Transitioning from Explorer to Exploiter

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Recently, I studied the company Edward Jones Investments and I have come to appreciate the success of Edward Jones’s business model. In my December 19th 2008 post called Qualities and Role of the Entrepreneur, I shared a quote regarding entrepreneurship from Joseph Schumpeter on the importance of entrepreneurs to get things done.

Today, we learn 2 important concepts successful entrepreneurs understand and appreciate: the explorer stages and the exploiter stages of an organization. Entrepreneurs are renown for identifying opportunities in the market. Technically speaking, we refer to the discovery as the “explorer stage” of business. Successful entrepreneurs go one step beyond “explorering” when they begin to develop and implement the necessary actions required to take advantage of the discovered opportunities. This developing and implementing is referred to in the entrepreneurs career as the “exploiting stage” of business.

Edward D. “Ted” Jones Jr. went to work for his father’s small investment firm called Edward Jones in 1948. Shortly after joining the firm, Ted would begin to nuture and perfect the firm’s signature small town brokerage system. That simple small office concept later would prove to be the long lasting “secret sauce” in the firm’s success. Yet, that success may have never happened had it not been for a 1972 letter written by John Backmann to Ted regarding the opportunity John envisioned for the regional firm.

John Bachmann, also a successful entrepreneur and general partner at Edward Jones, wrote in 1972 while the small firm had 100 offices the following message in a letter to the then CEO Ted. This now famous letter has been credited as the source of Edward Jones Investments success. Bachmann’s insight serves as a great example of when an entrepreneur realizes the necessity to transition an organization from the exploring stage to the exploiting stage.

Subject: The Future of Edward D. Jones & Co.

Five years from today the patent we hold on the small office will be exploited, either by this firm or by someone else. Today we have a greater knowledge of this type of business than any other member firm. At the moment we don’t need more new ideas as much as we need the planning and administrative machinery necessary to carry out our proven ideas on a greater scale. It may be that we can learn more by studying the development of companies such as McDonald’s or Holiday Inns than Reinholdt & Gardiner or Goldman Sachs.

By 2002, Bachmann, 63, was the managing partner of the firm with more than 8,100 branch offices throughout the United States, Canada and the United Kingdom.

To read more about Bachmann’s letter and Edward D. Jones, click here. To purchase the Harvard Business Case titled Edward Jones in 2006: Confronting Success, click here.