Lu Qi: Seven key issues in the digital transformation of traditional enterprises

This article is transferred from the power of the machine,Original address

In 2020, it seems that all businesses that have the word "online" are growing.

Online live broadcast, online office, online education, online medical care... When these industries take the lead, they are not just short-lived speculations, but structural changes in user habits, and the underlying infrastructure such as big data, cloud computing, and artificial intelligence. New opportunities brought by perfection.

Because of this, even the traditional industries we have in mind are stepping up their plans for digital transformation.But before that, what companies have to figure out is why they want to do it, what timing to choose, the way they take, and the challenges they may encounter.In this article shared today, Lu Qi systematically analyzed and answered these questions.

Lu Qi, founder and CEO of Y Combinator China, and Dean of Y Combinator Global Research Institute.He used to serve as President and Chief Operating Officer of Baidu Group, Executive Vice President of Microsoft Global, and Executive Vice President of Yahoo. 

How can traditional industries do a good job in digital transformation?

First of all, in any traditional industry, industry or agriculture, the first thing to do is to introduce digital capabilities, which can be in user experience, sales, customer service, etc., or in the production system, research and development, or in the enterprise Management, employee management, etc., but more importantly, the upgrading of innovation capabilities, especially in corporate culture, management methods, the introduction of talents, and the connection of innovative resources.For example, do business cooperation with startups, or even mergers and acquisitions.The core competitiveness of an enterprise is accomplished by accelerating iteration, rapid iteration, and accelerating the speed of innovation through technological digitization. 

Why do digital transformation

Emphasize why the digital transformation of traditional industries is particularly important.As shown in the figure below, first understand the history of technology and digitization driving human economic development. In human history, there are three major wealth creation systems.The first is the agricultural system.The core of the agricultural system is to create wealth through the use of land and photosynthesis. At this stage, all people need are simple tools and do not need to process large amounts of information.But the limitation is also obvious, that is, the output basically depends on the size of the land, and the output efficiency is relatively low.The second is the industrial system.The industrial age is the second curve of wealth creation. It uses chemical energy, uses power transmission, and integrates human skills on a large scale.In order to better integrate into the industrial society, we need to learn professional skills in universities and then participate in the social division of labor.In essence, the industrial age relies on fossil energy and human skills.The third is the information and knowledge system.As can be seen from the figure, in this era, the rate of wealth creation far exceeds the growth rate of the industrial era.You can look back at the 20 largest companies in the world 10 years ago, which were basically oil and automobile companies.Now, high-value companies have basically become high-tech companies.In essence, in this era, the core driving force for wealth creation is to extract knowledge from information through information and digitization, and use knowledge to continuously reorganize the existing resources of human society, and ultimately achieve the rapid creation of wealth.The traditional industry is on the first (red) curve or the second (green) curve. The core competence of a traditional company is either skills plus equipment or photosynthesis. What you need is to go to the third ( On the blue) curve, this is the core of the transformation.

How to run to the third curve is not only the introduction of some technical capabilities, but more importantly, your innovative methods are different. You use information, knowledge, and rapid iteration, continuous reorganization of resources, and continuous creation of new ones. wealth.From the original curve, whether you are the first curve or the second curve, move to the third curve, this is the real core of digital transformation.Therefore, the introduction of capabilities is only a basis. More importantly, it is to change the company's culture and management methods, and to upgrade the innovation capabilities to a new stage. This is the most important aspect of the digital transformation of traditional enterprises.Next, let’s talk about growing companies. After start-ups have reached a certain scale, how to maintain rapid growth is to find the second S-curve.Because generally a good company enters the growth stage, it has the first business of the company's early establishment, and it has the first S-curve.At the same time, when a company reaches a certain scale, it will invest some resources to incubate future businesses that may become the second S-curve.Therefore, on the first S-curve, the general execution will be good, as long as it can be executed in accordance with the company's plan, strong execution is fine.In incubating the future, ordinary companies are doing well. As long as they invest some resources and incubate some new projects, the most difficult thing is how to graduate from the future incubation project and become a new track that can really break through.To really increase the second S-curve, there are several core issues to be solved, which is the problem of strategic judgment and also the problem of corporate management. Most companies cannot grow up. On the one hand, there are mistakes in strategic judgments, and more importantly, The internal friction of the enterprise cannot grow. 

The second development S-curve for growing companies

The first one is to determine the direction, which direction my second S curve is heading.The core of judging the direction is to judge the future of the market, the future of technology, and the future of products.

The judgment of technology is relatively simple, and most people can see the future trend of technology.The market is relatively simple, the evolution of business models and so on.Products are often the most difficult, especially the judgment of demand, which is difficult to control.It is worthy of everyone’s attention that Amazon founder Jeff Bezos recently mentioned a very important concept in a letter he wrote to Amazon investors about a year ago. Users are never satisfied. There are many enlightening effects.As you may all know, a successful example of a Chinese in the United States is called ZOOM, Yuan Zheng’s company, an industry where video interaction has been bad, there are so many, there is Skype, there is Webx, but they are not really satisfied.Therefore, how to judge the needs of users, the needs of customers, and find business opportunities is always the most difficult.The second judgment is timing, which is also quite difficult.To judge the future, when Jobs was alive, he once said that when judging the future, most companies can judge the future, and the timing is always the most difficult.Apple was never the first to make a product in a certain field. It was not the first to make music players, mobile phones, tablets, or watches, but the timing was right. four 

How to find the time

Be sure to look for it according to this core law, see the picture below.

Any new technology-driven industry will always traverse such a curve, which is related to the distribution of social structure, and it is related to the distribution of age, income, and mentality.Because young people are always more open, when they get older, they will naturally become more conservative. Therefore, in any new product, there will always be some people in its early stage. These people are called: Technology enthusiatic, as long as it is new They all use things, and they will use them no matter how bad they are.After them, there will be a second group of people to use the product. These people are visionary people, usually business leaders. He has a clear idea about the future. He is always looking for new technical capabilities to help. Realize his ideas.However, there is a huge gap, because the next group of people, they are "Early Adopters", early adopters, for any new technology industry adopters, he will look at the results, and the standards they adopt are mine. Competitors, my colleagues, my neighbors, do they use it.Therefore, they passed together, not one by one.Most of the products die here, basically in this gap.So, what is a good time?A good time is that a certain market or a certain product has been sufficiently educated. At this time, most people are willing to pay. If you go ahead, most of them will die, and you will enter the red sea of ​​competition. .Therefore, timing is always the most important judgment. 

Strategic decision, judging in and out

For a growing company, strategically, what you have to make is the decision to enter and exit, which fields you want to enter, and which fields have already entered and want to come out.Most of the mistakes did not come out.The first consideration is the track and company strength.Entering depends on the track, the timing, the high growth rate of the track, and the ability of your company to enter the track. For example, suppose that Yao Ming decided not to play basketball. He went to play table tennis. No one would be afraid of him; if he went to play volleyball, everyone would respect him.The core has to judge, if your company wants to enter this track, will the customers, users, and partners in this track respect you and consider your products.Third, the strength of the market.Yao Ming assumes that he wants to play volleyball. He can decide whether to play in Spain or Shanghai. The core thing you have to judge is the strength of your market. In English, it is called fish to pond ratio. What you need to find is a fish pond. , You want to be the biggest fish in the pond, this is very important.If you are the largest fish in a fish pond, your gross profit structure will be different, and your strength will be different. Wait until you fully understand the value of this pond, and then jump to another fish pond. Don’t make a pond. Fish in the house.Fourth, the strength of the product and the ability to differentiate the product.Fifth, it is execution ability.This is very important, in this order.Most companies make mistakes, believing that execution ability is the culprit in the fight.The track is the most important, the company's strength is the second, and the market is the third. Therefore, how to judge the entry and exit is an important decision for a growing company.At the same time, implementation is the most critical, most of the second curve does not grow, mainly for this reason.Because of what, any company, your heroes, and the warlords in the company are on the original first curve. The second curve is often the new leader. Internal friction is the second curve that most companies can’t grow. The most important reason for the curve.There is a four-quadrant management methodology that can solve this problem systematically. First of all, it is divided into four quadrants. On the left, a new fast-growing track has risen, and your company has enough core capabilities to enter this track. This is the new core of your company.The original first S-curve (on the right), its growth rate has slowed down, becoming the extension of the company rather than the future.The above is the key to the mission, only success is allowed, and no failure is allowed. Generally, it is more than 10% of income or revenue. The bottom is the key to the mission, which is to empower the future.These four quadrants need to be managed in a unified manner. Most companies fail to do a good job. All their resources are in the upper right corner. Because the original heroes and warlords control all resources, there are basically not enough resources in the upper left corner.However, it is very important that the stock price of Wall Street basically only looks at your upper left corner.On the right, every quarter, if you fail to reach the target, you will be punished, and the stock price of the company will fall, but if the old business on the right is over-completed, the company will not get any extra points.Most companies make mistakes, desperately add to the right, continue to invest resources, your stock price will not move, it will only go down.If you want the stock price to go up, it must always be on the left. What is the future Earning power (profitability)?Therefore, we must systematically grasp the upper left corner, the speed of the core sprint, and the distance from the second place. The CEO of the company personally grasps it. The reward and punishment system of the entire company must also be linked to the new business. Only this way, In order to put the resources and the core in the upper left corner, only then will your second curve come out.In most cases, even if the strategic judgment is correct, the second curve will not grow. The main problem is the management of internal friction.This is a four-quadrant method, and in many cases, it is a very effective management tool. 

Digitalization brings unprecedented opportunities for startups

First look at the picture below. Simply put, it is a career opportunity brought about by technology-driven human society. In the picture, in different eras, which profession makes the most money and creates the most wealth.In the early days, it was hunting, but for some time it was digging for oil. In the last century, most of the professions were trading companies on Wall Street, which was the most profitable.From the beginning of this century to the present, starting a business and taking risks into it is the best industry to make money and create wealth.And because of digitization, we can use information to quickly reorganize resources and create value, so starting a business is a very good historical opportunity.With the popularization of education and the improvement of technology, more and more people will invest in entrepreneurship.In the entrepreneurial process, the main challenges faced by entrepreneurs are: structural challenges and cyclical challenges, as well as environmental challenges.

 Two major challenges faced by entrepreneurship

1. How do entrepreneurs deal with structural challenges

The first is to find a product market match. Why is it a structural challenge?Because the starting point of innovation in the market is an idea, and then technology or product is invented based on this idea, then the technology is developed, the product is developed, and then marketed. Due to the advancement of technology and the popularization of education, there are more and more capable people, entrepreneurs, more and more good ideas, more and more inventions, faster technology development, and product development. It is also getting faster and faster, so we have more and more feasible products, but each person only has 24 hours a day, and it is impossible for each customer to try many products a day, so more and more stuck here. (Stuck in the product and market matching) How can we quickly detect whether our products are suitable for the market?The only solution is to iterate quickly and try to make everything possible.There is an idea to find market feedback in the fastest way. For every invention, the technology has not yet been developed, find a way to find market feedback, and every technology development, before the product has not been made, find a way to find market feedback.Always use the lowest price, the fastest way to get market feedback, the core is rapid iteration.This is a structured problem, a structured challenge, brought about by the nature of innovation, and the only thing that can be solved is rapid iteration, nothing else.Just talked about crossing the gap, here is a picture, as follows: CHASM, here is a chasm. This is not the past one by one. It is necessary to skip over, especially TO B. In China's innovative market, TO B will become the mainstream of more and more startups.This is something that everyone must pay attention to.Because of the real Product Market Fit (PMF), there is an American investor named Marc Andreessen (a well-known venture capitalist in Silicon Valley) who invented the browser. He talked about the real Product Market Fit. In a good market, your products are in short supply, and competition begins to emerge on a large scale.The real Product Market Fit is after jumping over the gap, so how to systematically find a good methodology, there are many cases and many methodology in history, especially in the TO B market.There is a book called "Crossing the Chasm", which carefully analyzes various techniques and methods so that every startup company can bridge the chasm more effectively. Only by bridging the chasm can we achieve rapid growth.Let’s talk about another structural challenge for early-stage startups, which is a revenue curve, as shown in the figure below: Before you find your own real PMF (Product Market Fit), there is no way to feed yourself. Most of your income is behind Product Market Fit.This is an average curve. The only thing you can live on is financing, so the ability to raise funds is the core.Iteration and financing are these two things.In the early stage of entrepreneurship, the faster the iteration, the better, and the financing to survive, the longer to live, the better. There are only two things.

2. How do entrepreneurs deal with cyclical challenges

First of all, companies must understand that only by living a long time can they seize greater business opportunities.Now in the cold winter of capital, every entrepreneur must be pragmatic, spend enough energy to improve his financing ability, and when appropriate, he must also consider using hematopoietic or other resources to make himself alive.Only by living a long time can we really find big business opportunities.At the same time, there must be principles and the courage to grasp the opportunity that belongs to you, because there are many factors for the success of a business, the biggest factor, there is a well-known investor in the United States, named Bill Gross, who has done a statistics , The conclusion is that the biggest factor in entrepreneurial success is timing.Because a new industry can rise at this time, it is not directly related to the capital winter, even if capital is difficult, you must seize the opportunity for innovation that belongs to you.At the same time, the environment for innovation is also changing. Especially in China's early entrepreneurial ecology, the Internet and mobile Internet were the mainstays in the past. At that time, some mainstream methods may not be suitable. We must maintain an open mind and make appropriate adjustments.For example, in the commercialization of AI, we must focus on vertical industries, find subdivisions, complete the scenarios, fully understand the value, and introduce talents from the industry.Suppose you make a product for the textile industry. You don’t know if your product is good or not. Every vertical industry has a deep water. A truly good entrepreneurial team must be in this industry and introduce talents from the industry. , Especially for the sale of BD. At the same time, as mentioned earlier, you must find a fish pond in the early stage. You are the biggest fish.Eat this fish pond thoroughly, and then jump to another fish pond. Never enter a big fish pond. You are a small fish and it is very, very difficult.Must pay attention to the core resources, especially channel resources.In the commercialization of artificial intelligence, channel resources are critical. In some scenarios, it is a supply chain resource. At the same time, we must be patient, polish products, and optimize customer satisfaction, not sales.It takes time. Only in this way can long-term valuable barriers be established. The commercialization of artificial intelligence requires patience.After the real landing, the long-term value is very considerable.Because most of them are TO B. The TO B industry has a characteristic. It is very difficult to get in. Once you get in, it is also very difficult for you to get out. Others can’t drive you away. The value of what you stay in is yours. Be patient and fully appreciate the value.

3. How do entrepreneurs deal with environmental challenges

The B-end has low willingness to pay, high barriers to entry, long hard technology development cycles, and high funding requirements. All these are environmental challenges. It requires every entrepreneur to embrace the new environment with an open mind and continuous iteration.