Innovation Conversation

 

Content Guy’s Note: The goal of “The Innovation Conversation” is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory … and one that Tom Furphy – a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers – is uniquely positioned to address.

This week’s topic: The critical importance of creating a Bias for Action.

And now, the Conversation continues…

KC: Tom, it seems to me that one of the things that Walmart/Jet are demonstrating with unexpected (at least to me) speed is that they’re willing to take some big swings in order to get competitive with Amazon. Walmart took a big swing when it spent $3.3 billion on Jet, an unproven business model, and now they’ve empowered Marc Lore, who created Jet and now is running all of e-commerce for Walmart, to make some big swings in terms of innovation and acquisition. So I guess my first question to you is this: Is making a big swing absolutely critical to be competitive in the e-commerce market?

Tom Furphy: That is a really good question. Amazon is gobbling up much bigger swaths of the market than incumbent retailers realize. They’ve already grabbed the equivalent of 1,000 center grocery stores, and will be up to the equivalent of 4,000 stores in four or five years. About 60% of US households with incomes over $21k are Prime members and roughly 75% of with incomes over $100k are members. These are customers that Amazon knows a lot about and have captive to introduce new capabilities. And the magnitude of innovation that Amazon will roll out to these shoppers in the coming years will be mind-blowing. It’s still Day 1 for them. So it stands to reason that it will require big swings, not just in e-commerce but in a retailer’s value proposition overall, to keep up.

Not only do most retailers underestimate what is about to hit them, but they are woefully ill-equipped to deal with it. I’ve always held out hope that many would step up and respond appropriately. Maybe that’s the customer-obsessed Wegmans and Amazon ethos in me. But it’s just not happening. Most retailer c-level executives do realize that Amazon is taking volume from them, although they’re not yet convinced of the current take. And they agree that they need to build competitive strategies. But they massively underestimate the devastation that lies ahead for them. As a result, most of them turn to relatively tactical programs that can be built and rolled out within their existing budget cycles, on their existing IT roadmaps, by their existing teams. And that simply is not going to get it done.

The timing of the Jet acquisition was perfect for Jet and its VC investors. The company was burning through cash and the path to profitability was long at best. Raising a new round of capital was proving difficult. So Jet was there for the taking.

The Jet.com technical platform alone is likely not the answer in responding to Amazon. But Wal-Mart’s big swing of the acquisition and the bet they are making on Marc Lore, his team and the bold initiatives they are trying (like big product vending machines, Jet Fresh grocery and it’s “Store No. 8” investment fund) is exactly what is necessary. These things individually may not work, but they’re the kind of bets that give Wal-Mart a chance and that other retailers should be trying. The acquisition has injected a bold, pioneering spirit into the company, which is just what is needed to compete today. That will have a halo effect across the company. And, ultimately, if the investment doesn’t directly bear fruit, a $3.3B write down would not be that large in the grand scheme of things.

KC: You’ve dealt over the years with retailers who want to compete with Amazon, or at least say they do … and yet, it would be my impression from talking to a lot of traditional retailers (especially in the food business), is that there is a general lack of agility in terms of moving from conception to introduction.  I know you can’t talk specifics, but does my sense of this match up with your experience?

TF: I can’t stress this enough – Almost all incumbent retailers have no idea how ill-equipped they are to compete with Amazon, where they are working on bold ideas of how to serve the customer into the future. While maintaining the long term view, they have an incredible ability to execute decisively in the short term.

One of Amazon’s core leadership principles upon which potential hires are vetted and employees are measured is what they call Bias for Action. As they define it on their site: “Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.”

This licenses Amazon staff to embrace rapid decision making and crisp execution in the short term.

A couple of Amazon examples in the grocery space should freak other retailers out, but somehow they are all numb to it. AmazonFresh launched within nine months following approval. Prime Now went from approval to launch in 111 days. In both cases, the businesses were well-defined thanks to Amazon’s strategic process, their relentless customer focus and their practice writing of the press release before work on the project began.

KC: I’ve always loved the notion of writing the press release before starting actual work – it forces a business not just to think in terms of how the initiative will serve the customer, but also makes people think in terms of telling a story, and how that story fits into the broader narrative. It is somehow ironic that Amazon, the quintessentially digital business, feeds off a process that, at its core, is about sitting down and putting pencil to paper.

TF: It also enables incredibly quick, powerful execution. In these short windows Amazon built out the teams, produced all of the initial assets, secured facilities, built assortments, put together the marketing and branding, recruited partners, developed new technology and physically launched the programs. Amazon was willing to publicly launch services that had flaws, and they were willing to expose those flaws in the spirit of innovation and learning.

How many incumbent retailers would be willing to do that? I don’t see many retailers that can even make a decision in nine months, much less 111 days.

KC: Look at Amazon Go, the no-checkout store that is in beta test for employees only in Seattle. They originally said it would be open to regular customers in early 2017, but they’ve blown past that deadline, and my impression is that the priority is to get it right, even if that means exposing the fact that the process is more cumbersome than they expected. Meanwhile, they’re learning stuff. Probably a lot of stuff. (Like they learned from their smart phone product introduction, which was a commercial disaster … but reportedly generated a lot of the learning that ended up driving its Echo/Alexa business, which has been a big success.)

Finally … in our last Innovation Conversation you quoted the Jeff Bezos line about how he believes in the importance of thinking in 5-7 year time frames .. and it seems to me that one of the challenges that Walmart/Jet has – along with a bunch of other retailers – is that they’re so busy putting out fires and making next quarter’s numbers that they almost can’t think that far out.  How do you get past that … if it is even possible?

TF: I don’t think you can flip a switch and all of sudden stop thinking about next quarter. For existing retailers it needs to happen gradually, starting now, one project at a time. The only way you can develop agility is by just doing things. Retailers should commit to starting a larger number of experiments every quarter. They should take both little and big swings in these experiments, but make sure they are swings that provide real customer value. They don’t necessarily have to break the bank. It’s more about developing their own Bias for Action and getting better at it through repetition. It won’t happen through lip service.

Retailers should know, and embrace, that many of these experiments will fail or will take several iterations to get right. They need to be willing to maintain a longer term perspective while trying things in the short term. Over time, they will become better at innovating and risk taking. These projects will start to drive more and more of the business. Then, eventually, maybe in 5 years, they’ll find themselves thinking 3-4 years out and not stressing as much over the current quarter because it is benefitting from the earlier experiments.

I just don’t know how many retailers truly have it in them…

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