Commodity
Building efficiencies - continued
Thursday - October 16, 2008 Filed in: Entrepreneurial
| Venture
Capital
I received a lot of feedback and questions on my
previous blog posting named Building
efficiencies in tough times and the embedded
presentation posted there. The danger of
attaching a presentation is, that as a reader
you may miss the rational that built the words.
Because of that I want to explain my sometimes condensed thinking a little further.
It may have appeared that I only care about the product, but nothing is farther from the truth. The diagram on the left of the chart is what I see a lot in technology companies, early and late stage - across the board. The diagram on the right is what I tried to convey with the words in my presentation. Let me clarify:
Many companies develop incremental innovation (to leapfrog their competitors) without a diligent (re-)assessment of the opportunity to change the battle field. Not surprisingly. Real disruptive innovation requires a certain amount of vision, faith and a compass combined with larger commitments and investments, all seemingly based on untested values.
The path of least resistance therefor is to start with an incremental product and throw inordinate amounts of marketing & sales at it, in order to push it beyond its competitors into the marketplace. That is a highly inefficient model (in any economy). But it is a model to which many companies are forced to comply because of risk adverse management and the stale investment criteria deployed by many Venture Capitalists (VCs).
So, it is somewhat ironic that the VCs are now telling their startups to be more efficient, right after they were pushed through the VC wringer of startup-commoditization.
I believe the market for cheap (bootstrap-to-market) technology companies, that yield a large early exit is gone. That model only worked in a bull market of technology (from the 90s that has not dissipated) and the investors that still cling to that model will get punished for it. The new opportunities are for companies that build real macro-economic value.
The starting point of the next wave of innovation, in my view, is to feed a macro-economic need, as depicted in the diagram on the right. That macro-economic need is directly attached to the way we behave as humans (which is relatively predictable). It is our need to express ourselves, live the life we want and be in control (rather than technology controlling us). Think free-market principles, think social, think benefits, think fundamentals.
The fundamental shift in thinking that needs to occur in Silicon Valley, is to develop technology with a fresh mind, looking from the outside in, and serve a larger, less specialized, constituent.
Apple comes to mind as a company that often completely ignores the current state of the technology industry and connects better to basic human needs than any other technology company. But Apple can improve/be beat at the macro level, but I digress.
We simply need to support human behavior with technology.
With “free” distribution of information through the Internet, psychographics - not demographics - matter. Four-hundred year old free-market principles, The Long Tail, and marketplaces like eBay prove that the traditional rules of marketing do no longer apply. In my thirty years in technology I have never met anyone who truly understands markets. And market definitions have changed, they comprise no longer of buyers that fit an artificial model (I cringe when I hear people debate for hours how many users delineates the SMB segment), but because they subscribe to the pain or gain from which subsequently, marketers can extrapolate a larger pool. Bottom-up.
We do not all need to be economists to create the next successful technology company, the material is all around us. All it takes is a healthy interest in the actual behavior of human beings, compare their offline and online behavior and fill in the gaps. So, stop supporting companies that just build nifty technologies, but focus on companies that create larger macro-economic differentiation. More impact to everyday people.
No company will be more efficient by simply cutting cost (as suggested by the recent doom-and-gloom VC messages), it will just take longer to die. The real efficiency comes from a more disruptive value that attaches more people to better technology. On top of that, macro-economic value is very resistant to economic downturns.
Because of that I want to explain my sometimes condensed thinking a little further.
It may have appeared that I only care about the product, but nothing is farther from the truth. The diagram on the left of the chart is what I see a lot in technology companies, early and late stage - across the board. The diagram on the right is what I tried to convey with the words in my presentation. Let me clarify:
Many companies develop incremental innovation (to leapfrog their competitors) without a diligent (re-)assessment of the opportunity to change the battle field. Not surprisingly. Real disruptive innovation requires a certain amount of vision, faith and a compass combined with larger commitments and investments, all seemingly based on untested values.
The path of least resistance therefor is to start with an incremental product and throw inordinate amounts of marketing & sales at it, in order to push it beyond its competitors into the marketplace. That is a highly inefficient model (in any economy). But it is a model to which many companies are forced to comply because of risk adverse management and the stale investment criteria deployed by many Venture Capitalists (VCs).
So, it is somewhat ironic that the VCs are now telling their startups to be more efficient, right after they were pushed through the VC wringer of startup-commoditization.
I believe the market for cheap (bootstrap-to-market) technology companies, that yield a large early exit is gone. That model only worked in a bull market of technology (from the 90s that has not dissipated) and the investors that still cling to that model will get punished for it. The new opportunities are for companies that build real macro-economic value.
The starting point of the next wave of innovation, in my view, is to feed a macro-economic need, as depicted in the diagram on the right. That macro-economic need is directly attached to the way we behave as humans (which is relatively predictable). It is our need to express ourselves, live the life we want and be in control (rather than technology controlling us). Think free-market principles, think social, think benefits, think fundamentals.
The fundamental shift in thinking that needs to occur in Silicon Valley, is to develop technology with a fresh mind, looking from the outside in, and serve a larger, less specialized, constituent.
Apple comes to mind as a company that often completely ignores the current state of the technology industry and connects better to basic human needs than any other technology company. But Apple can improve/be beat at the macro level, but I digress.
We simply need to support human behavior with technology.
With “free” distribution of information through the Internet, psychographics - not demographics - matter. Four-hundred year old free-market principles, The Long Tail, and marketplaces like eBay prove that the traditional rules of marketing do no longer apply. In my thirty years in technology I have never met anyone who truly understands markets. And market definitions have changed, they comprise no longer of buyers that fit an artificial model (I cringe when I hear people debate for hours how many users delineates the SMB segment), but because they subscribe to the pain or gain from which subsequently, marketers can extrapolate a larger pool. Bottom-up.
We do not all need to be economists to create the next successful technology company, the material is all around us. All it takes is a healthy interest in the actual behavior of human beings, compare their offline and online behavior and fill in the gaps. So, stop supporting companies that just build nifty technologies, but focus on companies that create larger macro-economic differentiation. More impact to everyday people.
No company will be more efficient by simply cutting cost (as suggested by the recent doom-and-gloom VC messages), it will just take longer to die. The real efficiency comes from a more disruptive value that attaches more people to better technology. On top of that, macro-economic value is very resistant to economic downturns.
Great Technology = Great Company?
Friday - September 02, 2005 Filed in: Positioning
| Strategy
"Apple is going in a different direction than we want
to go." That is the statement from a long term Apple
customer (10+ years) we recently talked to. The Apple
Store in Palo Alto has recently been revamped to
where the iPod and its accessories seem to make up
the majority of the new store layout. Media software
has been tucked into a little corner in the back.
Enterprise software for Small and Medium Enterprises
(SME), like FileMaker Pro Server is virtually
non-existent, "you can get that online" was the
response from an Apple representative.
Did you know Apple is actually making more strides than ever in the enterprise business? Oracle, MySQL and a lot of other mission critical software now runs on OS X. Apple risks loosing SME foothold if it does not carefully balance advertising the iPod trojan horse with the reasons why it created the iPod, selling higher margin products. Enterprise software may not be bought in a retail store, but providing exposure and demo stations with enterprise and SME solutions are critical to changing a destructive perception. Or does Apple plan to open new Business Stores soon?
Did you know Apple is actually making more strides than ever in the enterprise business? Oracle, MySQL and a lot of other mission critical software now runs on OS X. Apple risks loosing SME foothold if it does not carefully balance advertising the iPod trojan horse with the reasons why it created the iPod, selling higher margin products. Enterprise software may not be bought in a retail store, but providing exposure and demo stations with enterprise and SME solutions are critical to changing a destructive perception. Or does Apple plan to open new Business Stores soon?