A Final Lesson From Clayton Christensen
‘Decide what you stand for. And then stand for it all the time.’
Most know Professor Christensen for his business academic work — in particular, his ground-breaking work on the theory of disruptive innovation. Getting to be his student, and the co-author of How Will You Measure Your Life?, I had the privilege of getting to know another side of him: a deeply principled man, committed to his religion, and to the people in his life. While many people view professional, personal, and spiritual as distinct parts of life, Clay was the same person in each. It was just the way his mind worked.
The following excerpt reflects that beautifully — how he could effortlessly move from generating insight in the business world, to helping to frame decisions in your personal life.
He was an incredible man, with an incredible mind, deeply committed to doing good in the world. He will be missed tremendously. — James Allworth
In 1997, when a little company called Netflix came on the scene offering DVD rentals in the mail, it was David going up against the Goliath of the movie rental industry: Blockbuster. By 2002, the upstart was showing signs of potential, with $150 million in revenues and a 36% profit margin. Nervous Blockbuster investors pressured the incumbent to look more closely at the market.
When Blockbuster compared Netflix’s numbers to its own, Blockbuster’s management concluded that Netflix was pursuing a smaller market, and Netflix’s profit margins were substantially smaller than what Blockbuster’s. If Blockbuster did decide to attack Netflix with its own postal DVD offering, those efforts would cannibalize sales from Blockbuster’s very profitable stores.
Netflix, on the other hand, didn’t need to compare their market to an existing and profitable business: Its baseline was no profit and no business at all. Compared to that, Netflix was very happy with their relatively low margins and their “niche market.”
So, who was right?
By 2011, Netflix had almost 24 million customers. And Blockbuster had declared bankruptcy the year before.
Blockbuster followed a principle that is taught in every fundamental course in finance and economics: When evaluating alternative investments, ignore sunk and fixed costs (costs that have already been incurred), and instead base decisions on the marginal costs and marginal revenues (the new costs and revenues) that each alternative entails.
But it’s a dangerous way of thinking. This doctrine biases companies to leverage what they have put in place to succeed in the past, instead of guiding them to create the capabilities they’ll need in the future. If we knew the future would be exactly the same as the past, that approach would be fine. But if the future’s different — and it almost always is — then it’s the wrong thing to do.
Marginal thinking made Blockbuster believe that the alternative to not pursuing the postal DVD market was to happily continue doing what it was doing before, at 66% margins and billions of dollars in revenue. But the real alternative to not going after Netflix was, in fact, bankruptcy. The right way to look at this new market was not to think, “How can we protect our existing business?” Instead, Blockbuster should have been thinking: “If we didn’t have an existing business, how could we best build a new one? What would be the best way for us to serve our customers?” Blockbuster couldn’t bring itself to do it, so Netflix did instead. And when Blockbuster declared bankruptcy in 2010, the existing business that it had been so eager to preserve by using a marginal strategy was lost anyway.
This is almost always how it plays out. Because failure is often at the end of a path of marginal thinking, we end up paying for the full cost of our decisions, not the marginal costs, whether we like it or not.
Thinking on a marginal basis can be very, very dangerous.
Resisting the temptation of “in this one extenuating circumstance, just this once, it’s okay” has proved to be one of the most important decisions of my life.
100% of the time is easier than 98% of the time
This marginal-cost argument applies the same way in choosing right and wrong. Many of us have convinced ourselves that we are able to break our own personal rules “just this once.” In our minds, we can justify these small choices. None of them feels like a life-changing decision. But each of those decisions can roll up into a much bigger picture, turning you into the kind of person you never wanted to be. That instinct to just use the marginal costs hides from us the true cost of our actions.
I came to understand the potential damage of “just this once” in my own life when I was in England, playing on my university’s varsity basketball team. We killed ourselves all season, and our hard work paid off — we made it all the way to the finals of the British equivalent of the NCAA tournament.
But then I learned that the championship game was scheduled to be played on a Sunday. This was a problem.
At age 16, I had made a personal commitment to God that I would never play ball on Sunday, because it is our Sabbath. My coach and teammates were stunned when I told them I couldn’t play. I was the starting center, and the backup center had dislocated his shoulder. They all said, “You’ve got to play. Can’t you break the rule, just this one time?”
It was a difficult decision to make. The team would suffer without me, and they were my best friends. We’d been dreaming about this all year.
I went away to pray about what I should do and came back with the clear feeling that I needed to keep my commitment. So I told the coach that I wasn’t able to play in the championship game.
In so many ways, that was a small decision. In theory, surely I could have crossed over the line just that one time and then not done it again. But looking back on it, I realize that resisting the temptation of “in this one extenuating circumstance, just this once, it’s okay” has proved to be one of the most important decisions of my life. Why? Because life is just one unending stream of extenuating circumstances. Had I crossed the line that one time, I would have done it over and over and over in the years that followed.
It turned out that my teammates didn’t need me. They won the game anyway.
If you give in to “just this once,” based on a marginal-cost analysis, you’ll regret where you end up. That’s the lesson I learned: It’s easier to hold to your principles 100% of the time than it is to hold to them 98% of the time. The boundary — your personal moral line — is powerful, because you don’t cross it; if you have justified doing it once, there’s nothing to stop you doing it again.
Decide what you stand for. And then stand for it all the time.