innovation is not everything
A great brand gives the best competitive protection, says Hap Klopp, The North Face.
Companies often engage in quick fixes in a bid to be seen as innovative. While this may bring in short-term value, failing to focus on the long term could erode their most valuable moat—the brand. Hap Klopp explains why a brand’s story is not just about its logo or taglines. It is the combined accumulated impact of every aspect of the business, authoritatively unified under imaginative but single-minded direction.
Never has keeping ahead of the competition been so daunting. The exponential pace of technology is shrinking product life cycles, providing instantaneous knowledge about a company’s product launches, and has opened up every company to world-round competition. The bad news—it is only going to get worse. So, how does a company insulate itself from the accelerating, deleterious impacts of expanded competition? Whether your company produces a product or a service, the challenge is the same. (For ease of communication, I will refer to both as ‘products’ throughout this article). More specifically one has to ask, how does your company create competitive advantages and protection for your business—what Warren Buffet calls economic moats? And, can any economic moat last very long in today’s exponential world?
Focusing only on faster and faster innovation, which will have a mixed bag of wins and losses, inevitably leads to customers focusing only on the products— not the companies that produce them.
And what, exactly, does such a moat look like? Well, I would argue that the very best moat to have, and the only one to withstand the ever-changing world, is to create a brand. It is, in fact, something of an argument. Tesla’s CEO and futurist, Elon Musk, asserts that the only competitive protection in today’s world is innovating faster than the competition. In essence, he dismisses the concept of economic moats as outdated. Perhaps. But like most of us, Musk, I think, only looks for what he knows. And what he knows brilliantly is innovation and technology. And, that is subject to an ever-shorter half-life for a company’s economic moat. But something else that goes side by side with innovation can still actually provide a sustainable economic moat. And, I believe that differentiator is essential for your company to not only survive, but also thrive in the future. Apple is a good example of my point. Under Steve Jobs and Tim Cook, that company has been wildly successful. But, most business analysts will tell you that it was not just leading-edge technologies that made them so successful. Rather, it was the fact that the intriguing innovations that they used to dazzle the market were done so brilliantly because it was under the umbrella of their highly focused, rigidly controlled brand. Do not get me wrong. I strongly believe in the value of innovation and disruption. In fact, I always post the following Rudyard Kipling quote, in my product development departments: “They copied all they could follow, but they couldn’t copy my mind so I left them sweating and stealing, a year and a half behind.” But relying solely on innovation, I think, can be a slippery slope. For sure, there can be, and often are, short-term competitive advantages created by innovation. But, there are also unintended consequences that I believe arise from following Musk’s advice of relying almost solely on newness and innovation to compete. New products inevitably have both success and failures. And, the faster one brings them to market, the higher the probability of failure. Focusing only on faster and faster innovation, which will have a mixed bag of wins and losses, inevitably leads to customers focusing only on the products—not the companies that produce them. This type of transactional thinking, devoid of emotion and passionate commitment to the companies behind the product, threatens the long-term viability of a company. You end up with no community, no following, and no vocal third-party product champions. You have no long-term allegiance. You lack the personality of the strong, well-articulated institutional DNA to which your customers and suppliers can emotionally attach. The company suffers from an inexorable diminishing of its barriers to competition. What is missing is the understanding that invention is not innovation. Innovation is the combination of invention and commercialization. This is where branding comes into the picture. It is the key component of commercialization. Branding is what can build the long-term economic competitive moat that Buffet talks about.
Brands are an annuity for the future and provide assurance of future sales. They are a refreshing and an effective antidote to the exponential rate of change of society.
Products and services have life cycles—life cycles that are getting shorter every day. Many patented products actually die before their patent ever expires. Side by side with this, we find we are living in a valley of imitation where products are hard to protect from replication and reverse engineering, even if you have strong patents. On the other hand, brands and trademarks, properly and widely registered, have much, much stronger legal protection—around the world. Well-executed brands thrive generation after generation. Think of the brand loyalty enjoyed by Coca-Cola, Apple, Nike, Ferrari, Tiffany, Louis Vuitton over the years. A strong brand solidifies the bond between communities of consumers and your company. Even between your company and your suppliers. Brands are an annuity for the future and provide assurance of future sales. They are a refreshing and an effective antidote to the exponential rate of change of society. Having a dominant brand allows you the luxury of establishing industry values and standards, and guide industry pricing. Coupling great branding with innovative and superior products ensures successful commercialization—long-term. And, long-term not transactional customers is what you want because it costs five times more to find a new customer than it does to keep your existing one. To simplify the communication of your brand story, a logo is very helpful but brands are more than a logo and a tag line. Brands are not just great graphics, websites, trade shows, catalogs, the look of your products, or a few advertisements, or a couple of your own stores. Rather, they are all of the above ‘and’ everything else: beginning with company philosophy, proceeding through the design and manufacture of the product,
When properly executed, a brand becomes a monopoly uniquely differentiating the company from all competitors. Perfectly executed means that all aspects of the company, all divisions of the company, all products of the company, and all actions of the company are totally and consistently aligned over time.
through every aspect of customer relations; through how you treat your customers, employees, and the communities you operate in. It is the combined accumulated impact of every aspect of the business, authoritatively unified under imaginative but singleminded direction that makes the brand truly work. Unity of all of that is not optional. It is essential. Building your brand requires patience and consistency. Brands are like coral. They take a long time to build and are hard to see grow, but once they reach a critical mass and become visible, they create a beautiful, invincible economic moat. Building a great brand cannot be the sole responsibility of your marketing department. For it to flourish, it has to reflect the entire company’s actions and DNA and become the short-hand tool for communicating the company’s values and positioning. What the company believes. What the company stands for. How it acts. What it will always do. What it will never do. Brands are all the things you do and it is, likewise, all the things that happen when no one is looking. These unique qualitative aspects are the reason people viscerally bond to your company. Why they ‘love’ you. Why they will keep coming back. And it is how your relationship can transcend the risky transactional customer appeal based on you being the new shiny object, or having the lowest price, or even having strong but short-lived patented products. When properly executed, a brand becomes a monopoly uniquely differentiating the company from all competitors. Perfectly executed means that all aspects of the company, all divisions of the company, all products of the company, and all actions of the company are totally and consistently aligned over time. That is what The North Face has been doing from the day I launched it so many years ago until today and, I believe, why the company remains such an iconic brand even after all the dramatic changes in the consumer market and the hundreds of competitors and imitators that entered the field. Musk’s company Tesla presently enjoys a cult following and certainly rigidly adheres to his strategy of innovation as the key ingredient of its competitive protection. But with numerous examples of Tesla not living up to its brand promise (ie uncertainty regarding the safety of the autopilot system, a million-dollar lawsuit settlement with its sales employees who were not paid minimum wage and overtime, uncertainty regarding the vacillating delivery time of back-ordered vehicles), I believe the initial highly favorable branding is suffering. What that dichotomy will ultimately mean for Tesla is not yet certain. Nor is it clear if Tesla is going to get serious about focusing on its brand building and living up to its brand promise. Musk’s bold statement that “the only competitive protection in today’s world is innovating faster than the competition” might even suggest he is not too concerned about Tesla’s branding for the future competitive protection of his company. I would be.
Hap Klopp is founder and twenty-year CEO of sport and apparel brand, The North Face. The paperback version of his book, ALMOST—12 electric months chasing a Silicon Valley dream, co-authored with Brian Tarcy, was released recently.