Playbooks + Pattern recognition.(John Chambers)

When I saw that Patrick O’Shaughnessy had posted an interview with John Chambers last week, I rushed to listen. The following quote contains a number of gems which I will continue to mine.

When Chambers uses the term “pattern recognition” and explains the concept, it’s so much more coherent than the latest BI and data science geek speak.

And when Chambers mentions “[seeing] the patterns so accurately… for 40 quarters in a row” the whole concept of “engineering growth” comes to mind, especially regarding the implications of a public company that can successfully and near-perfectly engineer growth over long time horizons. Cisco’s case reminds me of what I learned about Netflix’s growth levers, and Enron’s artificially engineered growth.

John Chambers was the CEO of Cisco from 1995 to 2015 where he helped grow Cisco from $70 million to $40 billion in annual revenue.

Begin quote (via Invest Like The Best)

Pattern recognition defers to the numbers. [It’s] the ability to be able to see the patterns based upon how an order rate went in a given day of any month, in a given week of any month [or] quarter, of a given quarter in a year—and to see the patterns so accurately that for 40 quarters in a row, we not only didn’t miss… we were plus or minus, always at the midpoint or above in the range of the market. [And that’s] even though eighty percent of our business was new every quarter. So we not only hit our year forecast, [but] we hit the quarter forecast, always at the number, usually 2 cents [per share] above…

…it was that pattern recognition that allowed us to spend money during the quarter and be able to develop in ways that others did not. [It was] pattern recognition that [enabled us so that] if there was a problem or an opportunity, we saw it at the very beginning, which we could then adjust appropriately to.

But it wasn’t just at the top, it was all the way empowered down through the various engineering and sales arms. They were able to see the numbers so accurately. [And] they knew what they needed to change and correct ahead of time on it.

So that pattern recognition is so key. The pattern recognition has always been driven by customers… I get an idea about a market transition enabled by a new technology and then I go straight to customers and say, “what do you think?”

[It’s the] pattern recognition amplified by listening to the right customers at the right time, on what they think, either on the issue or the company, [that] allowed us to do 180 acquisitions with the highest track record… in the hi-tech industry… we were a machine on acquiring [companies]…

We ran playbooks on everything that we did, from acquisitions to being [number] one or two in a product category, to how you digitize a country, etc., in terms of direction.

It is that pattern recognition [which is] then put into playbooks that allows [you as a company] to move at a speed that others can not.

A simple issue: Playbooks. Pattern recognition. Then replicating that pattern much like a great sports team… [for example, the] Warriors team that passes 130 times per game, which is more than anybody has ever done in history, and wins 98% of the games when they pass 130 times…

Watching the patterns, then replicate it and playing it through, and being able to tell those stories again of what works and why it’s applicable.”

End quote

What is real startup growth and how do you get there? (Mike Maples, Jr.)

Mike Maples, Jr., Partner at Floodgate, has been on the Forbes Midas List since 2010 and was also named one of “8 Rising Stars” by FORTUNE Magazine. He thinks about growth hacking as part of a larger framework which includes value hacking, growth hacking, profit hacking, and then company building.

The essence of Mike’s hypothesis is that in a startup, value gets created differently through time.

1. Value-first: In the early days you start out dead and you have to prove you’re alive… someday; [this is] “zero to one” mode. Ryan Smith at Qualtrics says “there’s no substitute for the scar tissue muscle memory of zero to one.” (This is element V: Value)

2. Growth-first: And then you shift modes into growth-first mode, in which the startup’s identity is categorically different, and the primary focus becomes trying to 10X the business in a certain time frame.

3. Profit-first: And then hopefully someday you’re profitable.

4. Company-building: As a company, you have a variety of these initiatives — you’ve got some startups inside your company, you’ve got some cash cows in your company, and you’ve got some growth initiatives in your company, and as CEO you become asset allocator as chief among those things.

What is fake growth?

“Growth theater” – emphasizes growth optics over growth reality, for example:

  • Focusing on funding round sizes and surrounding PR;
  • Focusing on PR regardless of customer traction;
  • Competing with others on last round valuation;
  • Trying to make spreadsheet numbers look good, with complicit board (e.g. engineering a proforma around 15% month over month growth);

One of the primary causes of fake growth is caused by [a startup] trying to grow before it’s ready to grow.

The hypothesis [on how to avoid fake growth] is for a startup to create a very strong value proposition that’s true, and then grow by syndicating the truth. Because if the value proposition is true, in theory, a company should be able to scale at will.

What is real growth?

“Real growth” is asking…

  • How is value getting created in this business?
  • And what’s the best way for value to get created in this business right now?

The difference between Buffet-style and startup real growth investing is…

  • Both want to invest in really valuable businesses;
  • Buffet believes in applying profit dollars to growth;
  • With startups it’s OK to consume venture capital in the early days, because there’s a “someday category” that’s really massive, and we’re trying to become the category king.

But when a startup loses money, the reason it’s okay to lose money is because more value creation happens that way in becoming the dominant category king than in chasing profits.

What is value hacking?

Value hacking…

  • Is about studying the truth of your value proposition before you start to grow;
  • Is trying to solve a problem uniquely that people are desperate for, and that you believe someday a whole lot of people will be desperate for (and all your leading activities are built around answering this);
  • Is about invention;
  • We don’t have product market fit (PMF) yet and we’ve got to get it. And we do that by creating this unique value proposition that lots of people will be desperate for.
  • Time-frame is incredibly unpredictable (e.g. Twitch took five years to get PMF whereas ngmoco took less than 6 months);
  • Small team made up of diverse skill-sets who do it all (i.e. it’s a team of Macgyvers in a truth-seeking exercise);
  • Patient for time but hawkish for burn;
  • The word “company” is a misnomer. Steve Blank says “a startup is a temporary organization seeking a business model someday.”
  • It’s more about learning and discovery than it is about execution.

Knowing when to transition over to growth hacking mode is a little bit zen-like, and it’s really hard. You have to ask yourself a few questions:

  • Do I have product market fit?
  • How do I know I have product market fit?

Knowing that you’re ready to grow is like a forward-pivot, where you’re willing to bet the company that you can 10X in a certain amount of time with a certain amount of money. And if you’re hesitant in any sort of way, write down the things that are causing you to hesitate, and those might be the things that are standing between you and product market fit.

Because when you get into the growth first mode, you’re literally becoming something different. You go from being Macgyvers to being “VP of nothing.” Every layer of how value gets created changes. You go from trying invent a new idea, and now all of sudden, you need to have predictable growth.

Whereas KPIs are lagging indicators of having done the right things earlier (and should be used in growth-hacking mode), the “right things earlier” which can be called “leading activities”. And the leading activities are the things that you do in value-hacking that allow you to convert assumptions or questions into facts and secrets and conviction.

What is growth hacking?

“Growth hacking” is when you try to have what’s called a predictable value creation agenda and then instrument the rest of your company around creating that value. (e.g. And so when we work with a SaaS company we know that most top four tile public companies content, their revenue from a million to 10 million ARR in less than 18 months, consuming less than $1 for every new AR dollar they create.)

  • Hiring experts (e.g. someone in charge of getting product economics right; demand generation; sales management; customer success; etc.);
  • Asking “what do we need to create a compelling growth story?”;
  • On-the-job training doesn’t work;
  • You’re instrumenting all the things that yield smart growth.

Most companies try to transition to profit-hacking too quickly. As long as we’re careful about our burn, we can stay in “zero to one” mode for as long as we want, because we’re more interested in learning than we are in execution. But once you shift into an execution posture, you can’t really go back.


Focusing on the most important question

Josh Waitzkin, author of The Art of Learning: A Journey in the Pursuit of Excellence, shares a powerful tactic he calls MIQ (Most Important Question):

One of the things that I have [all of my clients do] and that I’ve been doing my whole life is ending my day thinking about the most important question. And then waking up in the morning, first thing; pre-input, and brainstorming on it.

This is an incredibly powerful tool that I learned from my dad who’s a great writer [which he uses in his creative process]… and Hemingway wrote about it in his writing process… It’s been a huge part of my life for decades…

  • Ending the day strong… and focusing on what matters most.
  • And building the musculature of focusing your being onnot all this ancillary stuff that just comes at youbut what really matters the most.
  • Releasing itnot stressing out about it all nightsleeping well.
  • And then, first thing in the morning pre-inputnot after checking the news or checking Bloomberg or checking Twitter or checking stock pricespre-input, brainstorming on it.

Because what you’re doing that way is you’re systematically opening the channel between the conscious and the unconscious mind. And that’s something you can do systematically, day in and day out, rhythmically.

…this is the kind of thing that you can do at night and in the morning but then ultimately… throughout the day, it’s very important to do this.

Before you go to the bathroom pose yourself a question. And then don’t check your phone while walking the bathroom. Release your mind, and then come back from it, and then think about it; returning your mind to the question…

Because what you’re doing this way is you’re training your ability to focus on what matters most.

…And I think the MIQ (Most Important Question) training is one of the most important things that a decision maker can do, because the best way to train an analyst in a discipline is to train them in knowing where to look. What matters most.

And so, there’s a system that emerges from this day architecture.

Imagine [there’s the] evening/morning rhythm and then three or four reps of it throughout the day. And then imagine you have a team where you’ve got a leader who… is at a higher level in a certain discipline, and you’ve got a group of analysts beneath… This [enables a] system I call “MIQ gap analysis” where:

  • Everybody is doing this most important question training, initially, one rep but then multiple reps throughout the day.
  • There’s transparency throughout the team.
  • And then there’s a periodic review [which is] a really powerful way to bring in healthy feedback in an organization or in your own internal structure.
  • There’s a review of “what did you think the MIQ was?”, now and then a week later.
  • And two weeks later, from this this elevated perspective after you’ve done much more work, “what do you think the MIQ was?
  • And then the gap is often where you’ll devote your work.

And in a team structure you can have somebody overseeing the MIQs of a group of analysts and then sometimes tweaking it; sometime making suggestions. And then team training and deliberate practice can be focused on the gaps that emerge… between what seemed like the most important question then, and what later on became apparent was the most important question.