If the core needs to be something
so special to your business, there
can be many, many different examples of a core.
But let's look at the main patterns.
We live in a networked age.
Network effects matter.
You have companies that are almost virtual monopolies--
Facebook, for example.
Can network effects be your core?
If you achieve it.
It's very, very difficult to achieve it.
But when you achieve it, is the most powerful core.
You have essentially become the de facto standard.
If you think of eBay-- this is the situation
where, if I'm going to sell something,
I'm going to eBay because that's where the buyers are.
And then the buyers say, well, if I'm going to buy something,
I go to eBay because that's where the sellers are.
This is how you achieve networking effects.
And it basically crowds everybody else
out of the marketplace.
When I think of the core, I think
of mission driven founders like Tony Hsieh of Zappos, who
cared deeply, in his case, about customer experience,
and they religiously execute it.
So can customer experience be a good example of a core?
Yeah, and I think that's a good example.
If you contrast that to other people, they say,
oh, customer service is our core.
And, oh, by the way, quality is as well, and is price.
You can't serve three masters.
Then you're serving none.
Then your core is very weak.
But in the case of Zappos, they did a terrific job
of doing that.
And that was through all their processes,
and what they talk about is their culture.
The silent supervisor, the culture,
made sure that customer service was always number one.
Culture, the silent supervisor.
I love that.
Let's talk about Walmart now.
Walmart gets often criticized for their labor practices.
But at the same time, you know when you go into that store,
you're going to get the best price.
Can low cost be an example of a core?
Yeah.
I mean, there's another one.
You can choose different things, and Walmart, they
made a complete commitment to low cost.
Cost above all else.
A friend of mine went down to Walmart,
and he was an investment banker from a big New York investment
bank.
Goes down to Bentonville, Arkansas.
And for lunch, they're expecting a nice lunch,
which investment bankers get.
They come out with sandwiches that
were made by the significant others at Walmart.
And they said, here's your lunch.
And then by the way, if you want a soda,
you can go get it from the machine down there.
That's a total commitment to the core, and that's what you need.
It's not enough to say it, but you
have to really commit to it unequivocally.
I have classmates who work at Walmart
and there are interesting stories that I hear.
When they go on business trips, they never go business.
They always fly coach, the cheapest flights possible.
And when they get hotels, they go together, say as a group.
They get the same hotel room for two or more individuals.
That's understanding your core, and everyone's
fully committed to it.
Let's turn to another iconic company, Apple.
We all recognize it for the incredible, unrivaled user
experience.
What do you think of user experience
as an example of a core?
So, user experience is a very popular one now.
And when you look at Apple, they have a terrific design
of not being the best technology, not being
the best from a cost standpoint, but integrating it together
for an experience for the user-- the UX, the user experience.
And this involves design, but it's
much more than just industrial design.
It's the whole experience.
And this goes down to not just Jonathan Ive,
but Steve Jobs himself just immersing himself
before product is released in every little detail.
Your core is what you do better than anybody else.
In the other things, you have to satisfy.
That means you have to do good enough
so that it doesn't kill you.
But the core is the thing that you're
going to do better than anybody else when it comes down to it.
No one will ever beat you along that axis.
I've heard you say that culture eats strategy for breakfast,
product for lunch, and everything else for dinner.
What do you think of culture as an example of a core?
Culture is incredibly important.
And I also have to say that the line, "culture eats
strategy for breakfast" comes from Peter Drucker.
So I borrowed that and made some additions to the end of it.
But I think culture is incredibly important.
I mean, if you know what your core is, and you believe in it,
and you're willing to make that commitment to it,
then your culture needs to reflect that.
As I said before, your culture is
what guides people to make decisions every day,
even when you're not there.
That's the silent supervisor.
So a culture must reflect your core.
When entrepreneurs are asked this question, "what
is your secret sauce," often they say that, hey,
we're going to be the first.
Our first mover advantage is going to be our core.
What do you think about that?
I don't like that at all.
First mover is usually a disadvantage.
The question is, if you're the first mover,
what are you doing to leverage that
to create competitive advantage?
First mover is usually a disadvantage,
because when you look historically
at people who were the first movers,
it's the fast followers who generally succeed.
It's the one that perfects it.
And that's the key thing here.
Now this is MIT.
We love technology, and MIT is famous for creating
a lot of intellectual property.
Is intellectual property a good example of a core?
Yeah.
I mean, Technology is in our name, so we love technology.
Technology is a competitive advantage,
no question about it.
But the nature of the core, I believe,
is that the core should get stronger over time.
There are some fundamental patents that will protect you.
Core memory or a drug patent.
But for a company, that's kind of one time shot.
I like to see companies that build up
a core that expands over time.
The gap between your company and the rest of it grows over time,
whereas the patent, it's kind of set.
And it's easier to work around the patent,
because when you submit a patent,
you have to disclose what it is, and you get protected for that.
But as soon as you disclose what it is,
people can work their way around it.
A trade secret, you don't have to disclose it.
So these, I consider more moats around it,
rather than that which is your core, because your core should
be a capability, again, or some sort of network effect,
or something else that could increase over time.
Well, Bill, clearly an important step here.
This is who you are meeting with the market needs.
We've covered a lot.
What's key?
The key takeaway from this is that we've
looked inside ourselves and figured
out what it is that we can do that will give us
a competitive advantage over everybody else.
That's very important, because doing a start up
is a challenging thing, and you can't just
think about the next move like in checkers.
You have to think about this as three dimensional chess.
You have to think multiple moves ahead.
Otherwise, you're going to spend all the time and effort
to create a market and create value for someone,
but you're not going to be able to extract
your fair rent for that.
We used to watch this and see companies do that at IBM,
and they didn't have a core.
And so then what we would do, is we
which is sweep in and realize the rewards of the marketplace
that they had, in fact, created.
The only way that we didn't do that
is if they'd created a strong core.
So it's critically important for an entrepreneur
to understand and execute on this step.