March 24, 2013
(Photo credit: Wikipedia)
I have been reading the book “Crossing the Chasm” by Geoffrey A. Moore again. I highly recommend the book to anyone in a disruptive business. The book is an easy read and Section 4 sets up the stage for how to really market and sell disruptive technologies. The strategy is simple enough, the author states
The fundamental principle for crossing the chasm as to target a specific niche market as your point of attack and position all your resources on achieving the dominant leadership position in that segment. The approach is first you divide up the universe of possible customers into market segments. Then you evaluate each segment for its attractiveness. After the targets get narrowed down to a very small number, the “finalists”, then you develop estimates of such factors as the market niches’ size, their accessibility to distribution, and the degree to which they are well defended by competitors. Then you pick one and go after it. What’s so hard?
The hard is to the explanation that follows and I agree with that, the action or execution of this strategy is fraught with a low data decision i.e. you don’t know a lot of the prospects of allocating all your resources because you are not sure if this strategy is going to be successful.
Entrepreneurship is a low data decision activity. If the data is obvious and the risk are minimal, I define risk as a loose term, I think the risk is more opportunity cost ie. if you were not doing an entrepreneurial endeavor what else would you be doing and the pay off of that. It is a tough call, and I understand why many people don’t make that choice because we abhor Uncertainty. I used to but not since the financial collapse in 2008, where all my perceptions and biases and epistemological arrogance was turned in its head. Now I cherish uncertainty and randomness, and I wish that everyone gets to experience that feeling it is liberating and exhilarating.
March 1, 2013
Ben & Jerry’s (Photo credit: Wikipedia)
I had planned to do a meetup this week and discuss the above topic. Never got around to it, but I thought the least I could do is write about it. Here is a Kauffman Sketchbook with the title “Where do Entrepreneurs get their money?”
Here are a couple of references on fund raising from some smart people who have done this before:
Brad Feld – Dont Forget to Bootstrap
Fred Wilson – Dont take the money
My 2 cents is that try to bootstrap as much as you can to eliminate most of the risks in your startup. Think of it this way, every risk you eliminate to build a business is value you are building into your company that is your equity. The equation becomes simpler when you don’t take money to eliminate or reduce the risk of starting a new venture. The biggest risk that startups have, I have said this many times and it is worth repeating, startups don’t fail because they have a bad idea… startups fail because they don’t have customers. Eliminate that risk first ie. go and get your customers first, solve their problem, get paid something for it then you have a product/service to market fit. Eliminating that risk really increases the value of your effort, even if you have to raise money the discussion is much different than when you talk to an investor when you have no customers and no revenue.
Obviously there are businesses that need capital to acquire customers or start out for example manufacturing businesses need machines, labor etc those cannot be bootstrapped, however software companies can be easily bootstrapped these days, all you need is a laptop a coffee shop that has WiFi and knowledge to use Cloud Computing infrastructure like GreenQloud or AWS or Rackspace or Azure. I encourage every entrepreneur to delay the fund raising exercise until the Product to Market fit has been achieved. Once you solve the Product/Service to market problem, raise capital if you are in the Land grab business. I wrote about organic growth vs grow fast a while back based on a talk by Joel Spolsky. The most important decision point for a startup to raise capital is based on deciding where is the business. If you are in a Ben&Jerry’s kind of business raising capital is a bad idea. If you are in Amazon Web Service kind of business then you need capital to do a land grab as fast as you can so not raising capital will spell certain doom.
February 22, 2013
English: Disruptive technology graph (Photo credit: Wikipedia)
I keep coming back to Clay M. Christensen’s work on The Innovator’s Dilemma. I think the wave of technological changes that is happening as I type this post is quite dramatic. It is interesting to note that HP and DELL both reported earnings where the PC market is declining worldwide at a dramatic phase. HP’s PC business fell by 8% actually all of the business line’s top line revenue fell but of course the headlines in the media reads “At Last, HP Beats Street in Q1 Earning Report“, it only takes a simple look at the year over year trend to see that HP beat the projections of Wall Street analysts by cutting costs and laying off people, I am not sure how you can call this a turn around? anyways, I digress… if you look at DELL’s earning report it is even more dramatic, 31% decline in profits and 24% decline in Consumer business. I really think both Michael Dell and Meg Whitman need to read the book by Clay Christensen, maybe they have and as it states in the book, good well managed companies fail precisely because they have well grounded, established management practices as Clay Christensen puts it
If good management practice drives the failure of successful firms faced with disruptive technological change, then the usual answers to companies’ problems-planning better, working harder, becoming more customer-driven, and taking a longer-term perspective-all exacerbate the problem. Sound execution, speed-to-market, total quality management, and process reengineering are similarly ineffective. Needless to say, this is disquieting news to people who teach future managers!
all the things that the leadership in DELL, HP and to a large extent in Microsoft are doing is futile because they continue to look at the world as a sustainable technological improvement which is incorrect. Maybe Microsoft is doing things a little differently and maybe so is DELL and HP, but the rhetoric coming out of the PR machines in these companies is so passe.
So what is this difference between Sustaining vs Disruptive Technology you ask?
Sustaining technologies improve the performance of established products, along the dimensions of performance that mainstream customers in major markets have historically valued. Most technological advances in a given industry are sustaining in character. On the other hand Disruptive technologies bring to a market a very different value proposition than had been available previously. Generally, disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value. Products based on disruptive technologies are typically cheaper, simpler, and, frequently, more convenient to use.