Business innovation and the second half of the chessboard

In business, marketing and innovation are critical to long-term sustainable growth. This is because marketing is about communicating value and innovation is about creating value. A business makes a customer when it is able to deliver and communicate value to them. Customers are kept when a business is able to produce new forms of value to deliver and communicate to them.

Unfortunately, seeing the potential in new forms of value is difficult. At first, the new form of value may seem small and insignificant in comparison to the old object of value. This makes it very easy to discount the new form of value. To illustrate this point, I’d like to share with you a story about business innovation and the second half of the chessboard.

 

Iterations of innovative ideas can build over time

 
The Fable Of The King And A Grain Of Rice
 

Once upon a time lived a powerful king who loved to play games.  Unfortunately, the king had grown tired of all the games in his kingdom.  In search of a new challenge, the ruler summoned a group of his brightest people and gave each of them thirty days to create a new game to play.  The person who succeeded in pleasing the king would receive any treasure they asked for.

One of these people was a poor young woman.  She was gifted at math and strategy.  After spending the entire month thinking about a game fitting for the king, the poor woman had an idea that involved the strategy of battle.  On the day she was called, the woman presented the king with a square board, eight squares wide and eight squares long.  The woman had carved two opposing armies out of wood and arranged them on either end of the board.  Each piece had a specific role and movements.   After explaining how the game worked, the woman and the king played the first game of chess.

The king was pleased.  The woman won the king’s favor.  As promised, the king offered the poor woman any treasure she desired.  The woman replied to the king, “your highness, I could ask for your gold and treasures but I will not.”  The king looked relieved.  The woman carried on “instead, I would ask you for a treasure fitting for this simple game.  On the first day, I would like to ask you for a single grain of rice for the first square of the chessboard I made.”  The king was delighted.  The woman carried on “on the second day, I would like two grains of rice for the second square.  On the third day, four grains of rice for the third square followed by eight grains of rice for the fourth square on the fourth day and so on until I’ve been paid for all sixty-four squares on this board.”

The king laughed at this woman’s apparent foolishness and immediately granted her wish.  On this day, the woman left with one grain of rice.  On the next, she returned to collect two grains of rice.  On the third, she came back to collect four grains of rice. And on it went.  In a few days the king had forgotten about this woman and her foolish bet.

Three weeks later, on the twenty-third day, the king’s provisioner called urgently to the king.  “Your highness, we have a problem.” The woman who made your chess game is coming in tomorrow to pick up her payment of rice.  Yes, that silly girl thought the king.  The provisioner went on “Today she picked up nearly 150 pounds of rice.  Tomorrow, we’ll owe her almost 300 pounds of rice and after that her payment doubles every day for another 40 days. We don’t have enough rice to pay her in full.  In fact, there isn’t enough rice in all the kingdom to pay this woman.  We’ll have to give her your entire kingdom to pay her back.”

To pay back the chess-maker, the king would need a pile of rice as large as Mount Everest.

 

The Moral Of The Story  

 

Ideas for growth are like that single grain of rice.  At first they start small.  They often seem insignificant.  However, in time, ideas can start to grow to become something larger.

In business strategy, this is known as the second half of the chessboard.  While the amount of rice on first half of the chessboard is relatively small, the second half is 4 billion times larger.  Like the grains of rice, it’s not until the small ideas get to the second half of the chessboard that they massive impact on the growth of your business.

Companies often have solutions for their future growth long before the death of their cash cow.  The irony of this is that many companies choose to ignore their own solutions.  I think this is partly because the solution is often viewed through the short-term lens, which has a dual effect.  On one hand the idea appears small and insignificant.   On the other, the good ideas appear to threaten the existing structure of your business.

To this point, Steve Jobs had a great quote.

“If you don’t cannibalize yourself, someone else will”

 

A Few Examples

 

Recently, 60 Minutes did an interesting story about the inevitable death of newspapers. I find this topic fascinating.  Personally don’t think the entire industry will die, but that’s another story.

I’m interested in the death pattern that seems to repeat across industries.  Newsprint’s mortality has similarities to the death of video rentals, music stores, and film photography.  It’s not that consumers stopped reading the news, watching movies, listening to music or taking pictures.  The pattern that appears to repeat is the death of antiquated business models and the rise of new commercial players.

iTunes has replaced Blockbuster video and record stores.  Digital cameras replaced film. Newspapers are closing down because they’re looking at trying to replace revenue from the physical printed edition instead of figuring out how to best serve their growing digital customer base.

The restructuring of these industries is not without irony. Sony invented MP3 players before Apple. Kodak invented the digital camera long before any competitor.  Blockbuster declined buying Netflix multiple times.

I think part of the reason for these failures is because companies ask the wrong question.  These companies ask questions like: Will this new idea replace revenue right now?  The problem with this question is that it leads to unsustainable short-term solutions for long-term problems.

 

Ask A Better Question

 

A better approach is to building a sustainable business is to become adaptive to change by solving long-term questions. By trying to find solutions for this type of problem, you’ll remain relevant to your customers for as long as they live.

 

How can you best add value to your customers over their lifetime?

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