Around 90% of tech startups and 65% of disruptive technology developed in established companies crashes and burns. Put these numbers into any other business context and most of us would be living in mud huts! But is this just the inevitable consequence of operating in markets that have no real parallel or are we missing something?
The following five books are some of the most insightful I’ve read on technology development. What they show is that there is an inevitability about innovation, but it’s not that the majority of startups should fail. What’s inevitable is that developing disruptive tech will differ from anything most organisations will have done before and it’s generally the failure to appreciate this, that causes the problems.
1. CROSSING THE CHASM
Crossing the Chasm by Geoffrey Moore is a seminal book on understanding innovation because it highlights the unique nature of new technology adoption, and this helps to explain the changing and sometimes contradictory market dynamics that an organisation has to manage as it moves into the mainstream.
Moore’s argument is centred on the belief that organisations nearly always have to develop a discontinuous innovation in order to challenge the status quo! That is something which changes the way people think or act (as opposed to a sustaining or continuous innovation which can simply be an improvement to an existing proposition). That’s because market leaders hold all the cards (customer relationship, R&D, cash etc) so an improvement to a challenger product (no matter how good) is unlikely break that stranglehold.
And, according to Moore, the critical difference with discontinuous innovation is the way that it builds market traction. By its very nature it will attract early adopters first. This is the relatively small group of geeks and kit-car buyers who embrace the latest developments largely out of self-interest..
This is as true for the enterprise market as it is the consumer one and it’s the unavoidable consequence of developing new technology. But, while these guys are very important in helping to establish the solution, they can also have a disproportionate and often negative impact on the direction of a company if they are not managed properly.
This is because early adopter buying behaviour differs considerably from the main target market. In fact, it’s so different, that they can make it look like there is a significant opportunity when there might not be!
Early adopters for instance, will take a punt on something new if they think it’s going give them an edge. Then they’ll go out of their way to figure it out and they’ll persevere with it if nothing better is serving that purpose. The much larger, but more conservative mainstream market on the other hand, won’t! They will need contextual reference points before they buy anything, and will need it working straight out of the box.
This is how we come to the title of the book and why so much hyped high-tech hits the rocks. Moore believes that if the mainstream market can’t relate to the early one then sales will plateau. This is the chasm. It’s not fatal if you are set up to cross it. It’s just that most fledgling technologies aren’t!
Very few entrepreneurs, innovators and founders get this. Too many, in my experience, approach their innovation challenge unconsciously assuming that great technology will sell itself, and that it doesn’t really matter who you are selling it to, as long as you’re selling it to someone.
But as Moore points out, this is mainstream thinking applied to the early market and it doesn’t work. To cross the chasm, you have to have created a set of circumstances that enables the mainstream market to easily relate to the early one.
The only way to do this is to adopt a very niche or ‘beachhead’ go-to-market strategy from the outset, where you are focused on very specific market segments that will connect the two audiences. Lots of startups have problems with this as well, usually because they either figure it out too late or because they don’t want to restrict their initial sales focus
But this, according to Moore, is why lots of fledging firms fail. In effect, they’re adopting strategies for hyper-growth instead of maintaining an early market focus. And when that fails, they’ll panic, revert to type and adopt the wrong strategies; like adding more features instead of reducing them, discounting prices instead of maintaining them and incentivising sales teams instead of investing in marketing.
2. THE LEAN START-UP
The failure to understand this growth paradigm is a reoccurring theme in all the best books on technology development. In The Lean Startup, Eric Ries argues that the way to avoid this is to focus on the correct growth metrics. No surprises here you would think? But the trap many fall into is what he describes as ‘success theatre’. In other words, being dragged in to focus on measures that give the impression progress is being made, rather than those that properly validate growth.
Experienced corporate managers may see this as a necessary evil, because ‘vanity metrics’ impress share and stakeholders and they provide the cash or authority to sustain an ever-evolving business plan. But while that might be sensible in-life practice for an established businesses, in an innovation set-up it can lead to a dangerous circle of development which compounds rather than challenges potentially terminal problems. According to Ries, if the focus is on making an impression first, then all too often that leads to a culture that kills the opportunity – something which new cash injections only help to sustain!
The inspiration for The Lean Startup comes from agile software development principles and lean manufacturing techniques developed and espoused by the likes of Toyota. The ideas therefore, are as relevant to large organisations as they are to smaller ones. For innovation to be successful Ries argues, companies must set up to properly assess value at every stage of the development cycle so that everybody is able to challenge direction. To achieve this, management has to foster transparency and development teams have to work in smaller batches and initially focus on developing the minimal functionality (Minimum Viable Product) needed to get into the market for testing. It’s similar to Geoffrey Moore’s Whole Product Experience ideas in Crossing the Chasm but more radical, going as far as to suggest that everything in an innovation set-up should be treated as an experiment, and organisations should measure their runway, not in the amount of cash they have left, but in the amount of ‘pivots’ they can afford to then make.
This of course, is the kind of talk that has investors and directors turning in their sushi as it screams technology perfectionist, rather than business rationalist. But when you strip everything back, Ries’ central point is very hard for to argue against.
In my experience, far too many organisations either hedge their bets or make too many assumptions on what is adding value. They then spend time and money building solutions only to find that elements (or all) of it are irrelevant. While this approach can work for market leaders (Microsoft has been doing it for years) in innovations setups it creates a false landscape and wastes precious resource. What businesses need to be doing is not throwing away what isn’t working (because in reality, that takes too long and gets devoured by politics) but actually figuring out what is adding value much earlier in the process and focusing their bets on this.
This about understanding the importance of establishing the principles and working practices from the outset that are likely to drive long-term success. It’s understanding that taking a fledgling product that nobody understands to market is very different from launching another version of Windows!
3. IF YOU BUILD IT, WILL THEY COME?
Which brings me to another major failing in innovation development, namely: sticking to a vision when the market is telling you something different.
This happens all the time and there are a multitude of reasons for it. It can be difficult to tell financiers for instance, that their investment is being used for something else. But the problems usually start with a reluctance to accept that the initial market research and that the subsequent thinking may be flawed. Or put another way, the CEO or founder (insert any title you like) may not be as clever as they think!
The reality of course, is that customers are simply using a product in a slightly different way than what was envisaged, and in that there should be no shame. So the objective, as Rob Adams explains in If You Build It, Will They Come? is not to validate the product, but to validate the market and change the product accordingly.
‘Give a company a significant engineering challenge and they will usually rise to it’ says Adams, ‘but ask them to validate a market and they will struggle’.
Why? Because one defines a market, the other forces you to accept the business reality of what you are doing. But it’s not about assessing whether there is a market for your product, but whether you have the capability to address that opportunity yourself.
The key to success, according to Adams, is ‘fast failure’. ‘You want to spend the first 60 days of any project doing nothing else but proving, not that it will work, but that it might not! That’s because you want to be rejected on 10 per-cent of your budget, not all of it’!
Unfortunately, most entrepreneurs and executives don’t want to think like this either. Most are driven by a vision and a belief that if you’re not sweating spinal fluid then you aren’t trying hard enough. A budget is there to make it work, not to prove that you can’t! But what properly constructed market validation does is to force the organisation to go beyond the first cut of data and more often than not, that will question the legitimacy of a market. This book outlines the structural approach that organisations need to take to do this and avoid creating the unconscious bias that fatally skews the business plan and product development path.
This is why If You Build It, Will They Come? is the text that should lay the foundation for every new tech development whether disruptive or sustaining as it forces an organisation to develop around a data and not an engineering-driven culture or the whims of idealists!
4. THE INNOVATOR’S DILEMMA
Which brings me to The Innovator’s Dilemma by Clayton Christensen, the ‘Good to Great’ of technology development because it picks apart conventional thinking with empirical reasoning and more than any other establishes the case for specific knowledge and approaches to innovation development.
The somewhat disconcerting conclusion of The Innovator’s Dilemma however, is that principles of good management that are taught in all the leading business schools are actually what leads organisations to fail! This is primarily because companies get ‘too’ chained to customer demands!
As Christensen points out:
‘working harder, working smarter, investing more aggressively, and listening more astutely to customers are all solutions to the problems posed by new sustaining technologies. But these paradigms are useless, even counterproductive, in many instances when dealing with disruptive technologies…Companies do not fail because the technology wasn’t available. They did not fail because they lacked information…they did not fail because management was sleepy or arrogant. They failed because (the new technology) didn’t make sense until it was too late. That is, in fact, why disruptive technologies confront innovators with such a dilemma!’
In many ways this is an extension of Theodore Levitt’s ideas on marketing myopia, popularised by his case studies on the American Railroads, where the biggest challenge was not spotting market transformation, but accepting and then responding to it quickly enough.
Christensen also focuses on the cultural failings of organisations as they grow, pointing out that when companies are small, their capabilities lie primarily in their people, so changing to address new principles should be relatively simple. But when capabilities have come to reside in processes and values they become much harder to change.
‘The reasons why innovation seems so difficult for firms is that they often employ highly capable people and set them to work within processes and values that weren’t designed to facilitate success with the task at hand. [So] managers whose organisations are confronting change must first determine that they have the resources required to succeed. They then need to ask a separate question: does the organisation have the processes and values to succeed?’ Asking the second question is not as instinctive for most managers because the processes by which work is done and the values by which employees make their decisions have served them well.’
The common misconception as Christensen points out however, is to think that a disruptive development has to be a breakthrough technology. In fact, the best examples are often simple, affordable and unsophisticated developments that take a foothold at the low-end of the market and improve over time. He uses the steel industry to validate this, but it can be easily applied to low costs airlines and a number of 21st century developments. This is because the values that make technology unattractive in established markets are very often the ones that constitute their greatest opportunity in emerging ones!
Like Geoffrey Moore, Christensen also makes the point that even if a new entrant introduces a brilliant but continuous innovation all they are actually doing is sustaining the trajectory of the technology’s development (until technology progress actually outstrips the market’s ability to use it). In this event, the market leaders remain in the strongest position as they still hold all the key cards. So while, these developments might look promising initially, they are probably also destined to fail.
5. ALL MARKETERS ARE LIARS
All Marketers Are Liars by Seth Godin is my last work on this list. It isn’t really a book about innovation development, or marketing per se, it’s a book about how people form opinions. Which is important, because one of the real difficulties in driving transformation is exactly that: getting people to change their minds.
Godin’s work has its roots in American politics and for all intends and purposes, he believes that it’s almost impossible to change the majority of people’s opinions. This is because of how they get to them. It’s a phenomena known as ‘confirmation bias’ which basically means that once we’ve made a decision about something, we don’t look to challenge it, we look for information to validate it and ignore anything contradictory. It’s a natural human trait, but it’s fatal in an innovation set-up
And so, for everybody driving innovation, this is where you have to start. The hard reality is that most people don’t want change, they will pay lip-service to innovation, and will only support it if it’s in their own personal interest. As an entrepreneur, and by definition, a marketer, you have to learn how to cluster around and start the story from that worldview.
The main point here is that transformation is an iterative journey. It doesn’t start with a big bang or a eureka moment. It often starts from bias and prejudice. The key is to create acceptance, not resistance. To tell stories from the worldview of the people that you are trying to convince, not from the product that you are trying to sell. It’s the realisation that great technology is never enough, if someone can’t sell this stuff, then it’s still a science project.
‘If you see failure as a challenge to your intellect rather than a vital opportunity to learn, then you’ll never disrupt anything’.
What all these books do, is to point to the need for data-driven decision-making and specific experience in innovation development. It would be very easy then, to pinpoint the lack of these as the reasons for such a high number of product failures. But I’m not sure that tells the whole story.
The thing about innovation, is that it’s very difficult. You may be able to imagine the future, you may even be able to finance it; but you are trying to do something no one has done before. There are no blueprints or silver bullets and as all of these works point out: innovators constantly have to rally against conventional thinking. Which is tough, when the chips are down and people are losing money.
So the real dilemma for firms is not necessarily finding or developing transformational skill-sets, but getting the rest of the organisation, stakeholders and shareholders to adhere to the principles that these people then put in place. Or put another way: getting everybody else to read these books too.
As Clayton Christensen points out:
‘the ultimate use or application for new developments is largely unknown in advance, so understanding failure is an intrinsic step forward for every company trying to innovate’.
This for me is the key reason that so much disruptive technology never makes it into the mainstream. Inherent in innovation development is a lot of learning, a lot of assumptions that need to be questioned and inevitably, a fair degree of failure. That strikes at the very heart of the human psyche, because no entrepreneur starts out thinking anything other than they are going to succeed, and most people see failure as a challenge to their intellect rather than a vital opportunity to learn. But when you embrace failure as an inevitable on the road to success, it completely changes the way you approach a project, and it’s this that helps you to properly adopt the agile principles that Eric Ries outlines in The Lean Start Up or the data-driven decision-making that Rob Adams underlines in If You Build It, Will They Come?
If you set out to prove that something isn’t going to work, but the market keeps on telling you that it just might! That is when you know you’re on to something. Which is interesting, because that’s how the really clever people have been solving complex problems like this for years!
Gavin McClement
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