Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Wednesday, September 22, 2010

The Power of Threes

Here's a hypothesis. Decent companies (and economies) do one or two things really well. In today's economy, that's about enough to eke out just enough scraps to make a meagre, modest living to survive on - for a while, at least. But to build a awesome, killer, great company (or economy) - one that outperforms, endures, earns a lasting advantage, relegates it's competitors to a distant, vanishing second place - you've got to do three things really well.

Call it the Power of Threes. To illustrate it, consider Apple. Through the 80s and 90s, as a master of aesthetics, it was a decent company: it made a nice amount of cash, earned a reasonable number of loyal fans, and grew a small but significant amount of market share. But it wasn't until it also mastered retailing and service - through the unlikely, dramatic power of the Apple Store and the Genius Bar - that it became a great company. Today, the Power of Threes has let Apple gracefully, masterfully, sometimes nearly effortlessly disrupt, literally turn upside down not just one industry - but five and counting.

Google's a classic example of the Power of Threes. When you think about it's historic rivals, all were good at just one thing - if that. Some were nicely designed; some technologically interesting; and some had clever business models. But Google didn't just build a technologically better search engine. It did that plus designed it in a radically more usable way. And it did that plus wrapping both in a radically more efficient marketplace, that sucked the friction out of marketing. Media incumbents, on the other hand, were a classic example of relying on the Power of Ones: they usually did (barely) one thing well. Newspapers and radio stations sold ads well - and that's about it. Hollywood mega-marketed celebrity blockbusters well - and that's about it. Record labels manipulated the charts and controlled distribution well - and that's about it. The result of pitting the Power of Threes against the Power of Ones, of course, is history: a startup that, in less than a decade, atomized a set of lazy, cushy industries to (no pun intended) bits.

Like Dunbar's Number suggests the optimal size of a productive social network, so the Power of Threes suggests an optimal number of interdependent capabilities for a marginally advantaged economic actor, whether country or company (more on that later). For now, think about it this way: one's not enough, but after three, diminishing - or perhaps negative - returns rapidly set in. You can certainly try (and perhaps even succeed) at mastering more than three capabilities, but it's risky, tough, and leaves you straining, probably prone to collapse.

America used to be, like Google, a killer example of the power of threes. Today, not so much. Once upon a time, it was a hotbed of entrepreneurship and innovation. Today, Silicon Valley's busy pumping out...minigames. It used to have a pool of labor dedicated to skilled craft. Today - well, as much as I love Detroit: would you buy an American car? And it used to have the world's most efficient, liquid capital markets. Needless to say, today it has the world's most toxic, rotten, inefficient capital markets. My hunch is that America's Great Stagnation is down to letting the Power of Threes go - and the long-hoped for recovery won't really kick in until it gets the Power of Threes back.

So you might ask: "well, what about China?". Does it have the Power of Threes? Well, it's got a massive pool of low-cost labor. But it's hard to think of other stuff that China, right now, does really, really well - neither innovation, nor branding, nor marketing, nor fair, ethical trade are it's forte. So my guess is that until China gains the Power of Threes, betting on its ascendance is a tiny bit premature.

All of which brings me to my point.

There's a massive relative scarcity of companies and countries with the Power of Threes today. Most companies - and most countries - only do one thing really, really well (if that). Why? Because we've been taught that hyperspecializing is enough. Maybe it was - yesterday. In an industrializing world, full of oligopolies, rich with entry barriers, rife with easily exploited resources, full of with easily sated "consumers", maybe it really was enough to just do one thing really, really well. But in a hypercompetitive world, where entry barriers are falling like dominoes, and anyone can make, sell, and market pretty much anything, anywhere, anytime, where switching costs that yesterday used to keep hapless, witless "consumers" locked in as tight as if they were in prison are eroding faster than the Maldives, where product and service lifecycles are rapidly shrinking to the vanishing point, customers, clients, buyers, suppliers, and investors demand not mere competence - but awesomeness. They demand more than just merely being a little bit good at a single capability. They demand being spectacularly great at a complex, interdependent, coordinated sets of capabilities - that, when harmonized and unified, can unlock nonlinear, explosive returns that endure and multiply.

So unfortunate as it is, you're more than likely still obeying the now-dilapidated, deflated Power of Ones. So the question is: how will you gain the Power of Threes? What are the three interdependent capabilities that you could be really, really good at?

-- umair // 6:14 PM // 0 comments

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