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Chapter 12: The Market Power of Leadership and Management

You might trust both Bill Gates and the person who babysat you as a kid to babysit your  child, but you'd probably only trust one of those people to be on the board of directors of a large business. Not all forms of trust are equal. It's obvious that there are differences in quantity  when it comes to trust, but there are also differences in quality .

Let's visualize a spectrum that runs from leadership  to management  on the other. This spectrum differentiates various types of leadership and the market power  of the trust flowing from those forms of leadership. It looks like this:

The styles of leadership on the left end of this spectrum generate more valuable forms of trust. They're more valuable because they're more closely connected to advisory work, keynote speaking slots, and services that leverage your time more profitably. And they're more valuable because they're scarcer.

Management, on the other hand, is less valuable because it is more common and more understood. Every truly good manager is a gift to the human race and we'd be screwed without y'all, but there are simply more of you good managers than there are people who can use a stage, YouTube channel, email list, or even a one-to-one conversation to build a vision for something new, risky, and worthwhile. Management is a form of leadership, but when I talk about leadership in the context of trust-building for the rest of this book, I'm only talking about building vision, inspiring action, making sense of change, providing guidance, and reducing risk. These are the leadership styles that have the greatest power in the marketplace.

Building a Leadership Position

The warm, trust-y feeling between a lot of people and you—the feeling that enables the role of leader or authority—doesn't happen overnight. It takes time to build up a leadership position.

That means we need to think about how the systems within which we might want a leadership position change over time so that we don't build up leadership in the wrong place or the wrong context.

To think this through, we need to understand two things—commoditization and open/closed systems.

Commoditization Is the Reduction of Waste

Over time, things that society needs at scale (electricity, railroad tracks, project management methodology, design frameworks, etc.) move from innovation—where novelty and relative chaos prevail, to standardization—where utility and relative order prevail.

An innovation is an idea, practice, or object that is perceived as new and provides perceived relative advantage.

The early stage of an innovation's existence is defined by waste. When the innovation enters the market, it is poorly understood, and the innovation itself is relatively unreliable and un-standardized. This means that a few customers who have no business buying the innovation buy it anyway, and others who are better equipped to benefit from the innovation spend lavishly on understanding, customizing, implementing, fixing, and supporting it. From the perspective of those who embrace innovation early on, these are all normal forms of risk and overhead costs required to unlock the value (relative advantage) of the innovation.

From the future perspective, where the innovation has become fully commoditized, these are all forms of waste . They threaten the widest possible adoption of the innovation, so they must be reduced or eliminated.

As both the supply and demand sides of the market learn how to reduce the waste involved in producing, distributing, and consuming the innovation, prices inevitably move downward. Hungry suppliers use lower prices as a path toward greater market share, and the demand side of the market is always happy to normalize and insist on a lower price as long as it does not threaten the quality, consistency, and availability of the thing they are seeking.

And so as time marches on, if society needs the innovation at scale, it matures into a commodity. When the thing is new, we don't know if society will need it at scale because it's new! But we do know that if society ends up needing it at scale, it will commoditize.

Even in commodity markets, bespoke and luxury options still exist. Society wants automobiles at scale, yet there are still companies selling hand-built cars at a dramatically higher price point. But these hand-built cars represent a tiny share of the total automobile trade.

Closed Systems Are Like Ponds; Open Systems Are Like Rivers

From their early formative status, innovations march toward their final mature form as a commodity inside of some kind of system . Let's intentionally oversimplify all the systems out there into two kinds: open and closed systems.


33: Nonlinearity is the bane of business advice that's based on one-size-fits-all declarations or modeling prior successes in the hope of creating a precise recipe for success in the future.

Open systems, or complex systems, have no central control. They aren't owned and controlled by a central entity. There might be ownership, but it's distributed, not centralized, and the ownership is relative and negotiated, not absolute. Complex systems feature nonlinearity, which means the same cause can produce wildly different effects depending on what's happening inside the system. [33]  And finally, complex systems feature emergent behaviors, meaning the system interacts with its environment in complex ways.

The defining feature of closed systems is control, specifically some kind of centralized control . That control is expressed through ownership and control over the borders of the system.

The Relationship Between Openness, Leadership, and Management

Innovation often imposes change on a system. This is exogenous change. Leadership is helping a group respond to exogenous change or generate endogenous change; management is helping a group optimize the status quo.

Remember that when innovation enters a system, it is poorly understood, and the innovation itself is relatively unreliable and un-standardized. How much of your work is helping clients respond to those kinds of challenges—lack of know-how in applying not-yet-totally-figured-out technology or ideas? I'd wager that a lot  of it is. As innovations mature and become understood and standardized (commoditized), clients need less help figuring out how to apply the technology or idea. They may need help managing it, but they usually have that capacity in-house.

Exogenous change and innovation are the oxygen that sustain the kind of leadership we indie consultants provide. Without change and innovation flowing into the system in which they operate, our clients need less leadership; mostly, they just need good management .

Open systems need more leadership than closed systems. They might need more management as well, but in terms of the ratio of leadership to management over the time span of decades, open systems need more leadership.

The Relationship Between Closedness, Leadership, and Management

Platforms are the most  closed systems, both because of the control the platform owner wants (and probably needs) to assert, and because their ownership is concentrated rather than distributed. Small, isolated technology platforms are going to have the least innovation flowing through the platform itself, so leadership in this context is going to look more like the competence-based forms of leadership (e.g., risk reduction) rather than the more inspirational forms (vision building).

The problem? Young platforms pose this nearly irresistible offer: "Focus on me, become an expert in my ways, and I will reward you with overnight authority! Those who are hungry for knowledge about how to respond to the change I represent will flock to you and will see you as a demigod." Stacy, described in Chapter 3, took this deal.

If you get in early with the platform and start doing that vision/inspiration kind of leadership, the platform eventually won't need this kind of leadership if it matures into a relatively small, closed system. In this case, the value your leadership provides will erode as the platform evolves toward commodity status, needs less leadership, and more management. If the platform takes a different trajectory and becomes large and more relatively open, you won't face this problem, but in the early days of the platform's life, you don't know how its evolution will unfold , so platforms pose a dilemma. They really can help you become an overnight authority with all the trust-earning benefits that entails, but the ideal time to start focusing on the platform is early on in its evolution, and that is the point of maximum uncertainty about whether the platform will evolve into a closed system with the resulting declining value of leadership, or into a more open system that preserves the value of your leadership.

Vertical markets are less-closed systems. Vertical markets see multiple innovations pass through the domain of the market, so there is an ongoing, recurring opportunity for genuine leadership, especially through sensemaking —helping the market make sense of the latest innovation and make better decisions about how to respond to these waves of invaders. There are other trust-building opportunities as well, but you have to keep your allegiance with the market, not with the innovations that pass through the market.

And finally, there are really  open, really large systems, which include broad horizontal topics (sales, marketing, employee performance, etc.) and, to an extent, huge relatively open platforms (Amazon's AWS is a good example). These systems are defined by a massive amount of flow , and the dynamism and chaos of that flow opens up all sorts of opportunities to lead and create value (and earn trust) by leading.

These large open systems also receive a constant inflow of newcomers, and the variety of needs those newcomers have ensures that no matter where you are focused in terms of leadership (vision versus risk reduction), you'll have a steady flow of newcomers who are seeking your  style of leadership. The openness and ownerless nature of these systems means there's a constant inflow of uncontrolled novelty, and folks often look to their leaders/authorities for guidance on how to respond to these exogenous change curveballs.


34: Anyone who says they knew in 2006 for sure how AWS was going to evolve and how important it was going to become is bullshitting.

There are long-lived leadership opportunities everywhere—except for platforms. When the platform is new, the leadership opportunities are there, and it's unnaturally easy to lay hold of these opportunities. The hidden cost of that ease is you really don't know whether the platform will become huge and stay relatively open like AWS, [34]  which is to say that you don't know whether your easily obtained leadership position will turn into a durable asset or will fade away like so many others have.

To be clear, you can build a decent business within the system created by a platform, even if the platform ultimately evolves into a small, relatively closed system. You just have to be okay with evolving from a figure-shit-out innovation model to an efficient-and-consistent services delivery model, and that's not an easy or natural evolution for most indie consultants. That's why using a focus on a platform as a trust-earning lever is a risky decision.

The value of leadership positions in vertical markets and horizontal markets are roughly equal. I don't think there's a strategic reason to choose one over the other; it's more a question of the three specialization decision-making heuristics I mentioned in Chapter 8 leading your specialization decision-making, and then doing the best trust-earning work you can in the wake of the specialization decision you made.

This stuff matters because we are not playing a short game, and some of us are willing to walk through the red-light district—teeming with young platforms offering a quick trust-earning thrill—toward more open systems where we can build something both valuable and durable; something that allows us to earn trust through the rarer forms of leadership within a system that afford us ongoing opportunities to use and further refine those leadership skills. Something we love coming home to at night over decades and decades.