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The Paul Orfalea Story: A Process, Not a Plan

One of my favorite entrepreneurs is a guy named Paul Orfalea. Paul is brilliant and quite successful, but he’s unbelievably modest and also very honest about his shortcomings. Paul is profoundly dyslexic. He didn’t learn how to read until he was well into elementary school and did nothing in high school that would be associated with the idea of success. He went to college but didn’t care an awful lot about his classes. It was the perfect background for an entrepreneur.

Paul started a little copy shop (so little he had to wheel the machine outside to make room for customers) on his college campus. He sold pens and paper and made copies. That store grew to become Kinko’s, a chain with more than one thousand outlets that he was able to sell for more than two hundred million dollars to an investment group.

The secret to Kinko’s success is disarmingly straightforward. "My reading was still poor and I had no mechanical ability, so I thought that anybody who worked for me could do the job better," Paul explains. He set up a unique co-ownership structure that let him grow the business with more flexibility than a franchise could offer. The end result is that for years, Kinko’s stores were partly owned by someone local.

Paul described his job to me this way, "I just go from store to store, see what they’re doing right and then tell all the other stores about it."

By allowing local entrepreneurs to make millions of low-cost experiments every year (just three per day per store gets you to that level) and then communicating the successful ones to the other stores, he was able to set the process in motion that led to

that all-night store I found in Cleveland. The Cleveland store wasn’t part of a specific plan, but it was very much the outcome of a specific process.

Very little specialized knowledge is required to open a copy shop. Yet Kinko’s dramatically outpaced every other competitor by reinventing what a copy shop was, every single day. Kinko’s did not have a patented new technology. Instead, it had a posture about change that treated innovations and chaos as good things, not threats.

The more successful Kinko’s got, the more likely it was to get job applications and co-venture deals with people who made the company even more successful. The more Kinko’s stores there were, the more likely it was that people would seek one out. The better Kinko’s did, the more successful it became.

Kinko’s became a success. Working there was fun because the company attracted people who could compound its growth. Kinko’s stopped worrying about surviving and enjoyed the ride.

It’s interesting to see that since the takeover of Kinko’s by an investor group, new management has bought out the individual owners and installed a command and control system. is regrouping and the entire chain is experiencing slower growth, despite external economic and technical conditions that should have allowed it to grow even faster.

Paul was right. All of us are smarter than any one of us.


Frantic at Work?

Companies aren’t organized for change. They’ve never needed to be. Growing and profiting from stable times was a terrific strategy.

Forced into an era of rapid change, the response of companies organized for a stable environment is to ask managers and employees to act as a buffer between the company and the changing outside world. Alas, it’s not working.

Are you working longer hours than you used to? Most people do. And along with the long days, it often feels as if your day is filled with one emergency after another. We spend so much time putting out fires and nervously anticipating the next crisis that there’s almost no time left to do our real jobs.

While it’s easy to find the reserves to deal with a temporary crisis (in fact, you might even enjoy the adrenaline rush that comes with a deadline) we can’t keep this up forever. Accountants can deal with April 15 because they know it only comes around once a year. It’s a temporary emergency. Unfortunately, being frantic at work is no longer a temporary phenomenon. Change is now constant, and the fundamental ideas we have built our companies and our careers upon are going out of style fast. They’re disappearing so fast that for the first time, you have to deal with the implications of change instead of waiting for a retirement, a promotion or a new job. The world is changing on your watch, and it’s not fun.

Somewhere along the way, it was decided that it was our job to absorb the stresses that come with change. Our job to work longer hours, take more personal risks, absorb more stress. Your frustration and stress aren’t atypical. They are, however, unnecessary.

We can’t work more hours. We can’t absorb more stress or endure more anxiety at work. We can, on the other hand, radically redefine what we do at work and create organizations that are designed to succeed regardless of what our ever-changing future produces.

Your job shouldn’t be to stand between your company’s old rules and the new rules of the outside world. Instead, your company needs to change from the inside out. Your company needs to learn to zoom.

A company that zooms embraces change as a competitive opportunity, not a threat. A company that zooms is responsive to new opportunities and doesn’t freeze in the face of an uncertain future.

Every company zoomed when it was young. But success has spoiled most organizations, and they’re now too fat, too stuck and too afraid to zoom again. If your company is under stress, it only has two choices. Either it changes or it requires people like you to absorb the stress. The first is productive, energizing and profitable. The second leads to an unhappy frenzy.

Because the chaos we’re facing came to us gradually, it’s easy to believe that we can gradually adapt in the way we deal with it. It’s not true. The way we used to do business–dependent on highly profitable physical goods and manageable cycles of change–is over.

In Permission Marketing, I wrote about a major shift in the power between consumers and marketers. In the old days, marketers were in charge. They controlled how and when they communicated with consumers. We built our entire consumer culture around the idea that repeated television and print advertisements could profitably entice consumers to spend money. Businesses that invested in interrupting people became incredibly profitable. Marketers were in charge. They controlled the marketplace and consumers were sheep. Those days are over. Businesses can no longer manage consumer attention, consumer attention manages them.

In this book, I’m making a much broader argument. In the old days, companies were in charge. Good managers managed change. They controlled how and when a company would respond to the outside world. Those days are over. You can’t manage change. Change manages you.

If you’re unhappy, stressed, tapped out and/or losing money in our chaotic world, perhaps it’s time to consider a radically different approach. It’s possible to build a company that embraces change instead of fighting it. A company that attracts people who want to move fast, not slow. A company that changes faster than its environment, creating one landslide hit after another.


The Problem with Factories

Ever since we got serious about farming and factories, businesspeople have embraced the idea that investments in physical plant will pay off. Go to a meeting at Universal Pictures and they’ll happily show you the back lot. Visit my dad’s hospital crib factory and you’ll see punch presses and paint lines. Harvard University has stately ivy-covered buildings. Random House is erecting a huge skyscraper in midtown Manhattan.

At the very heart of capitalism is the idea that an entrepreneur can take money from investors and spend it on infrastructure that will pay dividends for years to come. Having a bigger, better factory was always the best way to get rich.

There are two big problems with factories, though. The first is that in times of rapid change, infrastructure ceases to be an advantage and begins to be a drag. Keeping those factories busy and paying dividends often forces a company to hold back on innovation.

The second problem is that the really profitable companies no longer rely on factories. Since 1970, the average weight of a dollar’s worth (inflation adjusted) of exports from the United States has dropped by 50 percent. In other words, we’re shipping ideas, not stuff.

If a factory doesn’t need to be near the end user (because of cheap shipping) and doesn’t need to be near the client (because of the ease of long-distance communication), then location is not really a competitive advantage. A factory owner often finds himself in the commodity business.

As I write this, I’m enjoying music from a group called Timbuk 3, based in Atlanta. The CD was manufactured by a Japanese company, in Indiana, and is being played on a Korean CD player through an amplifier made in Washington state. Finally, the music comes out of 150-pound solid-marble stereo speakers made in Thailand (which have tweeters that were made in Denmark). My guess is that at every step along the way, the "manufacturer" had a choice of factories he could use to make each component. And he probably didn’t own them.

Do we still need factories? Of course we do. How else are we going to make all this stuff? My point is that while the world still needs factories, that doesn’t mean you have to own them. Owning a factory will probably become a profitable niche business, a way to make a nice living. But fast-moving, high-growth, zooming companies don’t need to own them.

Because factories are no longer local, because the ultimate provider is no longer the manufacturer, the model that was factory-centric is dead. Being factory-centric doesn’t increase your profits, it decreases them. Being factory-centric doesn’t decrease your time to market, it increases it.


Living with Broken Windows

In The Tipping Point, Malcolm Gladwell writes about the precipitous decline in crime in certain parts of New York City. He points out that by fixing broken windows and cleaning up graffiti, the police department created a new atmosphere. Studies have shown that when small vandalism isn’t present, the rates of murder and robbery go down.

The reason seems pretty simple–if the neighborhood feels well cared for, it’s harder to take actions that are against the law. If, on the other hand, you’re living in the Wild West or a crumbling slum, all bets are off.

So what does this have to do with Verizon?

If you live in the northeastern United States, you’ve probably had to call Verizon about your phone service. When you do, you’re greeted with a voice processing system that asks a number of questions and then says, "Please type in your phone number." So you type in the ten digits and then wait on hold for a while.

The next part of the process amazes me. Every single time I’ve been connected to someone over the last three years (perhaps twenty incidents), the operator says, "What’s your phone number?" And then I say, "You mean the phone number the system just asked me to type in?"

At this point, the operator heaves a deep sigh, tells me that everyone says that and explains that the system doesn’t work. (Remember, this is the PHONE company!)

Over the years, a few brave phone operators have surely forwarded this common source of frustration to the powers that be. And over the years, the engineers have always had something better to do than fix a system that annoys tens of thousands of people every day. That’s a prioritization decision that I can’t make for them.

But I can tell you that Verizon is making it very clear to the people who answer the phones (the folks who deal with their customers) that improving systems is not part of their job.

Ask ten Verizon operators to go to a brainstorming session about how to improve customer service and I’m sure you’ll come up with a thousand great ideas. And I’m just as sure that Verizon doesn’t zoom enough to have sessions like this. By leaving broken windows on their voice mail, they remind their operators and their customers of this every day.


Let’s Test It!

In 1997, my company was doing a mailing to two hundred thousand of our users. Our goal was to get as many people as possible to open the e-mail as a first step toward getting them to actually respond.

One of the marketers in our brain trust came up with the wacky idea of using the following subject line in the e-mail: How many Microsoft engineers does it take to change a light bulb?

In most companies, a suggestion like this would get you thrown out the door. But we had a farming mindset, so my response was very different. I said, "Hey, let’s test it." And so we sent it to ten thousand of the two hundred thousand people who got the mail.

Guess what? The Microsoft e-mail got twice the response rate of the other one. We discovered that without using focus groups or hiring expensive consulting firms. We did it through testing.

Macy’s can’t overhaul the first floor of their store in New York City without spending millions of dollars and then taking a huge revenue hit if they’re wrong. Amazon, on the other hand, can change things on their home page in an hour and revert to the original in five minutes if they guessed wrong.

This seems like an easy and obvious strategy for dot-com companies. Now, though, thanks to a wide range of technological innovations, just about any job held by a serf can be approached with the posture of a farmer instead.

Do the cashiers at McDonald’s see a running total of how many of their customers ordered dessert? What if they did? What if they could see, right there on the cash register, what percentage of their customers were buying an apple pie compared to the other cashiers in the store or compared to the other stores in that region?

Given a goal, "sell 20 percent more apple pies," and a reward, "and win a free bike," as well as the freedom to improvise, my bet is that they could make the number soar. Imagine ten thousand cash register folks at McDonald’s, all trying various smiles, come-ons and invitations just so they could win a bike. Sounds a lot like natural selection to me.

It gets even better. Once McDonald’s discovers a few cashiers who seem to have a knack for this sort of thing, they can videotape them and share that approach with the other cashiers. A farming posture turns these ten thousand serfs into farmers, or at the very least, farmer’s apprentices.

This change in mindset, a new posture, is a fundamental building block in creating a zooming organization. I pitched an idea to someone I know in publishing. Instead of saying, "How much will it cost to find out if it works, how long will it take and how much damage will be done if we’re wrong?" she said, "That will never work and the publisher will never go for it." End of discussion. She’s a serf, not a farmer. Her old rules have gotten her this far and she’s in no hurry to discover better ones.

In my work with AOL, it seemed to me that they never learned how to farm. They were so busy with hunting and wizardry that they never bothered to test. For example, at one point AOL was one of the largest sellers of computer books in the world. In addition to selling computer books online, AOL operators would call users at home (during dinner) and sell them packages of books by phone.

Thinking like a direct marketer, the obvious thing to do was to test every possible script (for the phone) and online presentation that made sense. Along those lines, stealing a technique from the great direct marketers of our time, the other smart strategy was to test books before you wrote them. Call a thousand people or run a thousand online ads and see if the book you had in mind was going to sell. If it did, hurry up and write it. If not, go on to the next idea.

While the economics of this idea are obvious, AOL staffers didn’t think like farmers. They wrote the books first and sold them later.


Does Chaos Outside Mean Chaos Inside?

It may appear that the best way to deal with the turbulence of change is to encourage your company to enter a state of anarchy. I don’t believe that’s true. While there is no invisible hand guiding nature away from dead ends (like the platypus), it’s pretty clear that intelligent leadership is the critical distinction between a company that zooms to success and one that just fades away.

There are four ways to keep an evolving company from devolving into a maddening mass of dumb projects while still permitting the easy adaptation of successful test results.

First, keep your projects cheap. Experiments that lead to natural selection or mutation are essential, but cheap experiments can give you almost as much data as expensive ones. Cheap, by the way, also means fast. If there’s a fast, cheap way to discover a better winning strategy, do it!

Eternal vigilance is required to keep fearful employees from building all sorts of guarantees and assurances into their experiments. If you’re going to fail, fail quickly and cheaply. Don’t let people build task forces and contingency plans and buffers around their efforts. Shoot first, ask questions later.

Second, hold people accountable. Not the sort of life-and-death accountability that passes for accountability at most companies. That sort of proposition all but guarantees that only an idiot would volunteer to test something–it’s a sure way to lose your job. The kind of accountability you need is quick and direct. If someone promises a test will be done by Thursday, ask him on Thursday for the results. If they’re a week behind on a two-week test, cancel it. Nature isn’t kind and neither are evolving companies.

Third, you still need to lead. Successful companies defeat unsuccessful companies when a smart boss makes smart choices. No, this isn’t genetics. Someone is in charge, at some level, and it’s you. You decide which projects to authorize, which resources to allocate, which company to work for, what job to do.

Fourth, owners make better decisions. When Hard Manufacturing gave its factory workers a piece of the profits, a hundred experiments spontaneously occurred. Almost all of them were smart, and most of them translated into successful improvements in efficiency.

You cannot abdicate all decision-making to the market. I don’t believe that management can dictate the future by fiat, but I also know that having no position at all is an abdication of your responsibility. We make bets every day, and making many bets is smart. Making successful bets is brilliant.

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