Category: Innovation

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The Chasm: Every innovator’s challenge

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Why do some innovative products and services succeed while others fail?

The answer may lie in how they navigate the chasm, an idea talked about in Crossing the Chasm by Geoffrey Moore, first published in 1991 but still relevant today.

The basic roadmap for bringing a new product or service to market follows a lifecycle.

First, innovators get excited about a new opportunity and create the first version of the product.

Then visionaries, the people who see how this could be different, useful, life changing – they get involved and the innovator starts to make early sales.

This is good because it validates the product and shows there is a market for it – however small.

The product develops, gets better, gets case studies and a small customer base happy to recommend it to others. At this point, the early majority start to get interested.

The product continues to be used and developed. With a strong base of customers, the rest of the market sees this as a strong option or alternative to existing solutions.

Sales take off and the company enters a period of hyper-growth.

Now the product is considered safe, reliable and the first choice. It’s now a mass market product.

Finally, the people who have been holding off, the sceptics and laggards turn up and start to use the product.

Where companies fail is in making the move from selling to visionaries to selling to the early majority.

This is the chasm, a point where the company is running out of visionaries to approach – the people with the early interest but the early majority are not ready to commit because the product is still relatively new, immature and not widely used.

Existing providers, threatened by the new product, can use fear, uncertainty and doubt (FUD) to protect their own businesses.

The chasm is the most challenging period for a new product or service.

There are no easy answers to get across it.

The point, however, is that ignoring the chasm will most likely lead to failure.

A winning strategy will think about ways to bridge the chasm – and go from a product that visionaries will use because they can see the benefits to ones that the early majority will use because you have removed the risks.

This shift in thinking – moving from selling the benefits to removing the risks is likely to be the deciding factor in getting from one side of the chasm to the other and entering the next stage of growth.

In summary, sucess or failure for companies and products is often a result of how well they cross the chasm.

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The significance of 46

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What we believe is significant is heavily conditioned by the media and what it chooses to focus on.

The BBC website, for example, now changes little from day to day. A few new stories come on that are shocking or terrifying, while other stories that are popular because they were shocking or terrifying show up day after day.

It gets harder to think independently when everyone is shown (roughly) the same collection of material from news sources as everyone else.

Search tools cause you to focus on what you know – because it is a little difficult to search for what you don’t know, or what you aren’t aware of yet.

One approach to deal with this is Edward De Bono’s random-word technique, described in Think! Before it’s too late.

Find a random word, for example by opening a book at random and pointing at a page with your eyes shut, and then see where that word takes you.

This may seem a little absurd at first. Its main benefit, however, is that it opens up a new line of thinking, something you may not have considered before.

The book closest to me is “The Weekenders: Adventures in Calcutta”. The word that came up, or number rather, is 46. Where will that take us?

Some interesting places it turns out.

Code 46 is a movie that came out in 2003, a futuristic romance story where the characters are genetically incompatible.

The 46 degree halo is a rare ice crystal halo that forms when sunlight enters ice crystals.

Expedition 46 to the International Space Station ran from December 11, 2015 and ended March 1, 2016 and is significant because Tim Peake was on board, the first British European Space Agency (ESA) astronaut to fly in space. The mission patch shows the Union flag prominently because of this.

The Mark 46 (Mark XLVI) is the forty-sixth Iron Man Armour and appears in Captain America: Civil War.

Directive 95/46/EC of the European Parliament talks about personal data and the movement of such data.

The Model 46AS food waste disposer is an entry level disposer for smaller households.

The only slightly sinister sounding Division 46 of the American Psychological Association looks at how to use psychology in media communications and technology. That’s not scary at all…

The KC-46A Pegasus is a widebody air to air refuelling tanker.

In 2015, Americans checked their phones 46 times a day.

And finally, and rather delightfully, Organism 46-B is a 14-legged giant killer squid discovered in the Arctic that is now being weaponised by the Russian military.

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When is it a good idea to think differently?

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Two roads diverged in a yellow wood, wrote Robert Frost, and taking the one less travelled by made all the difference.

When is it wise to follow the crowd and when is it not a good idea?

Crowds are good at particular kinds of thinking. In his book The Wisdom of Crowds, New Yorker staff writer James Surowiecki talks about three kinds of problems that crowds are particularly good at solving:

  1. Problems of cognition: These are problems which will have a solution at some point. How many cars will sell next quarter? How likely is it that a new drug will get approved?
  2. Problems of coordination: How should a group of people behave? for example, how do buyers and sellers trade fairly? How should people drive safely in cities?
  3. Problems of cooperation: How is it possible to get people who are focused on their own interests to work together? How can we tackle problems like pollution, climate change or tax policy?

Crowds can also be extremely unwise. This usually happens when the rules they should follow break down, communication fails to moderate behaviour and you get things like a riot or stock market bubble.

Interestingly, a crowd seems to fail when its members start to think the same way. This is the essential cause of stock market bubbles and has been seen over time, from tulips to houses.

When everyone starts to believe that the price of something will always go up, you get irrational exuberance, and a bubble that eventually bursts.

The paradox is that wise crowds integrate individual judgements to produce a group judgement – but in order to reach a good judgement, each member of the group needs to think and act independently.

Organisations that want people to reach better decisions should encourage diverse and independent thought and action.

Individuals who want to make better choices should not be afraid to disagree and contest ideas and options. We think better when we think independently.

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What kind of organisation do you work in?

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An organisation’s success depends on the nature of its relationship with its customers.

How customers view your company is key to how they choose to interact with you.

Thinking of an organisation only in terms of its staff, its products or its processes can hide important strategic aspects from you.

The model in the picture is adapted from this TED talk by Guy Kawasaki and this paper by Lepak and Snell and shows how customers treat organisations based on how they perceive them.

1. Efficient organisations: High Value but not Unique

Organisations that produce something of value are going to have a market for their products.

Their customers, however, have a choice between many suppliers. For example, car insurance is much the same between providers.

Your supermarket shop is going to have more or less the same things between major supermarkets.

In this quadrant, the winners are the ones with the lowest delivered price, which means they are the most efficient and with the lowest costs to deliver their service.

Customers are likely to go through tendering to work with organisations in Quadrant 1 and pick the cheapest one that does all the things they need.

One more thing about this quadrant – if you reduce your costs by becoming more efficient, the customer benefits in the form of lower prices but you don’t keep the savings in the form of higher margins.

This is why textile mills in the developed world went out of business. All the investment they put into reducing costs resulted in lower prices for consumers, but the companies themselves remained low margin and unattractive businesses and eventually closed down.

2. Contract based organisations: Low Value and not unique

If customers think that what you do has little value and is not unique then they have no incentive to work with you on anything other than a contract basis.

For example, many companies think of cleaning services just as something that needs to be done, but there are many companies that can do it.

The chances are that they will agree a contract with a cleaning company. That contract will continue as long as the facilities stay clean and the terms of the contract are fulfilled.

Over-delivering against the contract may not result in anyone noticing, but under-delivering – having facilities that are dirty – will probably result in complaints and having the contract terminated.

3. Stuck organisations: Unique but of low Value

Your organisation may produce something unique, but unless there is a market and customers perceive value in it, you are likely to be stuck with early adopters and find it hard to get more customers.

Many products fall into this category – there are now museums of failure to products such as Harley-Davidson Perfume.

In the city of Ann Arbor, Michigan, GfK Custom Research North America has a storehouse of failed products ranging from microwaveable scrambled eggs and TV dinners sold by Colgate to Clairol’s Yoghurt shampoo.

Many of these products were unique but perceived as having low or poor value and were withdrawn from sale within weeks or months because no one would buy them.

4. Growing organisations: Unique and with high value

Organisations that do something unique and are thought of by customers as delivering value are likely to be able to maintain higher margins than others, invest more into their businesses and attract more customers than their competition.

Apple is probably the poster child for this category. The company is sitting on $250 billion in cash as it brings in profits every quarter of over $10 billion.

This happens becuase its products are unique and it has customers that love what it does and are prepared to pay a premium to buy its stuff.

Warren Buffett has made a career out of buying businesses that have above average earning power – and credits managers with being able to get extraordinary results from ordinary businesses.

Summary

In summary, how your customers see what you do is crucial to getting the relationship right with them.

If you do something that is currently seen as low value and not unique, the only option, if you want to grow, is to work on changing your customer’s perception of what you do.

On the other hand, if you can deliver the best service, at the lowest price, working in a contract based business or in a business where you are the lowest cost provider can still work for you.

The place you don’t want to be is where your ideas are unique but no one wants to buy from you.

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How to think outside the box

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What does it mean to think out of the box – to be able to come up with new ideas and be more creative?

In this TED talk Professor Giovanni Corazza, a faculty member of the University of Bologna and founder of the Marconi Institute of Creativity, talks about how you can become more creative.

The key to thinking out of the box is to understand what the box is – in your mind – and what it means to think out of it.

All thinking is in your mind – you can’t think out of your mind.

Instead, what this means is that creative thinking is being able to go from what you know to what you haven’t thought of yet.

Being able to cross from one type of state of mind to the other is the essence of being creative.

How do you go about doing that?

The first thing is to realise that most thinking is convergent – we think about what we know and use existing knowledge and tools to approach situations and problems.

Our brains are designed to jump to conclusions quickly – a good evolutionary survival mechanism. You don’t want to be considering all the facts about whether that is a tiger in those bushes.

We also look for evidence that confirms our initial conclusions. There is a flash of orange, the bushes are moving, it must be a tiger.

We then act based on that evidence – climb a tree, run indoors, get away from that tiger.

The thing with creativity is that you have to remind yourself to go through a process of divergent thinking.

Divergent thinking is a way to be creative by exploring many possible solutions.

It asks you to take a more spontaneous, less rigid approach to the tasks, to play with ideas, to be willing to tolerate the absurd, the illogical, the risky approaches.

Above all, it asks you to be open. It’s only when you are open that you have the freedom of mind to think creatively.

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How to make your innovation a success

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How do you know what kind of innovations will succeed and which ones will fail?

This is a question addressed in Stuffocation: Living more with less by James Wallman.

Wallman is a cultural forecaster, and uses five questions to ask whether an innovation is likely to catch on.

1. Is it better?

Is the innovation actually an improvement over what was there before?

For example, was the Walkman let you listen to music on the move. The iPod was a better tool for the same job.

2. Is it simple?

Is it easy to understand the innovation?

Is it clear how you can use it to make things better for you?

3. Is it compatible?

Does the innovation work with the rest of your life?

For example, DVD cases are a different height to CDs cases, typically because the cases used to sit on the same shelf as VHS tapes.

4. Is it easy to use?

Can you actually use the innovation easily.

For example, an electric toothbrush makes the act of brushing much easier. The same goes for washing machines.

5. Is it remarkable?

Is the innovation remarkable in the sense that other people will take note of how it has improved your life?

According to Wallman, if the answer to each of these questions is “yes”, the innovation is more likely to succeed.

There should be a health warning though – there are quite likely to be innovations that were better, simple, compatible, easy and remarkable but they failed to succeed.

This list of criteria could be based on “survivor bias”. We look at things that have succeeded and assume that they have these features in common.

Aiming to create innovations, however, that use this list as a checklist is unlikely to make things worse.

What you also need to succeed is a good dose of luck.

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The essence of competitive strategy: build a moat

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Strategy in business is about focusing on the actions and responses of competitors.

That is what Professor Bruce Greenwald says in his book Competition Demystified. Bruce Greenwald teaches at Columbia Business School and is perhaps the leading academic authority on value investing, the method followed by Warren Buffett and outlined by Benjamin Graham.

The core concept of competitive strategy is based on Michael Porter’s theory that Five Forces tell you how attractive a sector is for business. These are Suppliers, Buyers, Competitors, Substitutes and Potential entrants.

The Five Forces framework makes it easy for business people to spend a lot of time looking at their markets and making plans.

The book says that executives make the mistake of thinking that any plan to get new customers, cut costs or do something that takes time and money is a strategy.

Instead, a strategy should be thought of as only those plans that focus specifically on the actions and responses of competitors.

Why is this important?

It’s because the price at which you sell something tends to head towards cost in a commodity market. If what you do can be done by anyone else, the market price of that thing you do will quickly fall to the cost of doing it, making your margin zero.

The more exposed you are to competition, the easier it is for someone else to start what you do, the fewer the buyers for your service – the more quickly your margin will drop.

The way to maintain a high margin is to focus on how you can create and protect an advantage for your business. As Warren Buffet would say, what is your moat? What is the thing that surrounds and protects your business from competitors who want to take your market share.

Strategy is all about making the playing field less level by doing something your competitors cannot. As a result, strategy is all about your competition – where are they playing, what are they doing, and where should you put your efforts so that you can make it harder for them to replicate what you have and do?

If you can’t protect yourself, then the only thing to do is to be as efficient as possible. Forget the competition and focus on reducing your costs.

If you can, then focus on creating a moat.

The same strategic process applies to individuals. If anyone can do what you can do, your wages will stay low as you can be replaced easily.

If what you do is unique and hard to replicate, you will be more valuable and be paid more.

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3 websites to get started with data science

1. The Open Source Data Science Masters

The Open-Source Data Science Masters website has lists of books and courses to learn more about data science, links to software and programming material and to blogs and videos about what data scientists do and think about.

2. 7 command-line tools for data science

This is a blog post by Jeroen Janssens that has been turned into a book Data Science at the Command Line. It has a mix of the usual tools that you would expect and few other scripts.

Also, it reminds you of the Unix Philosophy, which is worth reading a few times.

3. Data in government

The UK government, in particular, has a big focus on making more data available to people. This blog post has an introduction to data science that the team at the Government Digital Service (GDS) use.

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The Trump Solar Wall

Donald Trump spoke to his supporters this week (21st June 2017),  once again saying that he would build a wall on the US-Mexico border, but that he had a new idea.

He would build it with solar panels, so it would create energy and it would pay for itself.

The President took credit for the idea, saying “Pretty good imagination, right? Good? My idea.”

Well, the idea has been around for a while before that. Jigar Shah wrote a detailed article on 3rd January 2017 analysing the business case for a solar panel covered wall. The full article is here https://www.linkedin.com/pulse/giving-mainstream-media-credit-getting-things-right-solar-jigar-shah.

In a nutshell, the wall would run for 2,000 miles or 3,200 kilometres and be 65 feet or 19.8m high.

Each solar pane is 2 metres high by one metre wide, so you could have 10 stacked on the wall.

As the wall runs for 3,200 kilometres, then you could have 3.2 million panels side by side, or 320 million panels if they were really squeezed together.

At an output of 200W per square metre, you could install 0.64 GW of solar panels on each row. If you had 5 rows, that would be 3.2 GW of output. That would generate around 9.3 GWhs of energy operating 8 hours a day, 365 days a year.

That would collect over $500 million a year at 6 cents per kWh or $20 billion over the 40 year lifetime of the wall.

The cost of the wall is estimated at $12 billion – so the panels could actually pay for the wall to be built.

Jigar Shah’s analysis works it out at 5 GW of panels producing 6.6 GWhs and bringing in nearly $400 million a year or nearly $16 billion over the life of the project.

Putting aside the various concerns about the wall, from what it means to create such a barrier to what it means for the environment and fauna along the border, there appears to be a business case that could finance the project.

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Airborne Wind Energy

Last night I caught a brief part of a Horizon programme that talked about how a company is using a kite to generate electricity.

The basic principle is that a glider is launched into the air. As it rises it pulls a tether which turns a shaft connected to a generator, which then turns and produces electricity.

The glider is made by a company called Kitemill.

Kitemill started in 2008 and is based in Voss, in Norway. It’s first commercial orders came in 2015, with five Kitemills ordered for a business park which will supply 22 businesses in Lista.

The demonstration model shown in the documentary was producing 2 kW of energy – about enough to power a house while operating. The model is a 2.8 wingspan kite, really a small glider, connected to a 5kW generator.

The company was raising funds to scale up eventually to a 500 kW model but the next stage is to get to a 30 kW model. This model can start working at wind speeds of over 5 m/s and reaches full power at speeds of 12 m/s. It will have a wingspan of 7.5m with four propellors for vertical take off and landing.

While operating, the winch will feed out at around 4 m/s.

This is still small scale new technology, but a very interesting one. It might see greater adoption in the developing world with fewer restrictions on flying machines.

There is a certain attraction to the idea of gliders flying above businesses generating power, if only because we will be able to look up and see them in the sky.