“What if there is some hidden force that is working against your best efforts? What if this force is operating inside your own company, with the full support of your executive team, your board of directors, your investors, and indeed yourself? What if this force is able to mysteriously redirect resource allocation so that it never quite gets deployed against new agendas? That force, I submit, is the pull of the past, most concretely embodied in your prior year’s operating plan.” (Escape Velocity)
Title: Escape Velocity – Free Your Company’s Future from the Pull of the Past
Author: Geoffrey A. Moore
Publication Date: 2011
Origin/Intention: Geoffrey Moore’s material is one of those things that, in the tech business, you’re just expected to know – it’s like table stakes for having a conversation with leaders or executives; alternatively, consider it a tax that you have to pay. So, in a way, one intention for reading Escape Velocity was to make sure I’ve got the lingo down. However, in a (much) more important way, I genuinely wanted to learn: Moore has a knack for distilling complicated things down to surprisingly simple guidelines, which can be very useful when one’s overwhelmed by everything that comes with running a business.
Summary: In Escape Velocity, Moore provides “a framework of frameworks”, by expositing upon The Hierarchy of Powers, which itself “sizes up all economic competitions in relation to five types of economic power, organized in descending order from most general to most specific:”
- Category power: a function of the demand for a given class of products or service relative to all other classes
- Company power: within a given category, company power reflects the status and prospects of a specific vendor relative to its competitive set
- Market power: company power within the confines of a single market segment
- Offer power: a function of the demand for a given product or service relative to its reference competitors
- Execution power: the ability to outperform your competitive set under conditions that favor no vendor in particular
Achieving the titular “escape velocity” is the goal; that is, creating so much momentum by executing within the hierarchy of powers that your company can overcome its own inertia and break free from its past.
After an introductory chapter, Escape Velocity and the Hierarchy of Powers, each power gets its own chapter; through explanation and supporting, succinct case studies, Moore explains how a company should behave with respect to each power.
Throughout Escape Velocity, Moore touches upon portfolio management, key performance indicators, the Three Horizons Model (adapted from The Alchemy of Growth), and – of course – Moore’s famous Technology Adoption Life Cycle, while showing how the frameworks apply to different types of business (e.g., volume operations vs complex systems).
My Take: I see Escape Velocity almost as a reference or guide for high-level portfolio management. Sure, it should be adapted to the situations and unique characteristics of your business, but I wouldn’t stray too far from what Moore recommends, else you’re probably going to miss the mark.
Like other Moore books I’ve read, Escape Velocity is surprisingly succinct, and doesn’t belabour points – it makes them, supports them, and moves on, confident that the reader has taken them in.
In short: a very digestible and practical business guide.
Read This Book If: …You’re a product manager or portfolio manager, have oversight of either, or simply want to understand the bigger picture relating to those two areas of responsibility.
Notes and Quotes
Escape Velocity and the Hierarchy of Powers
“Newton taught us several centuries ago in his first law of motion, the one that covers inertia, that an object at rest tends to stay at rest and an object in motion tends to continue in the direction in which it is currently moving. The same goes for resource allocation.”
- p1: “Newton taught us several centuries ago in his first law of motion, the one that covers inertia, that an object at rest tends to stay at rest and an object in motion tends to continue in the direction in which it is currently moving. The same goes for resource allocation.”
- p2, on how to start to overcome your company’s inertia: “You can take the time to develop and bring to the table an outside-in, market-centric perspective that is so compelling and so well informed that it can counterbalance the inside-out company-centric orientation of last year’s operating plan.”
- p5: “Category power is a function of the demand for a given class of products or services relative to all other classes. Categories in high demand, like smart phones, storage systems, and cloud computing, are more successful than their peers in securing customer budgets to fund them. Thus they grow faster and typically enjoy better profit margins.”
- p9: “Within a given category, company power reflects the status and prospects of a specific vendor relative to its competitive set, power typically signaled by that company’s market share.”
- p12, on asymmetrical bets: “Asymmetrical bets are the foundation for creating company power, putting in high relief the distinction between leadership and management. Managers resist asymmetrical bets for a host of good reasons: They are both inequitable and socially unpopular. They are hard for shared services organizations to support. They entail taking high-visibility (and potentially career-limiting) risks. They run roughshod over personal loyalties. They stretch the organization far beyond the limits of its comfort zone. They are departures from the norm. Leaders acknowledge all of the above, but they still persist in making asymmetrical bets, also for a host of good reasons: They want the power to win. They are more externally than internally focused. They want to adapt the company to the market, not the other way around. They want to make a difference. They want to make sure that sacrifices – which are inevitable in any strategy – are made in a worthwhile cause. If you expect to achieve company power, you must lead first and manage second.”
“Managers resist asymmetrical bets for a host of good reasons…Leaders acknowledge all of the above, but they still persist in making asymmetrical bets, also for a host of good reasons…If you expect to achieve company power, you must lead first and manage second.”
- p13: “Market power is a company power within the confines of a single market segment.”
- p15-16 include (and expand upon) a number of questions that should be asked when pursuing a strategy of market-segment focus: “Is the market segment big enough to matter, yet small enough to win decisively? [Lee’s note: I felt that the satellite Internet market fit satisfied this criterion for Sandvine, but others disagreed] Are our market-specific commitments sufficiently focused and intense to win market power? Are we winning fast enough? Are we making the market sufficiently lucrative for our partners so that they will proactively participate in completing our whole offer? Are we capturing a price premium commensurate with the unique value proposition we provide? Do we have a clear line of sight to our growth opportunities in adjacent market segments?”
- p18: “Offer power is a function of the demand for a given product or service relative to its reference competitors. In mature categories the reference base is simply the competitive set that makes up the category. In emerging categories it also extends to status quo alternatives that are not in the same category but compete for the same budget.”
- p19-20 have relevant questions that need answering about offer power: “Is this offer a proven hit, a potential hit, or more of a product-line filler? Is this offer sufficiently differentiated to gain escape velocity from its competitive set? What can we do to amplify its differentiation further? Where are we wasting resources majoring in minors or chasing a competitor’s tail?”
- p20: “Execution power is the ability to outperform your competitive set under conditions that favor no vendor in particular. For the most part, it is focused on your existing book of business and thus is more about securing the present than freeing your future…In this context we are talking not about execution in general but rather the ability to execute a game-changing shift in operating priorities.”
- p23: “Stepping back from whether one is scaling a complex-systems or a volume-operations offering, in either case the simple act of transitioning itself is an unnatural act for most organizations. Once they get established in a given execution mode, they don’t want to change. Thus the real key to achieving escape velocity is to overlay an additional execution discipline, transition programs, the role of which is to convert an activity from a current to a future state, be that from process to playbook (complex systems) or from product to partners (volume operations). Transition programs, in this context, are vehicles for driving organizations to tipping points.”
“Stepping back from whether one is scaling a complex-systems or a volume-operations offering, in either case the simple act of transitioning itself is an unnatural act for most organizations. Once they get established in a given execution mode, they don’t want to change.”
- p25 has a snippet that sums up how I feel about team management (I expect that the regular stuff will get done without my supervision or involvement): “If your organization cannot perform its ongoing execution responsibilities without your constant supervision, then you have bigger problems to tackle than this one.”
Category Power: Reengineering Portfolio Management
“Category power, in short, is the number-one predictor of future economic performance.”
- p28: “Category power, in short, is the number-one predictor of future economic performance.”
- p29 shows The Category Maturity Life Cycle, and how it relates to Moore’s famous Technology Adoption Life Cycle
- p34, on portfolio management: “Now, having surveyed the landscape of category power end to end, it doesn’t take a genius to realize what you would wish for, namely a consistent cycle of innovation in Stage B, maturing into enduring franchises in Stage C, fed by the occasional foray into Stage A, fueled with the assets gained from divesting businesses in Stage D, all the while maintaining a ‘no fly zone’ over Stage E. That is the theory of portfolio management in a nutshell.”
- p36 shows the The Growth/Materiality Matrix of portfolio management
- p40 explains The Three Horizons Model of portfolio management, and how it maps to the Growth/Materiality Matrix
- speaking of Horizon 2, p41: “Horizon 2 investments are expected to pay back significantly, but not in the year of their market launch. Typically they are fast growing from birth but come off a small base and need time to reach a material size. Moreover, because market adoption is rarely linear, there are often fits and starts before they catch fire. In the meantime, however, they are making material demands on go-to-market resources in the current year without generating corresponding material returns, and so they demand patience.”
- p42, wow does this ever sound familiar – it perfectly captures my experiences with Sandvine’s OutReach and PCRF products: “Simply put, it takes many more resources to generate a dollar of revenue in Horizon 2 than it does in Horizon 1. Category demand and company reputation are not yet established, so the skids have not yet been greased. Moreover, the field sales personnel are not as familiar with the new product, nor are their established customer and prospect contacts likely to be the targeted buyers for it. Domain expertise is scarce to nonexistent, and partners are holding back in a wait-and-see mode…But there’s more. Horizon 2 offers are immature and thus, as end-to-end solutions, incomplete. To fulfill the promise they make to the customer, they must be complemented with professional services to complete the whole offer. These services must be discounted because, in effect, they are backfilling for things the customer has already been promised. Moreover, building out the whole offer for the first time is iffy work and tends to be underspecified.”
“Horizon 2 initiatives are doomed from birth; they will never reach the materiality needed to earn Horizon 1 status.
- p44 continues to describe, in detail, the root cause of a pain felt by many in technology marketing: “Horizon 2 initiatives are doomed from birth; they will never reach the materiality needed to earn Horizon 1 status. Here is the key point. This is not due to lack of innovation. It is not due to weak R&D. It is not due to bad product. It is not due to lack of customer interest. It is not even due to ‘corporate antibodies,’ although that gets closer to it. It is instead due to a complete disconnect between, on the one hand, a field-facing management team driven by a Horizon 1 charter and compensation plan, and on the other, a covey of needy product and market managers with a Horizon 2 set of market development requirements. When these two forces collide, it is no contest: Horizon 1 prevails, hands down. Hence the prevalence of what we have come to call the Horizon 2 gap, a primary symptom of enterprises experiencing Christensen’s innovator’s dilemma.”
- p44 also references this HBR article authored by Moore: To Succeed in the Longer Term, Focus on the Middle Term
- p50, in a section on Planning and Budgeting: “The critical best practice here is to subdivide portfolio resource allocation into three separate competitions, one for each horizon, each horizon having its own dedicated pool of resources not to be shared with any of the others. The ROI domains for each horizon are so unique, it makes no sense to have them compete with one another.”
- p53…so, not on semi-annual release trains, then? “Because they are so high risk and time sensitive, Horizon 2 initiatives should be executing to a rapid-fire, highly transparent cadence of weekly commits, monthly reviews, and quarterly milestones.”
Company Power: Making Asymmetrical Bets
“Being laser-focused about the specific direction of your core innovation investments and being Star-Trek-bold about skewing resource allocation to their specific ends together let you achieve escape velocity from your category norms. Unfortunately, most companies fall short on both counts.”
- p64: “Achieving escape velocity means freeing yourself from power-deflating bake-offs with competing companies by creating one or more unmatchable offers.”
- p66: “Being laser-focused about the specific direction of your core innovation investments and being Star-Trek-bold about skewing resource allocation to their specific ends together let you achieve escape velocity from your category norms. Unfortunately, most companies fall short on both counts.”
- p70 contrasts a Complex Systems business architecture with a Volume Operations business architecture
- p77: “It is much easier to escape the gravitational field of a tightly defined category, ideally symbolized by a single reference competitor, than to break free from a cloud of competitors who, taken collectively, can be all over the map.”
- p78 had me wondering what would be Sandvine’s example? (see the table, below, which reproduces Moore’s Figure 3.3…with an added bottom row, for effect) “New trajectories are created by unmatchable capabilities that produce novel offerings that prove irresistible to customers. These offers are anchored in unique core competencies.”
|Company||Core Capability||Representative Offering|
|Apple||User experience design||iPhone|
|Oracle||Mature market M&A||Consolidated ERP|
|Amazon||Disruptive innovation||Elastic cloud computing|
|Pixar||Animated story-telling||Toy Story|
- p79 lists (and explains) a number of potential crown jewels: “Crown jewels are enterprise capabilities that are valuable, defensible, and unique to your company and that, if developed and accentuated properly, create sustainable competitive advantages that enable distinctive competitive separation.” Moore lists: Technology, Expertise, Platform products, A passionate customer base, Scale, Brand, and Business model.
- p83: “To make a difference of the magnitude we have been describing – to bring that difference into existence and instantiate it in your company – calls for an approach we term Lead first, manage second. Lead first means committing to a deeply asymmetrical bet on core before you allow yourself to become enmeshed in last year’s operating plan.” This part goes on to list and explain a number of best practices associated with this approach (I’ve only included text from one of them, but they all come with explanations):
- Secure buy-in at the top before you launch
- Publish the vision and the road map. This is how you declare core. The vision is not about you, it is about the new trajectory for the category, the one that will delight customers, attract partners, and inspire employees. The roadmap, on the other hand, is about you.
- Burn the boats
- Fund core first
- Use “whatever it takes” as your funding and staffing standard
- Commit to major-market tipping points as your metric of success
“The vision is not about you, it is about the new trajectory for the category, the one that will delight customers, attract partners, and inspire employees. The roadmap, on the other hand, is about you.”
- p85, of my own heart: “Management…is a necessary complement to leadership, but it does not substitute for it.”
- p85: “Much of the operational challenge of freeing yourself from the past consists of untangling your company from a legacy of modestly to marginally performing offers, each laying claim to just enough resource to prevent you from breaking loose. Individually they look harmless enough, but collectively they hold you hostage, robbing your enterprise of the resources needed to serve core”
“Much of the operational challenge of freeing yourself from the past consists of untangling your company from a legacy of modestly to marginally performing offers, each laying claim to just enough resource to prevent you from breaking loose.”
- p86 suggests reorganizing the organization “to foreground core” which is similar to what’s advocated in Why Should I Choose You? Some other suggestions: Fund and staff your top-performing product lines 110 percent, ruthlessly optimize everything else, repurpose talent from the long tail, and recruit an outsider to break up the “web of favors”.
- p88: “At the core of creating company power is the leadership courage to make asymmetrical bets and the management prowess to execute them in tandem with running the legacy business.”
Market Power: Capitalizing on Markets in Transition
“It is the problem, first and foremost, that binds you to the customer, and the more you have focused your communication in dialogues about the problem – as opposed to your solution – the more powerful your position will be.”
- p98: “When you dominate a market segment to the point that customers and partners self-organize to marginalize your competition, you have truly achieved escape velocity.“
- p99 explains eight situations in which a segment strategy is likely to pay for itself many times over:
- Gaining market adoption for a disruptive technology
- Penetrating a new geography
- Getting out from behind the market leader
- Anchoring a turnaround
- Solving for the “stuck in neutral” problem
- Capitalizing on a great niche opportunity
- Exploiting the “granularity of growth”
- Capitalizing on a market in transition
- p105 begins a short section on target market initiatives (TMIs), complete with a 9-point Market Strategy Framework
- p110: “So who really is the target customer, specifically in a TMI, and even more specifically when targeting a market in transition? The answer is the department manager with the problem use case, backed by the financial support of the line-of-business executive to whom that department reports.” Companies facing unsolved problems have a compelling reason to buy; there’s budget, but it’s currently being spent on remediating, rather than solving, the problem.
- p115: “Before there is a viable market, do not look to partners for much help. Your unproven bet represents a substantial opportunity cost for them, and until the odds are stacked more in your favor, this is a bad bet for them to make.”
- p116 points to an HBR article co-authored by Moore, In a Downturn, Provoke Your Customers
- p124: “Note, in particular, that positioning messages in general are not about you or your products. TMI messages are all about being in service to solving a very tough problem. It is the problem, first and foremost, that binds you to the customer, and the more you have focused your communication in dialogues about the problem – as opposed to your solution – the more powerful your position will be.”
Offer Power: Breaking the Ties that Bind
“No engineer gets up in the morning to be ‘good enough.’ ‘Best in class’ is more like it. But here’s the thing: Best in class is a sucker’s bet!”
- p134: “…we developed a model to describe three different ways in which innovation creates economic value, along with two others that actually reduce value.”
- p139 describes six levers that can free resources trapped in context tasks
- p141: “Neutralization innovation is the energy that drives the bulk of any current book of business. It is what keeps you in good standing with your customers, your partners, your suppliers, even your competitors. It lacks the glamour of differentiation innovation, but in terms of pure ROI, risk-adjusted, it is by far the best investment you can ever make.”
- p141: “When all the market is asking for is ‘good enough,’ yet we insist nonetheless on giving more than that, and worse insist on calling this delta value, we are doing everyone a disservice, not least of all ourselves.”
- p142: “So what is the right way to play the neutralization innovation game? In a word, speedily. Basically, there are two primary reasons to invest in neutralization. The first is to catch up to a competitor who has achieved escape velocity with its latest offer… The other reason to invest in neutralization is to contribute to your industry’s overall progress.”
- p143: “No engineer gets up in the morning to be ‘good enough.’ ‘Best in class’ is more like it. But here’s the thing: Best in class is a sucker’s bet! Customers don’t pay a big premium for best-in-class offers; they pay a small increment over the mean. They do pay a big premium for beyond class, the unmatchable offers we will discuss in differentiation innovation. And they do impose a penalty for being not in class, meaning you have slipped below the expected norms of any company in the category, presumably by not neutralizing fast enough. But for everything in between good enough and best in class, the premium paid comes nowhere near covering the cost.”
- p153: “Until the risk of not producing a 10X offer beings to approach the risk of attempting to produce such an offer, it will be hard for the organization to commit.”
- p156, on end-of-life (EOL)…it’s from an example but is good best practice: “Customers and channel partners got ample warnings of EOL with plenty of time to make one last ‘lifetime buy’ before the SKU was eliminated. And marketing and sales were both armed with the road map and the value propositions behind the new products so they could ease customers through this transition.”
Execution Power: Engineering the Escape
“Catalytic programs are the primary and most powerful levers executives have for leading large organizations… Catalytic programs really do give you the chance to make an impact. The inventor-to-deployer transition is the instrument by which escape-velocity outcomes are achieved. The deployer-to-optimizer transition is the mechanism by which they are funded.”
- I’d say it extends to erroneously leaving engineering teams in place, too…better to align with skills than product domain knowledge; p169: “What may not be as obvious from your seat inside the enterprise, on the other hand, are the organizational development principles that are optimal for each of these various modes. It is critical to get a bead on these because the kinds of leadership and the type of organization most desired vary dramatically as you move from invention to deployment to execution. Unfortunately, most companies leave the same organization and the same leadership in place throughout the life cycle of a given product line, which means that for two out of three of these modes they will have a highly suboptimal team in place. This is a source of considerable underperformance in established enterprises, and it contributes mightily to the inertial resistance against letting next-generation initiatives gain escape velocity.”
- I don’t have many excerpts from this section, but it really struck me as important that people excel in different modes, and that suggests moving away from what most companies do with product development. For instance, most companies will have the same engineering team work on a product for its whole lifecycle. This approach makes intuitive sense, right? Jimmy wrote the first version, so he knows it, so he maintains it, and he works on it right until it’s EOLed. But what if Jimmy’s great at (and enjoys) innovation, but is kind’ve disinterested in and not that great at maintenance? What we should do is organize around strengths, rather than proprietary product knowledge. So your innovators innovate Product A. Then Product B. Then Product C. Your maintainers inherit and maintain A, then B, then C. Your sun-setters close off A, then B, then C.
- p180: “Put another way, catalytic programs are the primary and most powerful levers executives have for leading large organizations… Catalytic programs really do give you the chance to make an impact. The inventor-to-deployer transition is the instrument by which escape-velocity outcomes are achieved. The deployer-to-optimizer transition is the mechanism by which they are funded. Being able to run the two in parallel, extracting resources from context to fund and drive core, redirecting the deployer asset to drive the next generation of growth, is the very essence of execution power.”
“Your job as a leader is to communicate so vibrant a vision of the future that they are willing to let go of what they know and make the leap to the unknown. And then your job as a manager is to make sure that the future you have so confidently portrayed becomes real.”
- For those lacking time, p193 begins a pretty succinct summary of the whole book
- p198: “The key thing for execution transformations is to move swiftly while maintaining a steady cadence. Organizations need to feel themselves changing, or else they will not transform. Your main job as a transformation leader is to relentlessly reinforce the changes as they are being made, reviewing them weekly, securing commitments for the following week, charting progress all the way along, and reporting it out high and wide. ‘Making change visible’ is the mantra for this playbook.”
- p200: “The whole point of a transformative vision is to reorient a universe of stakeholders in light of a disruption to their status quo. It is an act of thought leadership, by virtue of which you expect to win their confidence and support in leading the way through this change. This is a particularly important message for your employees. Their jobs, their job security, their very livelihoods are deeply threatened by the coming disruption, and their natural reaction will be to withdraw from it through denial. Your job as a leader is to communicate so vibrant a vision of the future that they are willing to let go of what they know and make the leap to the unknown. And then your job as a manager is to make sure that the future you have so confidently portrayed becomes real.”
- p201: “Strategic transformations are all about overcoming the inertial resistance of the status quo. As such, they demand leadership first, to break the ties with the past and set the direction for the future, followed by management second, to drive the asymmetrical resource allocation and translate the ideas of strategy into the behaviors and offers of execution.”
“Strategic transformations are all about overcoming the inertial resistance of the status quo.”
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