Simplify. Richard Koch
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term for the second strategy, which is very different but equally effective, is proposition-simplifying. This involves creating a product that is useful, appealing, and very easy to use, such as the iPad (or any other Apple device of the last decade), the Vespa scooter, the Google search engine or the Uber taxi app. Proposition-simplified products are also usually aesthetically pleasing.
Proposition-simplifying creates a large market that did not previously exist in the same form, or at all. For instance, there was no market for tablet computers before the iPad. Unlike price-simplifying, products that proposition-simplify do not involve a radical reduction in price; they may even command a price premium. Yet proposition-simplifying also multiplies value for money and therefore market size by making the product or service so much easier to use as well as more practical and/or beautiful. Proposition-simplifying works when the product becomes a joy to use.
As with price-simplifying, there is a common formula for how to proposition-simplify, and we will explain it to you.
If you are the impatient type — and impatience is a virtue in business — and want to jump straight to our conclusions, feel free to go directly to Part Four: The Rewards of Simplifying, which lays out the research and summarizes our most important findings. Then read the whole book later.
For the more patient, linear reader — and patience is also a virtue — we suggest starting at the beginning, with Part One: Great Simplifiers, which describes a dozen standout cases of successful simplifying.
Part Two: How to Simplify will help you decide which of the two simplifying strategies is better for you and your firm, and then provides a template for each.
Part Three — provocatively titled Save the Dinosaurs? — examines the threat to established market leaders from simplifiers and how leading firms can stay on top. For an interactive guide to simplifying and how it can help established businesses, visit www.SIMPLIFYforCEOs.com.
Part Four: The Rewards of Simplifying looks at the financial rewards that have been gained by simplifiers in their respective fields, as examined independently of the two authors by an elite firm of strategy consultants. OC&C selected and analyzed twelve cases, six of each type of simplifying. Greg and I then explain why these companies have been so successful and how the case studies resemble — or contrast with — each other.
Visit www.simplify.fm and www.SIMPLIFYforCEOs.com for more online tools.
We start by looking at some of the best examples of simplifying that our research uncovered. There are plenty of recent examples of great simplifying, but we also present quite a few cases that date back many decades. Some of you may question the value of “ancient” business history. But we would turn the question around and ask, “Where are we likely to find the simplifiers who have had the most impact on the world?” Admittedly, some of these are relatively modern — Apple, Google, eBay, Amazon.com, and we believe that Uber will make it into that pantheon before long. But other examples, such as Ford and McDonald’s, started a long time ago. As we will see, the most valuable simplifiers are often those that have proven track records of growth and staying power over many decades. Their successful methods have been followed by more recent simplifiers . . . and you can follow, too.
The Man Who Democratized Travel
The ordinary way of doing business is not the best way.
Henry Ford
Ancient history? No one in business today can remember the earthquake caused by Henry Ford, and even in business schools his case is rarely taught. Yet we will see that Ford’s story has priceless lessons for any ambitious entrepreneur or executive today.
When he was 45, and a moderately successful industrialist, Henry Ford took a brave stand that shook the world. The decision not only created his fortune but made him a leading architect of the twentieth century and one of the most celebrated and influential people on the planet.
He decided to simplify and democratize the automobile.
Video by Richard Koch: How Henry Ford’s Simplifying vision eclipsed all others in the car industry: www.simplify.fm.
Ford recalled the turning-point in his autobiography:
“What I am trying to emphasize is that the ordinary way of doing business is not the best way. I am coming to the point of my entire departure from the ordinary methods. From this point dates the extraordinary success of the company.
We had been fairly following the custom of the trade. Our automobile was less complex than any other. We had no outside money in the concern. But aside from these two points we did not differ materially from the other automobile companies.”1
When Ford had his light-bulb moment, several hundred rival entrepreneurs were making cars. They were much the same in background and activity: all engineers; nearly all product designers; all auto enthusiasts, entering cars in motor races and taking a keen interest in who won; and all making no more than a few cars a day. They sold them to the same type of customer, too — the only market at that time for cars — rich and leisured gentlemen, usually motor “nuts,” skilled in driving and maintaining their beautiful beasts. Ford, though not the market leader, was one of the biggest manufacturers, making around five vehicles a day.
But however conventional he appeared in 1908, there was always something odd about Henry Ford and his opinions. “From the day the first motor car appeared on the streets,” he wrote, “it had to me appeared to be a necessity.”2 This was considered an eccentric view at a time when the cost of a car was far more than the annual wages of a skilled worker. Yet Ford was a stubborn man. Though his whole industry was in the business of providing “pleasure cars” for the rich, Ford conceived a vision of something completely different. To their horror, he told his salespeople:
“I will build a motor car for the great multitude. It will be large enough for the family but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary would be unable to own one — and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.”3
This vision, he said, “led me to build to one end — a car that would meet the wants of the multitude . . . year following year, the pressure was, and still is, to improve and refine, and make better, with an increasing reduction in price.”4
The idea of democratizing the automobile inspired Ford. His great insight was that the key was price. If he could make a car cheap enough, it would, he believed, sell in vast quantities. He had some supporting evidence: in 1905–6, Ford made two models, one priced at $1,000 and the other at $2,000. The company sold 1599 cars that year. The following year he simplified both models and slashed the prices: “The big thing was that [my] cheapest car sold for $600 and the most expensive for only $750, and right there came the complete demonstration of what price meant. We sold 8,423 cars, nearly five times as many as in our previous biggest year.”5
It’s all very well to realize that price might be the key to expanding sales, but how did Ford manage to keep his prices sufficiently low to create a new mass market? His first idea was to redesign the product and make just one standardized, simple model:
“Therefore