Bad Lemons: Why Organizations Reject Innovation

Reject to Protect

Organizations (multi-human systems) reject innovations for the same reason that single human systems do. Our bodies naturally reject unnatural or unrecognized intruders. If you replace a hip or install a cosmetic artifact, your body fights even these intended interventions.

Organizations do the same with intended innovations. Both systems are evolved to recognize and protect against the probable infection caused by foreign objects.

The analogy holds. Our bodies are purpose built to operate within certain parameters, and to a certain genome. They defend against the risks that foreign objects present, with antibodies. These will attack, encase, destroy and evacuate the wasted organism as dead tissue. The site can become inflamed (fever kills infection) and painful. Our systems evolved to perform this evacuation naturally and unconsciously.

Organizations evolved similar self-protective systems. Entrepreneurs – the company founders, often have a hard time with the transition from nimble and opportunistic to rigid and risk-averse. Boards and management of large companies often have a hard time with entrepreneurial leaders.

Entrepreneurs see opportunity. They turn lemons into lemonade.

Managers see growth and risk. They turn lemonade into Lemonade Inc., and remove impediments and risks to its growth.


lemonade-stand-bw

Making Lemonade

Your mother was renowned for her golden touch. She had a way with people and a way with business. She became a darling of Wall Street when she parlayed her summer childhood recipe and lemonade stand into a multinational beverage producer and distributor.

You rose among the ranks of Lemonade Inc, proud of your family heritage. After summers reviewing inventory and internships managing produce, you eventually earned your MBA and signed up full time. You rose to lead Sales & Marketing on your merits. At your mother’s eventual retirement you are elevated to chief executive.

Throughout this exciting journey your management team built protections into operations at each stage of growth and retrenchment. Your mother’s guideline in year five (“Investments exceeding $25,000 must be approved by the CEO”) evolves a generation later to an ironclad constraint that “investments exceeding $250,000 must be approved at the region level by the representative Corporate Development Council.”

This perfectly sensible rule constrains individuals from taking unintended risk. But what if the environment changes, and the rules don’t?

Your former protege in Marketing has warned you of a shift among next generation consumers. They deplore both the added sugar and the artificial sweetener you use to make lemon juice palatable. Sales go flat.

You try alternatives. R&D mixes orange juice and pomegranate with lemon, but costs sky rocket and margins fall. The board demands a new strategy.

In the following few quarters more bad news follows. First health activists and then the medical community excoriate hidden sweeteners as the twin plagues of prosperity—obesity and diabetes—explode. Lemonade Inc, markets to parents and children as the “healthy alternative” to sodas.

Parents protest. Headlines declare a movement to ban Lemonade Inc. from school lunch programs.

stop diabetesYou recall from your years in Market Research a pesky artifact that always comes up in studies, which you’ve repeatedly ignored. In the transition to natural ingredients and sustainable environments, indicators suggests latent consumer interest in lemon citrus as a natural cleanser and preservative.

You’ve cornered the market on lemon futures (hell, you own or license 30% of the lemon groves in California, Mexico, Argentina and India!). You hold a distinct advantage to introduce new product lines for specialty lemon cleansers or natural food preservatives.

You check with Corporate Development.

Who are the big players in this space? If we wanted to enter the market, what are the top M&A candidates?”

Arvind, your old friend and EVP of M&A, grits his teeth and stares at you imploringly. You remember that look from your summer internships together. It resides somewhere between incredulous and furious.

Oh. My. God. You are REALLY asking me this? Do you know how many times I tried to discuss this with you and your mother?”

“What are you talking about Arvind? About citric cleansers? Lemon Pledge was way off brand for us.”

“No. I’m not talking about aerosols and lemon-scented poison! I’m talking about Anthony’s!”

You’re pretty sure he’s not getting worked up about the local Italian restaurant, the only “Anthony’s” that comes to mind. So you keep your mouth shut.

Anthony’s? I convinced your mom to buy it, must have been 12 years ago. It was a tiny investment, but had to go up the flag pole because of the $250K limit. It was that little all-natural preservative powder guy. We went to his groves down in Mexico, remember? You called him and his partner Ben & Jerry?”

Okay. Now it clicks.

Yes. Right. I remember Ben and Jerry. You liked that one a lot, I know. But they were a couple of dirt farmers, Arvind. They were probably growing more weed than lemons. I know you bought them, but it was always a loser, like I said. We were right to unload that one. I’m talking about doing something big.”

He reaches to the board behind him and pulls off a small article from Investors Business Daily. The tape is slightly yellowed. It’s five years old.

PEPSICO SNAPS UP NATURAL PRESERVATIVE. Anthony valued at $4B.”

Your mind races while you avert eye contact with Arvind. How is this possible? A simple craft paper bag catches your eye on the credenza behind Arvind. You reach to examine it. Anthony’s Citric Powder. Small print on the back indicates it’s distributed by PepsiCo USA. A handwritten scrawl says “Call me for a job! LOL!”

“Did Anthony send this?”

Arvind shakes his head.

“No. Remember Berni, from grad school? She’s with Goldman. They did the deal for Pepsi. Laughed all the way to her new vacation home. In Mexico. Near Anthony’s, which is now also a Coastal spa destination.”

You have GOT to be joking! Did they make back their investment?”

Seriously? They’re the backbone of the modern food preservation industry. It’s all about organics. Low latency. Low energy. Low cost, sustainable, without brine’s health implications of salt or the sour taste of pickling. It’s not the future. It’s the NOW! They’re already bigger than we are and they grew 17% last year.”

You’re dumb struck. How is this possible? They didn’t grow at all on your mom’s watch.

Arvind, there is no way those hippies were worth four billion dollars. That’s just, what? Three years after we unloaded them?”

They were worth everything to Pepsi. They had all the same problems with sweeteners. But they have a broad portfolio, snack foods, fast food, they run the whole gamut. They saw consumers shifting to healthy, natural, sustainable. So they put money behind Anthony’s and built a full Business Unit around natural preservatives. Anthony’s partner, Cal? He runs Cal’s. Pepsi owns that, too.”

Cal’s Pickles? Seriously? I love those! They pickle everything. The mango is ridiculous.”

“Yep. They still report it separately.”

Arvind clicks a few keys on his dual screen computer.

Yeah. The whole division now is $26B. Growth last year 17%. Forecast this year… 23%.”

“I don’t get it. We’re a good company. Why didnt we grow them like that?”

Arvind responds slowly. Gently.

“I’m pretty sure you said then what you said just now. ‘They’re a loser’. That just became a fait accompli. The queen bee doesn’t get it. Her heir apparent thinks it’s a distraction. You put an old war horse in charge of it who couldn’t see the future with a time machine. What did you think would happen?”

And Arvind drives it home. A stake to the heart.

At the time you told me ‘we make lemonade, Arvind. We don’t need lemon powder to preserve lemons’.”

You wince. He sees it. You remember that line. You were proud of it. A clever retort. Now it haunts you.

In a rush, the whole chain of events flushes through the gutters of your memory. Your mom assigned Isaac, the old head of sales, to run Anthony’s. He hated Anthony. Hated Cal more. Hated Mexico. Defined “curmudgeonly” on a good day. Isaac repeatedly implored your mother to sell it or shut it.

You remember the budget meetings. Arvind pushed Isaac on growth plans. Why wasn’t he seeking budget to expand? Isaac grunted and said it wasn’t worth the risk. It was a tidy little business, he confessed begrudgingly.

“But it’s not who we are.”

Arvind objected. You agreed. Your mother sided with you. Anthony threatened to quit when his handcuffs expired anyway. So you sold it. You were glad to be rid of it. Isaac retired the same day.

You have a hard time making eye contact. But you have to ask Arvind.

“Okay. I get it. Too little too late. I’m sorry. So who do we have to buy now?”


SUMMARY

Entrepreneurs see opportunity, turning lemons into lemonade.

Managers see growth and risk, removing impediments and risks.

Most companies transfer leadership from a risk-taker founder entrepreneur, to a risk-averter professional manager.

Great companies retain both. The manager and the opportunist co-exist. Disciplined and paranoid. Focused and searching.

Feet on the ground AND eyes to the skies.

Make better.

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