The Innovator's Notebook

Why you should seek profitability before growth

Wed, 15 Feb 2012 15:33:13 -0800

Why you should seek profitability before growth:

AOL’s Patch might be my new poster child for why startups and new corporate ventures should seek profitability before growth.

This quote highlights the way that the AOL managers framed the decision.

“Basically, there [were] two ways to do it: get the product perfect in one market or go for a land grab approach,”

AOL management opted for the latter, spending lavishly to expand and hire staff.

“They went all in before they perfected the product and, in retrospect, that wasn’t ideal.”

I like the poker analogy….AOL went all in before the flop… ;)

To save you, we must destroy you.

Wed, 15 Feb 2012 07:40:52 -0800

To save you, we must destroy you.:

Three out of four companies currently listed on the S&P 500 will be replaced in the next 15 years at the current churn rate, according to the latest executive briefing from Innosight.

"And yes, you’re right, Steve Jobs didn’t manage this way. He was a dictatorial, autocratic asshole..."

Mon, 13 Feb 2012 14:06:10 -0800

“And yes, you’re right, Steve Jobs didn’t manage this way. He was a dictatorial, autocratic asshole who ruled by fiat and fear. Maybe he made great products this way. But you? You are not Steve Jobs. You are not better at design than everyone in your company. You are not better at programming than every engineer in your company. You are not better at sales than every salesperson in the company.”

- http://www.avc.com/a_vc/2012/02/the-management-team-guest-post-from-joel-spolsky.html?

"Major technology platforms tend to last about 25 to 30 years. This gives them time to gather..."

Mon, 06 Feb 2012 10:06:56 -0800

“Major technology platforms tend to last about 25 to 30 years. This gives them time to gather sufficient developer momentum, enable a set of transformational ideas, build those ideas, and form a large industry around it. The platforms then sustain for an additional 5-10 years due to inertia and lock-in. Finally, when the shortcomings of the old platform become too much to bear — as with the Mainframe, Hierarchical Databases, and more recently the PC — a new platform emerges to take the old platform’s place and bring the future forward.”

- http://bhorowitz.com/2012/02/06/the-future-of-networking

What now, textbook publishers?

Thu, 19 Jan 2012 10:43:00 -0800

Apple just threw down the gauntlet to the K-12 publishing industry.

In announcing iBooks 2, Apple is making a compelling case that if ever there was a time for school districts to switch from paper-based textbooks to a digital approach - it is now.

Even in the absence of iBooks 2, the case was already compelling, with numerous districts and states delaying textbook purchases to explore the use of iPads in classrooms, but with these latest changes, Apple now embraces interactive textbooks, and more importantly provides the tools for anybody to create them - the very capability where many of the publishers had ‘fled’ as the last refuge of safety.

Ironically, and as often is the case with disruptive technologies, the next year or two may see a continued increase in the consumption of interactive textbooks produced by these publishers, as iPad penetration increases quickly, and as the mass-market embraces interactive texbooks. However, to see this trend as a beacon of hope for the ailing industry would be short-sighted.

Consider the warning story of Kodak, who saw sales of film continue to rise, even as digital photo technology started to reach the mainstream or the story of Blockbuster who saw physical rentals continue to rise, even as Netflix created a market from under them. There are always two separate trends at work - the trend of the overall growing market and the trend of disruption, the silent killer of companies in the long-term.

So what is the future?

Educational Publishers, at their core, must view themselves as educational service providers, and explore and embrace new business models to bring their educational services to their customers. They must accept the demise of the textbook and look at the trends and scenarios that are likely to play out in the educational ecosystem to determine how they need to position themselves to succeed.

All too often, the various players in this industry have developed their growth strategies by asking themselves, “how can we use our resources and capabilities to enter new markets?”.

This approach, which I’ll call ‘Extrapolating the Future’, constrains the company to its existing business model, and fails to recognize that the current assets and capabilities may simply not be valuable in certain future scenarios.

A better approach, is a ‘Future Back’ view, in which the company considers a variety of future scenarios, and considers the evolution of their customers needs, and the types of firms that will be successful in providing them. This approach can help lead to the recognition that new capabilities need to be developed and new resources acquired, before it becomes too late.

Applying this framework to the educational industry suggests (to me), that interactive textbooks are merely a short-term stepping stone for Apple, as the future continues to a fully interactive application model - one where the publishers will never be able to compete through a simple extension of their current capabilities. It’s not too much of a stretch to add animators and developers alongside to your editorial staff, but to build applications, and abandon the entire ‘publisher’ business model entirely is a paradigm shift.

The publishers should not try to out-compete Apple and it’s ecosystem of partners/developers. The battle for instructional resources has already been fought, and it has most probably been lost (by the publishers). To survive, publishers must grow beyond the view that they provide instructional services, and understand the needs of their consumers.

Teachers will continue to struggle to provide a good education to students, even in a world filled with iPads and iBooks. Teachers will continue to deal with drop-outs in world where Khan academy thrives. School administrators will continue to struggle to find qualified teachers in a world where game mechanics and social networking pervade the educational experience. Politicians will always need to demonstrate their state’s record of improvement against standards, (and get re-elected!) as Big Data washes over the industry

Most importantly, students want continue to search for meaning and relevance in their education, and ensure that when they leave their K12 years behind them, they are prepared to thrive in a workplace that will look unlike anything we can imagine today.

Now there’s a problem that needs solving.

The fallacy of maximizing shareholder value

Tue, 27 Dec 2011 16:37:09 -0800

The fallacy of maximizing shareholder value:

Fantastic article on the fallacy of maximizing shareholder value - one of the most potent and misguided management heuristics of the past fifty years.

This is what a 5Mb hard drive looked like in 1956

Tue, 27 Dec 2011 10:26:13 -0800

This is what a 5Mb hard drive looked like in 1956:

This put’s Moore’s Law in perspective!

Why your company might miss the next big thing

Mon, 26 Dec 2011 16:49:32 -0800

This fascinating story on The Rise of the Drone comes from the Washington Post earlier this week.

In the article, Peter Finn describes how Abraham Karem, an engineer in Los Angeles, created the first prototype of what would one day become the Predator Drone.

What’s interesting about the article (once you get past the coolness of the fact that he built the drone in his garage), is the fact that “the military establishment and most major defense contractors had little or no interest in [drone technology]”

In hindsight, this might seem odd, but this is a challenge that faces every client I’ve ever worked with. At it’s root is the question, “How can large companies systematically identify and pursue opportunities for growth”.

Based on my experiences, there are three simple reasons why large companies struggle in this arena. While simple to describe however, they are incredibly hard to solve.

1. Big Companies struggle to prioritize the right ideas

Most companies have no shortage of ideas. However many companies fall into one of the following traps. They believe that they need more ideas (the fallacy of the never-ending search for the perfect idea), or they don’t prioritize the right ideas (or portfolio of ideas) - viewing every opportunity through the lens of their existing business model (like the military establishment and drone technology).

2. Big Companies struggle to allocate resources to disruptive opportunities

Even those companies that do manage to create a balanced portfolio of new growth opportunities, often struggle to provide the appropriate resources to pursue these ventures either ‘over-resourcing them’ and smothering them with too much love and attention, or simply prioritizing the (inherently short-term) needs of the core business over long-term growth. Within the Innosight family - we call this the ‘sucking sound of the core’.

3. Big Companies struggle to execute against disruptive opportunities

Of those companies that make it past the first two hurdles, this third hurdle is often the one that trips them up. Big companies are like efficient organisms designed to execute upon a well-understood business model. The strong management structure (the brain and nervous system of the company) searches constantly for incremental revenue gains and efficiencies by setting up and overseeing simple processes (new product development, six sigma etc) and metrics (NPV, NIBT) to measure success against established revenue/cost targets.

Pursuing a new opportunity - one which might require a different business model requires new processes, new metrics, and fundamentally, a different type of management - one which most successful companies have simply forgotten how to do because it’s been many years since they were a startup.

So - how can big companies systematically identify and pursue new growth?

1. Companies must develop a strong platform to identify and prioritize ideas.

Industry Trends, Employee insights, Customer Observation and Non-Customer perspectives are all essential parts to this equation. The best-in-class companies use simple processes which minimize the decision makers, involve the senior-most leadership, and align long-term strategic goals with underlying customer needs to make their decisions

2. Senior Leadership must set aside resources for the pursuit of new growth opportunities

The best-in-class companies I’ve worked with have discrete budgets set aside for pursuing disruptive opportunities. Funds that will not evaporate during tough quarters. These budgets are not blank checks by any means, but a stated commitment by the firm’s leadership to investing in long-term growth.

3. Companies need to develop an incubator mindset to nurturing new growth opportunities

Best-in class companies understand that new growth opportunities require a different management approach which embraces the approach that the most successful entrepreneurs take instinctively. As Steve Blank put it, “a startup is a temporary organization assembled to search for a scalable business model”. Our most successful clients have embraced this management approach, staffing projects with the right type of teams, treating project teams as ‘searchers’, training their teams to ‘get out of the building’ and understand their customer’s underlying needs, measuring their teams success not in terms of traditional financial metrics but the pace at which they learn, adapt and understand their markets.

Companies that do this well can create incredibly powerful teams. They blend together the best of both worlds - enabling their teams to act with speed and agility like entrepreneurs, without stifling them with corporate overhead and bureaucracy. Furthermore, they give them access to the best resources that corporation has to offer (brand, information, potential customers, etc) something that most entrepreneurs would kill for….

Alpha

Mon, 26 Dec 2011 15:17:00 -0800

Hi.

I’m Alasdair Trotter, an entrepreneur and innovation consultant based in Los Angeles.

I founded Guaranteach in 2007 (acquired by Sophia in 2010), and now work with my amazing colleagues at Innosight to help our clients find new sources of growth. Innosight was founded by one of my colleagues, Clay Christensen, who coined the phrase Disruptive Innovation to describe how seemingly well-run companies fall victim to the Innovator’s Dilemma, and ultimately sow the seeds to their own destruction. For more on Disruption see here and here.

My own interests span the intersection of entrepreneurship and innovation - and in particular, how the best practices from the world of startups apply to large corporations. With this blog I hope to share my reflections from my ongoing search.

If any of this makes sense, or inspires you - follow me at @alasdairtrotter or visit me at LinkedIn here.

Follow @alasdairtrotter