Plan B: How to Hatch a Second Plan That's Always Better Than Your First

Why has Facebook been so limber, evolving so successfully even after a number of stumbles, while Myspace stalled and lost ground? Why was Wal-Mart able to expand so successfully into new offerings, such as groceries, while H&R Block dramatically failed to expand into offering financial services? The answer, David Murray reveals, is that Facebook and Wal-Mart both started with business models that empowered them to effectively adapt their plans as they executed them.

The failure of detailed strategic plans that have taken a great deal of time and money to develop is one of the worst problems in business, and it’s ever more urgent as the pace of change in business continues to accelerate. Murray, author of the acclaimed Wall Street Journal bestseller Borrowing Brilliance, argues that valiantly sticking to even a well-thought-out Plan A is the road to disaster. The greatest success comes to those who know how to construct and implement an adaptive Plan A that has within it the means of evolving into a superior Plan B by responding to problems confronted, discoveries made, changing market conditions, and the competition.

Writing in a lively, engaging voice and using a series of specific examples drawn from companies including IBM, Intel, Facebook, American Express, and Kaiser Permanente, as well as from the art of war, including the Battle of Gettysburg and the D-Day invasion, and even from the space program, Murray presents powerful methods for constructing a plan that has the mechanisms for adaptation built in.

Drawing on a wealth of research, he explains why we are fairly good at short-term predictions but why, in our ever more rapidly changing business world, even the best laid plans will eventually go astray. He then introduces the best techniques for creating an optimal original plan that takes into account our limited ability to predict, showing that vital to this process is that it be constructed so that we are alerted in time to make the right changes. In a brilliant discussion of strategy and tactics, he shows that the core of this adaptability is making sure that your strategy and tactics are well aligned with one another and that you have established the right metrics for measuring results. He then details precisely how to adapt throughout the execution process by constantly monitoring and assessing results, developing worst-case scenarios, and recognizing unanticipated opportunities.

Plan B is an essential guide to harnessing the forces of change to achieve long-lasting success despite the most vexing challenges.

Introduction
Planning for the Plans to Change

The kid looked out of place. He wore a hooded sweatshirt, dirty jeans, and T-shirt with something pithy written across his chest. He was slouched over in deep thought, so I couldn’t read what the shirt said. The wrinkled clothes, dark circles under his eyes, and apparent lack of self-awareness made me think that he hadn’t slept in days. I figured he was a courier or bike messenger.

We were all in a small waiting room; my business partner, the kid who hadn’t slept in days, and me. The posh office was the headquarters of Accel Partners, a multibillion-dollar venture capital firm in downtown Palo Alto. They’d funded start-ups like Macromedia, Rhapsody, and Veritas Software. We were there to pitch our own start-up, an online tax preparation company called TaxNet. We’d had a successful first year, had more than 120,000 customers, and now needed funding for product development and aggressive marketing. We were making the rounds in Silicon Valley, up and down Sand Hill Road in the hope of getting $20 million to fulfill our strategic plan.

As we waited, the kid leaned back in his chair, and I could see that his T-shirt read CODE MONKEY. Aha, I thought. He wasn’t a courier, he was a programmer, and he was there to pitch a business just like we were. He was the competition.

“Do you have a company?” I asked him.

“A company? No, not really,” he answered, never looking up or making eye contact. Then he thought for a moment and said, “Well, sort of…I guess.”

Before I could probe any further, Andy walked into the room. Andy was an analyst with Accel, and Tom and I stood up to shake his hand; the kid did not.

“We’ll be ready for you guys in a few minutes,” Andy told us. Then he turned to the kid and said, “Come on in.”

Later in the day, Tom and I learned that Accel had approved the funding of the kid’s “sort of company” and he had been there to sign the paperwork and get $12 million for a minority share of his start-up. I remember Andy trying to explain the business model to us. It didn’t really make sense to me. When I asked how it made money, Andy said it didn’t. It seemed absurd, that Accel would take a minority position in a company with no revenue stream. It also made me think that we had a much better idea than the kid who hadn’t slept in days.

I didn’t know it at the time, but I had just witnessed a historic moment in the history of Silicon Valley. Today, Accel’s $12 million investment is worth billions, and the “sort of company” is better known as Facebook, while the kid is now a multibillionaire, better known as Mark Zuckerberg. Today, whenever I see an interview with him or a mention of him in the press, I think back to that day and then ask myself this question: How did Zucker-berg get from the waiting room where I met him to a place on the world stage where his idea is used as a means of communication between friends and family while at the same time it’s being used to engineer the nonviolent overthrow of oppressive government regimes? Or, more simply: How did Facebook evolve so successfully?

The story of Facebook is well known. Hell, it was turned into an Oscar-winning screenplay. So there’s no need to recount it all. What is especially interesting and does bear attention here is the methodology that Zuckerberg used to drive the evolution of his business model. You see, Facebook didn’t just appear fully formed in his mind one day; and, contrary to popular belief, he didn’t steal the idea for it. He followed an evolutionary process to build the site, a practical way to manage the day-to-day operations of his business that was combined with a deeply theoretical and strategic understanding of social networking. From the beginning, Zuck-erberg was involved in the development of new tactics and new features, writing code, identifying problems, and then developing innovative solutions for solving them. He still is. Put simply, he is very tactical. At the same time, he was theorizing about social networking and developing a particular hypothesis about it. He is also very strategic. It’s those two qualities that allow him to intelligently make continued modifications to his business model, both tactical and strategic, that are incredibly effective.

Today, the business environment is changing so quickly that such a form of adaptive management is needed to keep up with it. Product life cycles that were once measured in decades are now being measured in years, even months. The average iPhone app stays on the bestseller list for a few weeks, then becomes obsolete. Technologies are being developed that constantly create new business models and in the process destroy old ones. Things are happening so fast that by the time your CEO signs off on his strategic plan, it’s out of date and in some cases even archaic. Businesses must make the strategic planning process part of the implementation process, so that business plans can adapt to the environment, the way Facebook does. If they don’t, they’ll end up as a footnote in the history of failed business models.

The history book of business contains a long chapter on companies that failed to adapt as the world changed around them. Take a case in point. Growing up in the suburbs of Boston, I once had aspirations to work at the Polaroid Corporation. For decades it owned the instant photography business, and it was known as one of the best employers in Massachusetts. Then, in the 1990s, something happened: digital photography. At first digital cameras were very expensive and the quality of their photos was less than stellar, so they didn’t appear to be a serious threat. But as the decade wore on they got cheaper and better, and Polaroid’s sales began to stagnate. In 1995, the company hired a new CEO to devise a strategy for the problem. In the next three years he cut costs, reduced the staff by more than three thousand employees, and managed to roll out more than sixty new products. But despite all this, instead of adapting to the new technology, the company stayed focused on its existing model. “Some people think photography is going to go away as everything in our industry becomes digitized,” the new CEO said. “But I disagree. I think analog photography will endure, because it still satisfies many users, and digital imaging businesses will grow up around it, creating a much bigger, faster-growing market.” So, while other companies developed new digital cameras, Polaroid created a low-priced analog camera called the One Step and products for specific segments, such as the Barbie Instant Camera. It didn’t work, and the company filed for bankruptcy in 2001.

In the last few years, the chapter on failed business models has expanded to include names such as Circuit City, General Motors, and Blockbuster. Each of these companies hung on to an obsolete model and so failed to develop a new plan—a Plan B—that was best suited to the new world. In hindsight, it looks as though they just made some bad predictions and some bad decisions, and we might conclude that the companies must have been run by fools. But that’s not the answer. Fools were not running the companies. It was the process they used that was foolish, not the people operating it. It’s a process that was developed in a simpler time, when things didn’t happen so quickly and companies had years to make adjustments. Those companies were working from a plan that was obsolete and didn’t develop the management mechanisms that would have allowed for modification. Employees rigidly stuck to Plan A because that’s what...