Business By Natural Selection
Evolution is simply change, but survival of the fittest is something entirely different.
Over the last two decades I have spent almost equal time researching biology and running a biotechnology business. I often reflect on how the lessons I originally learnt in biology have have come to help me in the world of business. Charles Darwin once famously said “it is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change”. I believe the following can also be said “it is not the strongest business that survives, nor the most intelligent; it is the one most adaptable to change.” Fairly obviously, there are clear differences between an animal and a business, but fundamentally both spend their existence trying to survive. Their environments are both harsh and the competition is fierce. Adaptation is the secret to success.
But before we consider the detail, I must apologise to those in the know. In this post there is a heady merging of biological and business terminology to suit my argument. The fact that evolution by natural selection has no advanced foresight is hard to marry with the ongoing strategic forward planning needed in business. That said, I think the fundamentals hold true.
Adaptation and hereditary
Let’s consider an analogy between an animal and a business. A business, such as a barber shop for example, exists within its peers of other similar businesses. There are many barber shops in the world, as there are many lions in nature. These exist alongside their peers and constantly compete for resource, cash and zebra, respectively. Let us now compare the barber shop and the lion.
In biology, the key to evolution by natural selection is that differences between individual lions provides them with subtle variation. This means that if the environment changes, any lion with an adaptation that allows it to survive better is selected for, enabling it to outcompete the other lions. As a consequence, it can go on to have more lion cubs than its peers.
Now let’s turn back to the barber shop. I assume, given that the small town of Witney in Oxfordshire has 8, that there is fierce competition between them, like with the lions. So, if all of a sudden a local barber starts offering its clientele a free beer on arrival, it’s not surprising that this barber shop starts to do a little better than those around it. They then start offering discounts to students and pensioners, and the barber shop does even better. In the meantime, if the other barber shops don’t adapt, they have less and less customers, and in a perpetual spiral of decreasing resources (customers cash) they eventually go out of business. Evolution by natural selection in action. Except the customer performed the selection and now all barber shops serve beer, if only…..
But what about procreation and DNA, how does that compare to business? This is where being human adds a new dimension. In 1976 Richard Dawkins proposed the concept of a meme, a hereditary idea. Yes, a meme is something other than a dancing cat GIF. Like the concept of a business, it represents something uniquely human. The ability to pass a concept from human to human. In that vein, what right minded business owner would see something being highly successful in one of his or her barber shops and then not duplicate it when he creates his next shop? Or, similarly, a competitor can see the success and copy it. This is heredity, not in the sense of biology, but a successful meme, a concept or idea, passed from one barber shop to the next.
Responding to change
Although I sold the company I founded in 2021 after 10 years at the helm, it changed a lot during its lifetime. It initially started out as a product company, morphed into a service provider, and finally developed into a technology platform business with out-licensing. These were three major adaptive changes, or ‘pivots’ as it’s generally known commercially. The reason they were needed was because the environment surrounding the company had fundamentally shifted as competitors and market needs had evolved. If we hadn’t modified our strategy there was a very real risk that the company would go extinct. The beauty of business though is that a company truly can change its spots.
I will not discuss all of the incidents. To do so brings back too many torturing memories and admissions of ‘wow, how did I convince myself that was the right business direction….?’, but I will provide a brief example. In 2013-2014, approximately 50% of our business revenue was coming from DNA synthesis sales. Yes, perhaps surprisingly, you can synthesise DNA in the laboratory for pretty much anything you might want. Around this same time two companies were starting up in the USA and both were able to offer DNA synthesis at about 10% of the cost that we could. Our business was still growing, and I could have sat and left it that way. But the business was small, margins were tight, and I was thinking bigger. I remember thinking that if we didn’t adapt, our market share would decrease, the two new businesses (or competitive animals as I saw them) would take over. In doing so, my dream would be over and our business would be consigned to the fossil record at Companies House. So, despite the DNA synthesis market being something we had invested in, and we were generating revenue from, the biologist in me could see just how crowded and competitive this environment was about to become. And in a price and speed driven market, we didn’t stand a chance in 2 years from now. Fundamentally, even though I didn’t like it, my environment was changing. We had to adapt to survive. I sat for weeks reflecting on what we had created already and what we could do next. We had created value in the business but that value would decrease if left applied to the same market. Instead, we raised further investment and piled it into internal research and development using the platforms we’d built, something we had done almost none of before 2014. Using the tools we’d already built we created our own technologies that set us apart from the competition.
Environmental change
Like a business, an animal you see today is a function of its past environment. It was moulded by the harsh competition and need to survive from its past. As a consequence, it can be massively over, or under, equipped for its future. For example, the great Megalodon (yes, the giant shark in the Jason Statham films did once exist) would always have looked fearsome, but it evolved at a time when food was plentiful, supporting its incredible size. It glided effortlessly through its environment and all other smaller sharks trembled in fear and parted in its wake. This was Kodak. Kodak became the Megaladon of the camera world. They were utterly dominant, selling 85% of the world’s film cameras in 1976. But as the digital camera meteor smashed into their world the environment they found themselves in changed dramatically. Consequently, in 2012 a business that had adapted and evolved for over 124 years died. In fact, it was pretty much a species extinction event, with most film-based camera companies going out of business. The same happened to some of our largest and most fearsome animal species, including Megaladon, the Woolly Mammoth, the Haarst Eagle, and the dinosaurs. When resources are scarce and the environment changes, you better look around and, if possible, adapt. The bigger and more unnecessary excess you carry, the harder and slower that adaptation will be, but cash is like fat, it buys you time to make that change.
In business, being willing to asses if your environment has, or shortly will, change is essential for survival. When needed, making significant adjustments, not knee-jerk, but carefully considered, extensively discussed, strategic changes, is crucial in such a hostile environment as business. These moments are hard, they impact employees, they impact share price, they impact profits, but probably the worst is the internal nagging doubt that it might be the wrong decision. In those moments I have asked myself many questions; Do I really believe something is true, or have I just pulled the woolly mammoth over my eyes? Is the market really going in that direction? Is the competition really that strong? Do customers really want what I think they want? Do I really need to change direction? Normally, provided you can deal with the internal criticism, you get to an honest answer. But that doesn’t mean you’ll always like it.
Protecting your environment
So far I have discussed the consequences of environmental change and examples of adaptation to it, but this is responsive. The coin has two sides. There are ways you can control your environment rather than it defining your business.
Firstly, the environment in which you find yourself in business is often of your own choosing, especially when you start up a new one. The esoteric question I wished I had perhaps asked myself when I started my business is; ‘am I starting in a rainforest or in an open ploughed field?’ In a rainforest, making yourself known is hard, the light cascading down to the saplings below is minimal, and becoming the giant sequoia is going to be very hard and arduous work. This would be akin to me starting a data storage centre and trying to compete with Amazon, Dropbox and Google. Even though my centre might serve data 20% quicker, have better up-time, and provide a new flashing ballpoint pen to every new customer, fundamentally, I can never compete. Or worse still, it will take me at least 50 years to see the light above the canopy, if I don’t go extinct or get impaled by a frustrated investor beforehand. A fast-growing market is not always as attractive as it appears if the forest floor is already shaded by the canopy.
But now imagine I make new land. An environment where no other trees exist. This is the basis of invention and innovation, creating a field that did not exist before. Then you put up intellectual property-laden barbed wire fencing all around the edges of the field to keep out the competition. In doing so you create an environment in which your saplings can become a whole field of Sequoia. This is a rather idyllic situation, I appreciate, but this is exactly what innovation allows. It’s what Alexander Graham Bell’s 1876 patent did for communication. There was no market or field before, it was created by the invention and his business could flourish in that environment, largely unencumbered by competition whilst the patent lasted. In every industry there are myriad examples of this, Dyson vacuums, the bimetal strip in a kettle, the iPod, the list is endless. If your business finds itself in, or innovates into, that situation, excellent. Make hay while the barbed wire fence is up. But intellectual property will expire, and the fence will weaken over time. Adaptation is the key to survival, so keep watch at what’s happening in the adjacent fields and be ready to build the fence higher or watch for what’s about to come over it.
Conclusion
There is an obvious risk in writing this that people may consider me some Wolf of Wall Street, dog-eat-dog businessman. That could not be further from the truth, I have always strived to play fair whenever possible. This post is more about asking questions, of both yourself and your business. Then framing those questions in the context of your competition and your current, and future, environments. It’s tremendously hard work. I have often said I would not impose my former job as CEO on my worst enemy, and I stand by that. It’s a job continually lived in a future that only exists inside your mind, where threats await around every corner, and internal and external criticisms flow like wine. It’s like living inside the multiverse of Dr Strange, where each possible path taken by your competitors is weighed, measured, and discarded or feared. Daily calculations, known only to you and a patient chairman if you’re lucky, that rob you of enjoying the successes of the present. As such, viewing your business within the reality of a harsh and adaptive world is stressful, but reflects the truth. Survival is paramount, adaptation necessary, and the hard earned lessons from biology are often a useful wayfinder.