. It doesn't matter if you're a tiny company or a gigantic one. He says anyone can do it. And after the break, we will hear how. All right, we're back. I am talking with Arjun Singh, the author of Competitive Success, Building Strategies with Corporate War Games. And we're talking specifically about how to use war games to identify strategic blind spots. So I asked him to start. let's just define what we're talking about when we're talking about blind spots. When you look at any strategy that an organization deploys, every single thing an organization does is based on an assumption.

6:39And assumptions can be true when we're being thought through, but then the market might be changing. They could be incorrect right from the beginning. There may be certain taboos in organizations, and that tends to happen with a lot of large established players where they say, we're number one in the marketplace, no one can compete with us. There's a reason we're number one. And so, you know, they fall into these different categories that are there. Blind spots are assumptions that are not inherently correct or not aligned with the way that the market or the external environment is going. And it happens for a variety of reasons.

7:10But it's really important for organizations to, you know, create a safe environment like a war room and to have those difficult discussions internally versus pretending that they don't exist or waiting until the market reacts to what you're doing. Arjun, could you maybe as a way to just give it some color, maybe think about a company that you worked with, which I presumably would go nameless, but where this was the issue that there was some kind of blind spot that needed to be addressed? I actually have a lot of examples in my book. One of the ones I will talk about is Nokia. That's a really well-known name.

7:44I was involved with Nokia for a long time, running a lot of their market research, market intelligence, competitive intelligence. The issue with Nokia was when they reached number one in the marketplace, they had 40 % plus of the mobile phone market. And they had one inherent assumption that they ran their business on, which was that we have the experience in the mobile space. No one is going to be able to come anywhere close in terms of capabilities of being able to service that marketplace. but most importantly big assumption they had was that you can never recreate a desktop browsing experience on a mobile phone because the screen size is so small that was a fundamental assumption fundamental assumption right so you're talking about the feature phones the nokia 3310s and the phones with the type keypads and it was a huge assumption there and we know what happened apple came along and their big innovation was a touchscreen but more importantly it was the finger It was literally the finger because what they did for the first time was they got rid of using a stylus with a smartphone.

8:46And not only did they replicate the desktop browsing experience with Safari and pinching in, pinching out, a lot of stuff that they did, they actually enhanced it to something that was comparable. In some instances, really optimized for those screens. And so it was a huge assumption that the business was run out. Number one player in the marketplace. And, you know, they were sold for a few billion dollars later to Microsoft. and Microsoft couldn't figure out what to do as well. So I think that's a great example of blind spots. I'm at business school today and there's a lot of business school case studies of big companies that had incorrect assumptions.

9:17We're talking about, for example, Netflix versus Blockbuster. And Blockbuster, when Netflix approached them to sell for$50 million, they laughed them out of the room. And as a classic story, when you look at in the imaging space, So Kodak had a lot of intellectual property around digital and had the technology in place. So they had the patents, they had the technology. But because they were looking to cannibalize their existing analog business, they chose not to go down that path. And it was a blind spot that came out of a place of a position of power in the marketplace and not being willing to make those very difficult decisions.

9:59So how do you walk into a company? Well, rather, maybe it's even worth backing up. To talk about identifying strategic blind spots is to have some belief that there is a blind spot that hasn't been identified. But I suppose the nature of a blind spot is that you may not even be aware that you have it. So how on earth does anybody let you in the door to identify a blind spot if they have a blind spot, and therefore they don't think they have a blind spot? This feels like a paradox. No, firstly, you have to be willing and open to have these honest and difficult conversations, which not every culture or organization is.

10:42You know, that's a starting point that you do that. And this is where the true power of wargaming comes in, because what you're doing is you're dividing people that are in the war game into various different teams. So, you know, you'll have a team that represents your company, that represents the biggest competitor, maybe even your customer groups or regulatory bodies as well, right? And you're looking at how those other entities are going to attack you. So you're really stress testing what your strategies look like. And you can do it on a very strategic level, like what we want to be when we grow up, what should our business look like in the next five, 10, 15 years or so, or you could do it very tactically.

11:17You could do it on a, we're going to launch a billion dollar product. We need to figure out like how our competition is going to attack us, how they're thinking and the messages that we think that will resonate in the marketplace. How are they going to counter that? And how are they going to be proactive in the marketplace? And, you know, if we're assuming that our competition is not going to roll over and play dead, then how are they going to go through that? And that's very powerful to really verbalize, you know, what your other stakeholders and entities are thinking about to be able to do that.

11:44You know, it's the case of calling the baby ugly. You need to really have an open mind to be able to embark down on that path to be able to do that. Sometimes the baby is actually ugly. This is the problem. But as you're describing this, and I'm just thinking back to the Nokia example, I'm thinking that if you're going to divide up the team at Nokia and you're going to ask them to think like the competition and therefore see how their own position in a market is less tenable than they thought, But, well, the way in which you would identify Nokia's weakness is to be able to think like the competition.

12:33But if you could think like the competition, then you would have just invented the iPhone. But Nokia didn't invent the iPhone. That's why they died. So help me understand, like, how am I supposed to take my team and then help them think like someone else's team when they're stuck on my team? That's a great question, right? And so part of it is around role play. So you have all these different stakeholders that are there. But what's really important is the background and briefing that you have in preparation for a war game. So you do your briefing documents, you build your profiles on your competition.

13:04But more importantly, you look at the senior management and look at their history, where they came from. Like the senior management of your competitor. So in the same way that an actual military might be studying the generals of the other side and what that general is likely to be thinking, in the same way that a sports team is trying to think about the background and experience of the opposing coach and therefore the plays that they might be bringing, you're trying to do that with the competition that you have in the market. Exactly. You look at leadership, you look at their background, you look at where they've been, which organizations that they work for.

13:40There are certain large organizations that have their own internal academies, right? GE, Johnson & Johnson, and others have it. And there's a certain playbook they teach their leaders. And guess what? Once the leaders learn to playbook, they go and replicate it the next place they go to. And so this has happened time and time again, right? So you can start understanding what decisions they've made in the past. And that's part of the preparation steps for a war game, is what does that battlefield look like who you're competing against but more importantly what are they thinking how are they thinking different from you what assumptions are they making that are different from the ones that your organization's doing and then you can compare and contrast you can say okay if we've got three explicit assumptions on this particular part of the marketplace our competition has three assumptions that are very different it means one of two things either they know something that we don't know and so we need to figure out what that would look like or we're thinking through this the wrong way.

14:31And just in that simple assumptions analysis, you can start seeing disconnects in the marketplace. And then you start thinking about, okay, what would be the most likely outcome based on what's going on here? And that's where scenario planning kind of fits into this as well. And so that blind spot analysis is really very powerful, very subtle way of getting down to like strategies and thinking. And the whole notion here is about being proactive. You know, if you can understand how your competition's thinking, you can start predicting what they're likely to do in the future, right? So let me give you one example, right?

15:04So I've been running educational war games with students for about 16 years now, a little bit more than 16 years. And one of the first ones we did was in 2006. It was in December 2006, and it was the battle for the living room. So the battle for the living room was who's going to control entertainment in the living room. So we had four different teams. We had Apple. We had Microsoft that used to have a set-top box business. We had Verizon as a carrier. We had News Corp from a content perspective. The Apple team came back and they said, look, we've done this analysis and we've got all these different assets from an Apple perspective.

15:38December 2006, we have the Mac, we have the iPod. At that point in time, it was iPods and then other assets as well. We have nothing in the living room. And they said, if we want to compete in the living room, here's what we're doing today. So in the war game, my students came with an empty cardboard box and they showed it to us. And this is it. Today, we are launching ITV. And this is a streaming box that will hook up to a television. You'll be able to stream your iTunes content. And then describe the details of what this would look like. They said, that's how we're going to compete in the living room.

16:10Apple launched Apple TV in March 2007, three months later on. That's incredible. Right. They described that product perfectly. Yeah. It's really around understanding who you're up against. And more importantly, what they're thinking. What are their blind spots? What are their assumptions that they're making? Like assumptions fall into three categories. You make assumptions on your market. You make assumptions about the competition. You make assumptions about yourself. And once you start like really articulating that, you can start getting really predictive in terms of how people are thinking and then what they're likely to do in the future.

16:40I have so many instances in the student war games that I can actually talk about where students have predicted what companies would do just using the framework, you know, like really articulate strategies, the assumptions behind them, how you're going to attack the competition. And then you come back into, okay, how are you going to be more proactive in the marketplace? And you can play it out. You can be very aggressive. You can be conservative. And you go through these ranges in terms of what those options would potentially look like. And that feels like an answer to the question that I had, which is if you're Nokia, how do you think like Apple?

17:12And the answer is you had students who were neither Nokia or Apple who were able to think like Apple. And it just came down to being able to identify these things. Can you apply this to considerably smaller brands? Most people who are going to be listening to the show are not running Apple. They are instead running small businesses. And the thing I think that keeps a lot of small business owners up at night is that they are aware they're missing something. What am I missing? What is a fundamental assumption? And It is wonderful, but also frustrating to hear an example like Nokia because in retrospect, it just seems so obvious, right?

17:53So where does a smaller operator start in trying to identify the fundamental assumptions that they are building their businesses on that they don't even realize that are also fault lines? That's a great question. You know, when you're a resource-rich company, there's a lot of different options in terms of how you can wargame. I had a pharmaceutical company that had a lot of money left over at the end of the year. So they decided on a Star Wars theme, which was completely over the top. When you walked in, it was the set of Star Wars, right? Great to have that budget. It really was. And then if you're a smaller company, you can replicate it.

18:30You can mini wargame. And a simple way to start is to just really sit down and say, okay, you know, let's articulate the assumptions on which we're building our strategies on. Let's just start with that. You know, that's a great starting point. And for the 12-month plan that we have, what are the assumptions we have? What do we believe about the competition? What do we believe about suppliers or anyone else that has an effect on your ecosystem? That's the starting point. And then you do a comparison. So let's compare it to what our competition is thinking. So you can really easily mini war game in a couple of hours if you don't have those unlimited budgets that certain organizations have.

19:03But it really comes down to articulating assumptions. And this is the interesting part where in most management theory, they don't teach you how to actually articulate assumptions. Assumptions is something that's so inherent to building strategy and tactics for every organization. But there's very limited practice that people have. So you got to build muscle around articulating those assumptions. Start with yourselves. Yeah. Tell me more about that. I'd love to hear what is the guidance for how to articulate assumptions. So, you know, if you start with yourself as a starting point, you articulate what those are, make it fall into those three buckets I mentioned.

19:35So, you know, the competition, the market, assumptions about yourselves, which will be the hardest one to articulate. It's very painful when you start looking at your own organization and there's cultural issues. You know, certain organizations do not want their assumptions challenged. Certain people are less flexible around that, right? So start with that, make a comparison with a competition, a very simple way, build a dashboard and just have traffic lights there. You know, assumption number one, we believe the US market will continue to grow. Is it continuing to grow? Green light. You know, uncertainty around tariffs.

20:05We believe this will continue or the tariff range will be between 15 to 25%. Yellow light, uncertain. And the assumptions that are not trending true, you put a red light there and then you can start seeing. So our strategy is based on 10 assumptions. There are three red lights, four yellow lights, and the rest are green. So you can start seeing which ones are lighting up and which ones are not. And then you compare it to your competition. And then you can do much more sophisticated things like throwing it in scenarios and say, if this scenario happens, what would you do? And you can put that in there.

20:34So I'll give you another example. In 2017, I ran the battle for the traveler. Again, a student war game, six teams. We had two airlines, American Airlines and Delta. We had two overnight stay companies, Airbnb and Marriott. And then we had two OTAs, Booking.com and Expedia. And everyone's trying to control the traveler in a different way. So the airlines are saying, hey, just it's all about loyalty, book up everything on our websites. Expedia and booking are saying, don't worry about anything. You want a hotel, you need a car, you need transportation, you need tours, we'll take care of it. And then you have the overnight companies, Airbnb, next generation platform, no inventory.

21:09Merit is actually also a very similar business model, just with a little bit different experience. And the scenario that we ran in 2017, so the companies built their base case strategies in terms of what they're going to be doing. And the scenario we gave them was that an external event occurs in the marketplace and there's a market decline of 95%. That was COVID-19. But my students role played that in 2017. And the response from the students was, this is a waste of time. Why are we doing this? This is never going to happen in the marketplace. And we said, look, that's exactly why you do this.

21:43It's you hope for the best, but you prepare for the worst. And what happened there was every company that was in the game, all six companies that had one very specific assumption that they built all their strategies on, which was that the travel market in the United States will continue to expand. And with that one particular event, we just took that away. So then everyone had to go back and then they had to scramble. They said, yeah, what happens in a booming economy in travel is not going to happen when the market declines 95%. Here's our contingency plan. Here's what we do in the first six weeks, here's the next six months, and then here's how we get to that recovery pathway in two to three years or so, right?

22:17So it's the same construct. For smaller organizations, you just have to break down the thought process in terms of, you know, your conclusions, your strategy, and then why you're thinking what you're thinking and challenge some of those aspects of it. And all starts with the assumptions piece. Think about the assumptions on which you're building your business strategies on. Do you remember if the team that was Airbnb had predicted the kind of growth that Airbnb saw during COVID? And then, if they were really fortune tellers, the crash that came afterwards? No, they did not. They were more focused on, it's just short-term recovery.

22:53So it was a much shorter time horizon. But I can see that happening in a corporate environment because with the students, it's a learning environment that they go through and we put them in different industries that they know nothing about. So no one comes from industry. But in a corporate environment, I could see that happening. Corporate business environment, you know, the more you know your marketplace, the more sort of deeper you can get and the quicker it is to do that type of thinking. Let me tell you about a random smaller company and a challenge that they were running into. And I happen to know what the answer is, but I'm not going to tell you what it is immediately.

23:28And I just want to see where you might think. So here it is. My friend Dave is the founder of a hydration, like a beverage company called O2. And when O2 came to market, it positioned itself as a fitness recovery drink. The idea is that after you drive hard in fitness, that you would drink this as a way to get your body back into it, you know, recovered. And its differentiator in the marketplace was that it was oxygenated. So the liquid in the can was infused with oxygen. The oxygen helped your body recover from a hard workout faster. They had originally targeted young men as their consumer, and particularly young men who love CrossFit or other kinds of competitive fitness.

24:19And they did really good in their initial retail rollout. They got into a lot of gyms. They became very popular in CrossFit. And then they really struggled to grow beyond that. They were trying to get into more mass market retailers and they just couldn't get there. And so then they had to figure it out. The figuring it out was where they had to challenge some fundamental assumptions and come to some pretty big discoveries. Someone who's listening right now who might resonate with that story of, I had an idea, I had something that made me special in a market, I had a specific consumer, things seem to be going well, but I can't seem to get past some wall that I'm hitting, and I can't figure out what that wall is.

25:04What should they be asking themselves? What should they be thinking? What would you have done? In your instance, right, it's a very specific kind of looking at segmentation and pros and cons of going after different segments, and then just playing it out on the wargaming environment. That's a very typical way to do that for a tactical war game. And so what they could have done differently is really build a market map. You know, so you look at, okay, who are all the consumers that are out there? What are the segments that are there? And you come up with five, 10, 15. There's a little bit of research that's required there, right?