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Why Every Company Needs a Story
Every company needs a story to help management and employees remember what matters most for their business
by Edward O. Welles
'In recent years, social scientists have come to appreciate what political, religious, and military figures have long known; that stories (narratives, myths, or fables) constitute a uniquely powerful currency in human relationships. . . . And I suggest, further, that it is stories . . . of identity -- narratives that help individuals think about and feel who they are, where they come from, and where they are headed -- that constitute the single most powerful weapon in the leader's . . . arsenal.'
-- From Leading Minds, An Anatomy of Leadership, by Howard Gardner, professor of education at Harvard University
Of course you know your company's story. You built the business, after all.
So why, when someone -- a prospective employee, a potential investor, a worried vendor -- asks, do you point to that yellowing mission statement tacked to your wall, or begin reading from that slick brochure you paid a corporate-communications specialist too much to craft? It's not because you can't recite the basics: the day the company was founded, the century you project profitability, the exact species of self-starter you employ.
It's probably because knowing your company's story actually involves much more than reeling off the corporate highlights. And these days it can be much more powerful than any marketing pitch. In a perilous economy, a story can serve as a competitive tool that defines a company's sense of self and its place. It's not just a question of having a story that can open wallets on Wall Street or among other swanky investor types: you need a story to tell employees, suppliers, customers, and -- most of all -- yourself. By forcing its teller to reveal what is unique about a company's aims, a story helps a company's management, acting as a useful reminder that what matters most of all is focus.
Robert Metcalfe, who in 1979 founded 3Com Corp., a computer-networking company, recalls the unexpected benefits of telling his start-up's story to would-be investors. "You're learning each time about your business," he explains. "You get a sense of what resonates with your audience. You learn to listen to the counterarguments." Metcalfe figures he told 3Com's story "1,000 times in 997 different ways" to venture capitalists, each rendition a refinement of what had come before. That process helped deepen his appreciation of why he had created the company to begin with. Long after Metcalfe had successfully secured financing, and at a time when 3Com already employed a total of 2,000 people, Metcalfe would still meet with small groups of employees on Friday mornings, when he would regale them with company lore.
"The classic business story is much like the classic human story," says Mark Helprin. "There is rise and fall; the overcoming of great odds; the upholding of principles despite the cost; questions of rivalry and succession; and even the possibility of descent into madness." Helprin, the noted author of such novels as Winter's Tale and Ellis Island, also follows business as a member of the Wall Street Journal's editorial board.
Fortunately, it doesn't take a novelist to craft a company's story. To survive the early years, in fact, most entrepreneurs develop an instinctive feel for fiction, an ability to describe vividly to others a product or a business that has yet to exist. But like successful products, good stories don't end after the first iteration. They need to be told and retold, shaped and reshaped. Still, the stories worth telling contain basic elements that both engage the listener and remind the company of where it needs to go. Those elements include --
The starting point: a simple, recognizable truth
Eisenhaure, who took SatCon public in 1992, believes in what he calls "the elevator story." He explains: "You have to be able to describe to the person standing next to you what your company does before he gets off at the next floor. It's got to be simple. If it's too complex, then something's wrong."
Simple, truthful stories force the entrepreneur to strip away cant and complexity, to articulate what the business really does. Dick Morley, who has been a New Hampshire“based seed-capital investor for 25 years, says that entrepreneurs frequently make the mistake of overstating their stories. Ego compels them to believe they can do too much, when settling for doing one thing well is what really matters. Morley believes that the truth emerges when an entrepreneur grasps not what his company does but what business it's in. "GM is not in the car business," Morley asserts. "You can't buy a car from GM; you buy it from the dealer. GM is a manufacturing company." Similarly, he labels Honda an "engine maker," while Harley-Davidson "sells dreams" and Mercedes-Benz "makes statements."
Morley says an entrepreneur's drive to discover the truth at the heart of a company forces him or her "to give everything away except its core competency." But pinpointing that can actually take a long time. He cites one of his investments, Andover Controls Inc., of Andover, Mass., a maker of automation devices for buildings, which struggled back in the mid 1970s. The company had started in the solar-energy business but languished with that industry. As the energy crisis dragged on, Andover moved into the manufacture of climate controls. "They kept saying they were in the building-controls business, but the business didn't go anywhere," says Morley. Andover found itself mired in a market crowded with 350 other companies.
Bob Klein, Andover's vice-president of sales, says that once the management understood it was competing with a host of "black-box companies," it rewrote its story to differentiate the business. The competition sold its product through large electrical contractors, the cheapest and most direct route to the construction market. But that channel offered a crude solution: energy-management systems that were little more than add-ons to a building's electrical system. Andover recast itself as being in the "comfort business." It began selling through distributors that specialized in temperature-control systems. It paid a higher price for more-specialized access to the market, giving up margin to those distributors who understood its products. But since Andover's products were better integrated into the overall mechanics of office buildings, the company surpassed the competition, and the business took off from there.
Stories that reflect a recognition of the truth that drives a business can retain their vitality, even as the market evolves. Today Andover Controls remains in the comfort business, but its management has redefined what that means. The company increasingly integrates its products into "intelligent" buildings, in which security, mechanics, electronics, and electricity are tightly interwoven. That awareness has guided an approach to the market that depends even more on specialized distribution and strategic alliances with other vendors. Of the 350 "black-box" manufacturers that sprang up in the late '70s, Klein says, there are no more than 40 still in business. Andover Controls, with $60 million in sales in the United States and Europe and now aggressively expanding in Asia, is among the five largest.
The point of view: space for the listener
Nowak started the business 10 years ago, and as of last year it had grown to $6.2 million in sales. But Nowak wanted to broaden Rocky Mountain Motorworks' possibilities, and he needed a new story that would reflect that greater potential.
He seized upon the idea of offering a lifetime warranty on all parts. What made the new story so effective was that just about anyone listening would be affected by it. "We said to our vendors, 'We need certain things from you,'" he recalls. The company set up a vendor-evaluation program that tracked every part that came through the door and ranked the vendors according to the number of defective parts each had shipped. At the end of the year, says Nowak, "we let them know where they stood. I told them I expected to recover 100% of my costs due to returns." For Nowak, it took a fair amount of coaxing and cajoling to get his vendors to come around to the idea. They worried about being measured against -- and played off -- one another. But Nowak offered them higher margins and the prospect, too, of higher sales.
Nowak then went to his employees, who knew that the lifetime warranty would put pressure on them. It required stepped-up tracking of defects and meant they needed to get same-day orders out the door -- even after 5 p.m. "I told them that this was how things were going to change, but I wanted them to make the final decision on how that would happen." Some employees feared customers would take advantage of the company by sending back perfectly good parts they had already used. But Nowak had thought the story through. "I said, 'We are not going to base our policies on the 1% of the people who are dishonest.' I told the employees, 'We are not buying business. We are selling service and value.'"
Nowak believes that updating Rocky Mountain Motorworks' story by including vendors and employees in its shaping "has built confidence in what we're doing." He adds that revisiting the company narrative is "an exercise every company should go through every two years."
The storyteller: crazed but not crazy
Bob Metcalfe, the founder of 3Com, in Santa Clara, Calif., seems to be a cool, measured sort, who nonetheless will quickly volunteer, "I view my life as participating in a technology crusade." In his pilgrimage to the holy land, Metcalfe met another man of faith, Dick Kramlich. Kramlich knows a profitable story when he hears one. "The idea has to change things in a big way, and the entrepreneur has to be evangelical about his idea. I'm looking for someone who's crazed, not crazy." Kramlich is a partner at the San Francisco venture firm of New Enterprise Associates. In the past five years, he has taken 64 of his high-tech investments public, including some of the brightest stars in the Silicon Valley firmament: Ascend Communications and Macromedia. Eight years ago he backed a then newly public computer company called Silicon Graphics Inc.
Moved by Metcalfe's passion, Kramlich grasped the central truth of 3Com's story. "It made enormous sense to me that personal computers should share resources," he recalls. Metcalfe was selling a lowly-looking piece of hardware, a printed circuit board called an Ethernet adapter that had failed to excite most other investors. But in Metcalfe's rendering, that board suggested an epic in the making. He communicated his belief that the pace of progress in computing had been held back by the lack of compatibility between machines. If someone could create a standard for linking computers, the value of the link would explode once a critical mass of connections had been reached. Metcalfe, an MIT graduate, even expressed the idea in a mathematical formula that the writer George Gilder would later dub Metcalfe's Law. Says Metcalfe, "I was selling not the board but a standard."
The forces arrayed against Metcalfe stoked his passion all the more. In 3Com's early days, a Silicon Valley rival named Corvus had already linked 100,000 computers through its proprietary network, Omninet. IBM was working on its own proprietary standard, Token Ring. Ethernet was an open system, and it had yet to connect a single computer. Even worse, it cost more than other systems. Recalls Metcalfe: "We told people, 'You pay more to participate in the standard. You pay more for 3Com, but then you get Metcalfe's Law.'" Today 3Com has $1.5 billion in annual sales and ships hundreds of thousands of adapters each month. Corvus is out of business, and Dick Kramlich's original investment has returned 141 times over.
The mission: a heroic narrative
That's what attracted him to Michael Damphousse, then manager of global-business development for a business unit at AEG Schneider Automation, in North Andover, Mass., a $600-million joint venture between Daimler-Benz and Groupe Schneider. At AEG, Damphousse had been spearheading work on factory-automation systems. A couple of years ago he began developing software for the white-collar end of the business that would allow the company to better manage and deploy its sales-and-marketing staff. But Damphousse couldn't interest his bosses in the idea.
That's when he met Morley, who recalls Damphousse's story as "unformed and unstructured." On the other hand, says Morley, "I couldn't shut him up. He had this great belief in the story and in his ability to communicate it." While Morley accepts single-minded passion in his heroes, he still looks for people who understand the art of the possible. He rarely invests in Ph.D.'s, because they "know how the world should be." Entrepreneurs, conversely, "understand how the world is," he says.
Heroes take chances that inspire others. They can be reckless at times, and that, oddly, gives their adherents a sense of security. When Morley introduced Damphousse to a group of his fellow angels, Damphousse handed out bank-deposit slips to all the people in the room, with the amount he expected them to invest already filled in.
A few days later, with his bank account still flat, Damphousse called Morley to see what had gone wrong. Morley replied, "Nothing." Damphousse asked, "Well, then, what do I have to do?"
Morley told Damphousse what he needed to do to live up to the story he told. "You have to quit your job," he said.
Damphousse, who had just been offered a promotion to head up marketing for a new business unit and had just bought a large new house -- "I was mortgaged to the hilt" -- quit his job. The investors then sent him $150,000. It was a week after that that Damphousse summoned the nerve to tell his wife what he had done.
Heroic stories embolden not only their creators but all who hear the narrative. In making sales calls, Damphousse had no trouble throwing down the gauntlet: "I told people that if they didn't buy the product, then they wouldn't be part of the future. We want our clients to beg for the solution." Damphousse's company, Pangaea Consulting Inc., based in Andover, Mass., with projected sales of just $1.8 million this year, currently has 15 employees, but 6 of those people are moonlighting engineers who work for nothing. Each time Pangaea, which specializes in sales-force-automation software, lands a new contract, Damphousse hires another engineer full-time.
Heroic business stories are less about money than they are about ideas -- the sinew, after all, of stories. The money is the result of heroic action, not the cause. San Francisco“based Salon, like Pangaea, is an idea-driven company. Producing on the Internet a magazine about books, arts, and ideas, Salon was formed by a cadre of journalists who left the San Francisco Examiner, a declining afternoon newspaper, to strike out into the world of digital publishing. Its business model is fluid, given the rapid and unseen shifts occurring on the World Wide Web. It remains uncertain how the company will make money.
But against that backdrop, consider the over-the-top language of its president, David Zweig: "We are a tribe of journalists that has broken away from the pack. Our narrative line is that there's an appalling lack of quality on the Internet. We believe San Francisco is the creative epicenter of Internet content, the way Hollywood was for entertainment back in the teens. We have gathered up the brightest and happiest talent that was trapped in an aging technology and bureaucracy, that was oppressed by deadlines and space limitations."
Although Zweig can point to venture backing from Hambrecht & Quist, he would just as soon cite an endorsement from novelist John Le CarrĽ or the company's ability to recruit legendary consultant Dan Schafer, who has written 47 books on the computer industry and has prized his independence for 15 years. "I think of us in terms of Lewis and Clark. People say, 'How can you go down that river when you don't know if there's a waterfall or a beautiful meadow around the next bend?'"
Zweig's response is, How can he not go down that river? Otherwise, there will never be a story to tell. "We will have an adventure here," he says. "Ultimately, what's important about Salon is not whether it succeeds or fails, but that it offers people the chance to live out their narrative and be a part of the story they fashion."
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