Help! My startup’s not disruptive!!!

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It’s terrible, tragic even.  My startup’s not disruptive!  It won’t change the world, or even an industry.  It won’t lay waste to the antiquated detritus of 20th century business, even by accident.  What am I to do???

Ok, that’s a bit tongue in cheek, but as you can appreciate, the impact of companies like Uber, Airbnb and even Apple can make it look like disruption is an indispensable part of the new economy.  Disrupt or perish, right?

In my view, a lot of what gets thrown up as being disruptive is nothing of the sort.  If you take Clayton Christensen’s’ original work on the subject, you can mount an argument that disruption can’t be planned anyway, so why bother?  It’s a serendipitous outcome of an innovation, not something that can be planned in advance.  No one is prepared for disruptive innovation; if they were, it wouldn’t be disruptive, right?

One of the reasons that disruptive innovation is such an influential idea is that it suggests that there’s a shortcut.  A shortcut to massive growth that avoids the need to carefully plan and execute a business idea over a long period of time.  Who wants to spend 30 years building a successful business when disruption offers the change to do it in five?  It gets around the pesky issue of eking out progressively larger market share based on well-honed strategy, tight cost control and incremental product development.

And of course, it’s even more appealing in the startup space.  Want to compete with Microsoft?  Hell no, we’ll just disrupt them!

But of course, disruption has become part of the new orthodoxy.  If you’re not disruptive or not aiming to be, you just don’t fit in quite as well as you might have in the past.  Want investment for your startup?  Be disruptive!

If you’re not disruptive, it makes it just that little bit harder to obtain capital then if you are, because most early stage investors want high returns in relatively short periods.  That doesn’t mean that non-disruptive startup don’t get funded, but it’s a lot easier to make the case for rapid profit if you can grow unencumbered by traditional market completion.

I’m a bit of a contrarian at heart, so I tend to recoil from the hype surrounding disruption.  But I think it’s important to remember that there are lots and lots of very successful businesses out there that aren’t disruptive and never will be.

There was a good article in Harvard Business Review last year that made just this point.  The author pointed out that “the vast majority of profit from innovation does not come from the initial disruption; it comes from the stream of routine, or sustaining, innovations that accumulate for years (sometimes decades) afterward”.  As a case in point he offers Intel, who has made about $287 billion from the series of chips that built on the original X386 chip introduced in 1985.  Not bad for a non-disruptive business, huh?  Then there is Microsoft with Windows ($325 billion) and even Apple with the iPhone ($150 billion).

I also read a piece recently (also from HBR) which talked about why bootstrapping a startup is the most successful approach to a new business in terms of raw numbers.  They criticise the ‘big money’ model that gets all the headlines for startups and point out that most of these business are better off taking it slowly – working out their business model, tuning their product to the market, and learning to get by on less, rather than more.  This article was published before the Innovator’s Dilemma, so you could argue that things have changed and maybe they have.  But I’d wager that the companies that will dominate the world in 20 years’ time are likely small and humble at the moment and will take all that time to ‘disrupt’ their competitors!

Returning to my own startup, what does this mean?  Having recently completed a modest Kickstarter campaign, we’ve been asking the question of ‘what’s next’?  One answer to this question is to ‘go big’ by raising money and taking the idea global.  That’s entirely possible, but some water needs to go under the bridge yet.

And of course, most people get the idea of what we’re doing with WineMinder, but it doesn’t immediately bring forth visions of global dominance.  Which makes it that little bit less attractive compared to rapidly scalable, potentially disruptive ideas.  And that just suits me fine, to be honest.  But occasionally it can make you wonder if its worth bothering with all the hard work and worry (and of course the fun and occasional euphoria!) if you’re not going to disrupt something – other than your family life and your bank account!

Again, being a contrarian, I wonder if a lot of profitable – but not disruptive – opportunities are being left unaddressed in the rush to creatively destroy the status quo.  And maybe my startup is in that space.  And if it is, I’ll gladly make decent returns on my efforts while watching some more disruptive ideas burn through other people’s money, before being disrupted by the next wave of, well, disruptive innovation!

In which case, I don’t really need help at all…at least, not because my startup isn’t disruptive!

Kickstarter success – what I learned!

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What I learned from my Kickstarter compaign

I recently completed a successful kickstarter campaign for a consumer electronics product called WineMinder (www.wineminder.com.au) and I think I’d have to say that I learnt a few things along the way!

Firstly, it’s incredibly rewarding to have your idea validated, and not just by people who know you and the project intimately.  That’s probably a given, but worth saying none the less!

More interestingly, there were a couple of unexpected outcomes from the campaign, which didn’t get much coverage in the Kickstarter guides and commentary that I looked at before launch. These were;

  • A massive increase in brand awareness.  Just going on website traffic alone, we had as much traffic to our site in the first day of the campaign as we had for the entire 3 months prior, and increased total new visitors to our site by a factor of 6!
  • We had two approaches for investment in the business and one from someone offering to be our agent in northern Europe.
  • Our top pledge was the biggest mover, even when it ran out and I created another, similar pledge for the same reward at a higher price level!

Many would argue that we could have found out this last point if we were following a lean startup process, but it hadn’t come up in any previous discussion – maybe because we hadn’t been forced to develop varying offers before the campaign.  So a lesson there is to get really creative with offerings, even if you are following a lean startup methodology.

Of course, many of the other things I learnt were much more commonly discussed, like;

  • The euphoria of the first day or two, where early pledges really get things going – followed by the nail chewing when this drops off temporarily!
  • The need to prepare early and well to make sure you hit your targets, because very few people are likely to stumble upon the project via the Kickstarter site itself.
  • The fact that you’ll spend the last week of the campaign mailing, texting and ringing people and just generally making a pain of yourself until all those people that said they’d pitch, get off their backsides and actually pledge!

I’d definitely do it again.  The funding we raised will be extremely useful, the brand awareness we’ve developed we simply couldn’t buy at this point and the validation of the product and insights into pricing structures was unbelievably valuable!

And, of course, it was just straight out fun!

Careful what you wish for – Big Bang Disruption in the electricity industry

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Disruptive innovation is often seen as a vehicle to upend not just existing technologies, or incumbent companies, but entire systems.  But is this what we really want?

One of the many extensions of the idea of disruptive innovation to hit the market (and there is a market for these ideas, make no mistake!) is Big Bang Disruption. The idea of big bang disruption is similar to Clayton Christensen’s original ideal of disruptive innovation, except this type of disruption happens much faster, in some cases verging on instantaneously – or so claim the originators of the idea (for a review of their book, see here).  This concept has been applied to the electricity industry in a recent blog over at greentechmedia, suggesting that technology will shortly enable the destruction of traditional electricity systems.

Widely viewed as innovation challenged and the source of much of the carbon dioxide that drives climate change, there are endless calls for this industry to be disrupted: for existing technologies to be overthrown, opening the way for the democratization of electricity supply through the use of distributed energy generation and storage.  The achievement of this goal would see consumers generating their own electricity, free of the burden of high cost distribution networks and the tyranny of centrally controlled energy markets (with the added benefit of significant profits for the technology providers!).

But is this something we really want?  Take, in the first instance, transmission and distribution networks.  These are highly regulated (generally) public assets because they are natural monopolies.  They have been built up over long periods of time, with taxpayer funds and – despite the clamor for their overthrow – offer a public good.  Why would you choose to junk these assets when they can serve the important purpose of offering backup supply, or the opportunity to sell that locally generated energy to other consumers?  After all, isn’t the sale of excess energy via the grid the business case that has driven the adoption of domestic solar in the past 10 or so years?  Without the grid, subsidized electricity prices for solar energy wouldn’t be particularly useful and the adoption of the technology would be significantly lower that it has been.

Taking another perspective, imagine you are having a conversation with someone from a country about which you know nothing.  In that conversation they say that they have a high value and robust system for getting an essential service to everyone in the country, but they now want to junk that in favour of yet to be proven technologies because they’ve decided that they don’t like the cost of maintaining the existing asset.  That might make sense, but rather than abandoning that asset you’d have to ask whether a new role could be found for the infrastructure, rather than being torn down to be replaced by another set of expensive infrastructure.

Aside from this, electricity grids will continue to serve a public good for some time yet.  Not everyone can afford the capital cost of new distributed generation and storage technologies.  And even if you could, would you be willing to live without power in the event that a product fails?  How quickly is your system likely to get repaired?  How would you feel about paying for service level assurance for your shiny new system to get it’s reliability to a level comparable with modern grids (minutes of outage per year)?  Overthrowing robust, established systems always comes with down sides.

This leads me to the point I really want to make, which is it’s important to consider what is being disrupted when talking about disruptive innovation. I think that there is a real need to see technological change – and perhaps even disruptive change – in our modes of power generation.  But that doesn’t mean that the entire electricity system needs to be overthrown.  Distribution grids can serve an important role in providing backup, high quality supply, support for those not able to ‘upgrade’ and a mechanism for energy trading at a local level.

And this is a legitimate use of the idea of disruption.  While Clayton Christensen focused on (in one case) disruption in the hard disc drive industry, computers continued to exist while drive architecture went through repeated periods of turmoil. The analogy with the power industry is that you can replace one set of technologies (generation) without displacing the system in its entirety.  So it’s important to think about what is being disrupted, rather than claiming that everything is being disrupted.

In the case of electricity systems, it’s going to be more productive to talk about technological disruption rather than system disruption, which is where many discussions of disruptive innovation in the electricity sector seem to land.  We should define the problem that innovation is being used to address before invoking the magical properties of disruptive innovation to argue for what is often an ideological or profit motivated argument to overthrow an established system.  

However, we could seek big bang disruption of the electricity industry.  But be careful what you wish for, because it won’t be cheap and it won’t be painless.  Instead we should be looking for ways to leverage innovation to achieve change, without destroying systems that can continue to add value in a world of democratized energy supply.

He who controls the past controls the future

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He who controls the past controls the future. He who controls the present controls the past.

GEORGE ORWELL, Nineteen Eighty-Four

What has been done, thought and felt in the past constrains what is likely to be done, thought and felt in the future. In other words, the past has a tendency to shape the future. This might seem an unremarkable thought, but its impacts play out in significant ways when thinking about innovation.

Why? Well, innovation involves something new and something new means adaptation of some kind. And since innovations are used by people, it’s the adaptations that people need to make – at the individual level, as well as the level of the firm and the economy – that determine the fate of most innovations.

At the level of the individual, human beings have evolved to have highly efficient ways of dealing with the world. We start out asking an endless series of questions to help understand the world around us. As we get older though, we start to develop classifications systems for accommodating new information. We also develop heuristics which aid in decision making, so we don’t need to think about every situation from scratch. This allows us to efficiently deal with complex problems, but it also creates constraints in the way that we think.

Warren Berger outlines the problem this presents for creativity in his recent book A More Beautiful Question. In that text, Berger points out that the number of questions asked by children declines significantly after the age of 4 – partly because educational systems discourage questioning (which can challenge authority) and partly because children start to develop systems for dealing with new information, rather than relying on questions. He then points out that a consequence of this change is that we have a reduced ability ask questions that can lead to the creation of truly transformative innovations. Our thought patterns, behaviours and habits also influence our receptivity to new ideas as well as our understanding of them which in turn places constraints on how or whether we adopt those transformative innovations.

At the level of the firm, this process is repeats itself. In their early stages, new enterprises tend to be a hotbed of innovation, as ways of thinking and doing business remain relatively fluid. However, over time these tend to become solidified into what we call corporate culture. In many ways this is a good thing. It reduces the amount of effort required to get things done, it can free up mental capacity to deal with the unexpected and it creates the continuity that allows firms to survive staff changes. However, it also constrains what a business can do.

Clayton Christensen made this point in his seminal text, The Innovator’s Dilemma. In that book, he points out that well run established firms, run by capable people, can fail because of their inability to change and their commitment to the past. This is one of the central tenants of disruptive innovation and a powerful demonstration of how the past can influence the future when it comes to both the production and adoption of innovation.

Finally, a similar pattern occurs at an economy wide level. There are a number of strains of economic theory that use evolutionary models to help predict patterns of economic development. These models assume that change originates from a number of sources, but that the prior state of the system influences the direction it can realistically move in next. At a practical level, this seems entirely sensible. You wouldn’t expect us to move from the internal combustion engine to hydrogen powered hover cars in a single step; the mental leap would be as problematic as the technological one. As a result, economies follow a smooth trajectory of technological development, even when some individual innovations are radical or disruptive in nature.

So what does this mean for the development and adoption of innovations? In terms of innovation, it highlights that unconventional thinking can be needed to develop the breakthrough ideas that underpin high value developments. This idea is regularly explored in discussions of innovation culture and the innovation process more generally. What gets less attention though is that the very people that are expected to be the adopters of an innovation may well be constrained by their prior thinking in adopting that innovation. The translation of novel ideas into practical technologies that are widely taken up needs to consider both the creation of the innovation itself, as well as the context into which it is introduced. Current thinking can constrain adoption, or stop it altogether (with innovations of the alter type often being described as ‘before their time…’).

There are ways around this, of course, but it requires a degree of self-awareness and knowledge of the patterns that direct our decision making. Another good example of how to avoid the past constraining the future is the lean startup movement. This approach looks to place a ‘minimum viable product’ into the market before executing a series of ‘pivots’ to find out what will really work, rather than guessing beforehand. This can still come unstuck if you ask the wrong people based on prior expectations of your market. But it’s a step ahead of being an unconscious slave to yesterday.

Disruptive Innovation – What Boards Need to Know

Disruptive innovation in the form of novel technologies and business models are increasingly driving change in the business environment. Mobile phones, 3D printing and distributed energy, along with digitally enabled business models are examples of innovations that create uncertainty for established organisations. In the attached White Paper, I’ve tried to summarise the issue in plain English (with an emphasis on what Boards of Directors need to know), with strategies that can be used to deal with the threat of disruption. Let me know what you think; and if you like the paper, please share!

White Paper -> Disruptive Innovation – What Boards Need to Know

Steel cage death match? Utilities vs technological innovation

The pace of technological and business model innovation in the energy industry continues unabated.  But what sort of reception is this getting in the utilities?  Can innovation force its way into such a well-established system, or can the system continue to control the rate of innovation adoption?  A couple of posts this week provide some insight into what could become a ‘steel cage death match’ for the utilities as they seek to fight the growing pressures created by technological innovation.

As a starting point for the discussion, it’s worth noting that the electricity industry is an incumbent technological system, which has developed highly standardised technologies, design methodologies, rules and regulations since AC supply won the war of the currents in the 1880s.   As a result, the system exhibits the characteristics of a technological regime, which defines the sorts of innovations that are acceptable within it, and which are not.  The technological lock-in that this creates is an incredibly powerful mechanism for selecting and rejecting new technologies.

Contrasting with this stability are renewable energy technologies and the business models that they enable.  These represent potentially disruptive innovations that may end up replacing incumbent thermal power generation technologies while facilitating the transformation of the electricity industry itself.  According to disruptive innovation theory, the incumbent industry is only likely to react to the transformative effect of these technologies when it is too late to do anything about it.

Returning to the question of innovation versus the system, two posts in reneweconomy last week provide insights into the dynamics of technological change in the electricity industry.  One identified an innovative approach to the management of distributed energy generation and storage that might well support a future business model for utilities that keeps them relevant (see here); the other highlighted how these same utilities are changing the rules to stop the adoption of this type of innovation in an attempt to preserve their 20th century business models for just a bit longer (see here).

The former described how a US based smart energy start-up company is enabling the creation of ‘virtual’ pools of energy through the aggregated management of solar and energy storage technologies.  This approach uses a combination of cloud based technologies with distributed solar and batteries to create dispatchable energy out of an otherwise unpredictable resource. In contrast to the ‘death spiral’ risk presented by distributed energy, this model appear to be an ideal way to keep pole and wire networks relevant into the foreseeable future.

In contrast, the later post described how utilities in Queensland, Australia, are acting to limit the ability of consumers to send energy back into the grid.  While this seems sensible within the constraints of the existing electricity system and its understanding of energy delivery, it denies the advancing trend of innovation in the industry.  The history of technological development suggests that innovation in the industry will continue to advance faster than the current technological system can adapt to it – particularly when that innovation takes place outside the established industry.  Trying to shoehorn technological advances into historically derived operational models is only likely to force innovators to find ways to circumvent the system, leading to its accelerated demise.

The dynamics of technological change within large technological systems differs from those of, say, consumer products, where rapid obsolescence and product substitution seem to take place at a dizzying pace.  A reliance on complementary infrastructure and established expectations around energy supply mean that change takes place at a more measured pace in the electricity sector.  But change does occur and systems can only accommodate a certain amount before a break point occurs.  And in this case, it means that the technological trajectories established over the past 130 years may take a decidedly different direction.  In these circumstances, it’s not just the technology that will change, but the wider system itself, including supply chains, industry structures and the people that determine the future of the system itself.

While this might sound a little apocalyptic, my own research confirms that change like this can occur.  The question though, is what does it mean to the established electricity system and those who seek to develop and promote technological innovations?

Well, the adoption of potentially disruptive technologies within technological systems requires the modification of the system as well as the technology.  This means that technological innovators need to examine the technical as well as non-technical barriers to adoption of their innovations and undertake their product development accordingly.  This can include modifying technology so it functions more like incumbent technologies in some way.  For example, in the case of the electricity industry this can include implementing control systems that more easily integrate into utilities’ normal network management practices.  Sunverge are doing this by allowing the networks to access functionality such as the voltage regulation and frequency control functions of energy storage and solar energy technologies.

Similarly, the system (i.e. the people that run it) needs to recognise that adaptation is required to accommodate technological innovations.  In contrast to the action by Ergon and Energex in Queensland, utilities need to acknowledge that the adoption of technological innovations is not totally in their control and adapt the system accordingly.  The retrograde action described in reneweconomy indicates that these utilities, at least, are looking backwards rather than forwards.  This presents significant risk for them, particularly where disruptive innovations such as energy storage are involved.  In this situation, they risk being excluded from the future of the energy market as these innovations evolve faster than their ability to adapt to them.  While they may think they can anticipate and control where this type of innovation might go, history suggests that rear guard actions to combat disruptive innovation leads to an elimination of the laggards, not the preservation of incumbency.

So like good jujitsu fighters, innovators and the system need to recognise the transformative potential of disruptive innovations and harness the forces that accompany them.  In this way they can remain leaders in the field, rather than becoming defeated antagonists consigned to the sideline of technological history.