Inspired by a course I was lecturing this week, I came across books that I have read some years ago. Books that will always be valid around entrepreneurship & startups that reminded me the importance of timing and the key parameters that should be considered by all startups. Digging more, I watched a video from Drew Houston, CEO of Dropbox, presenting in front of an audience that was only partially aware about his killing storage service. Drew was presenting milestones from Dropbox, among them the critical question When to launch?, presenting the dipole of Paul Graham (early and often) and Joel Spolsky (when it doesn’t completely suck). Drew was practically presenting the lean startup methodology of Eric Ries that Dropbox has followed, in which both statements are valid when it comes to startups, especially those that are innovating in a disruptive manner.
Talking about ‘disruptive innovation’, this is the second most misused term these days, after of course ‘AI & machine learning’. In order to see what disruptive innovation is, we need to go back 20+ years, when Clayton Christensen wrote his book on The Innovator’s Dilemma. “A disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leaders and alliances”. Clayton describes the mechanics of how even great companies can fail, identifying 2 reasons: 1) Value Innovation is an S-curve and 2) incumbent players need to sustain a large volume of customers. The S-Curve is the type of diagram we would see when evaluating the technology evolution against time: It starts relatively steady, then it grows like a hockey stick and them it gets steady again.
Those companies that are in the last phase of the S-curve and do not dare to “jump” into a new S-Curve, coming from a new technology, this can be the reason to be outperformed by newcomers. You will ask me how can a newcomer, a startup in our case, outperform an incumbent player? This is not so easy, but it is very doable. An established organization with a big cost structure and heavy processes is not prone to change the habit of making sales based on a specific product and technology. Even if within this company there are innovators coming up with novel S-curve ideas, the company’s Board will hardly listen to them. This is what happened with Kodak in 1973, at the time that Steven Sasson went to work for the world-leading analog photography company. Steven invented the digital camera, as well as a device to display it. Kodak had the chance to put the seeds for a new promising S-curve that started to evolve many years later. Instead, they remained in their dominant S-curve and filed for bankruptcy in 2011.
Unlike big companies, startups have the agility to work with simpler processes, bypassing several steps and take risks that will help them dominate novel S-curves. As a matter of fact, we experience that many startups that evolved into unicorns in very little time, had to operate in a borderline legal way by ignoring regulations and often jeopardizing their existence with rapid pivoting. At the same time, lower cost structure, simplified quality processes and heavy workload are the key characteristics.
You will wonder however how far a startup can go on like this. Not too far… Another “always valid” book of Geoffrey Moore, Crossing the Chasm, groups the technology consumer market into the categories: innovators, early adopters, early majority, late majority and laggards. According to Geoffrey, only innovators and a part of the early adopters can be addressed if you do not have the “whole product” in place. These segments represent just a small portion of the pie and then you are standing in front of the “Chasm”.
Without proper setup, even if you are on a “disrupting S-curve”, you do not have chances. The whole product is nothing more than the core product and all other accompanied services and features that are mandatory, if you want to address the mass market. Let us assume for example, a “disruptive” healthcare application that has only the basic features available, lacks of a roadmap, is not accompanied by a call center, documentation, etc. This can be our startup, your startup and any typical startup. You might convince the innovators and technology enthusiasts who do not really care about bugs and supporting services. Nevertheless, you cannot reach a wider audience. Similarly, we often see startups having irrational prices, just because they cannot anticipate how their costs will scale as they grow. And when sales start to grow this can put you into the Valley of Death.
Having refreshed these books in my memory and having finished the relevant lecture this week, I encountered my worst fear… aka moment of truth. The moment that I asked myself “am I applying all these, or is it only theory”? The awkward moment was soon followed by relief, after realizing that weather intentionally or accidentally, these are steps that we are following to a good extend in Innovation Sprint. We have picked up our S-curve in our niche and we are elaborating the product to meet higher degrees of innovation. We have done the challenging step of launching our product -even silently, for the moment- and now is the time to make sure we have a “whole” product. As we speak, Innovation Sprint is deploying a quality system, including a strict ISO27001, we have started an acceleration program to address the Medical Device Regulation and we are examining HIPAA, HITRUST and other standards. At the same time we try to validate the more innovative services and prepare the ground for their launch in a highly regulated environment. This is not by itself a ticket to success. There are more challenges ahead; it is a long journey.