Product #35
The Innovator's Dilemma, dependencies and more.
The Innovator’s Dilemma · Clayton Christensen · 2013
The theory proposed in this book has its critics, but if you're serious about Product Management, it's a must-read. Disruptive innovation is a valuable framework and an important tool for evaluating threats and opportunities in your market. It's a helpful lens.
Key Highlights
Be careful following business school advice. Christensen argues that the following maxims are only situationally appropriate:
Listen to and meet the needs of your best customers.
Invest in innovations that promise the highest returns.
Counterintuitively situations can arise when it can be prudent to develop a less performant product, with worse margins in a smaller market.
Sustaining technologies improve the performance of existing products, in ways that mainstream customers in major markets value today.
Disruptive technologies start with a different value proposition, they compete on a new vector. Initially, they offer less value to the existing customers (as defined by the attributes existing customers value) but attract new customers in previously overlooked markets. Over time, they become more affordable, user-friendly, compact, and convenient, gradually gaining a larger share of the market.
How does disruptive innovation happen?
Companies depend on customers and investors for resources.
There’s a belief that small markets don’t solve the growth needs of large companies.
Markets that don’t exist can’t be analysed.
An organisation’s capabilities define its disabilities.
The needs of users increase at a slower rate than technological progress.
Technological progress outpaces mainstream customer demands.
Suppliers give customers more than they need or are willing to pay for, leaving them vulnerable.
Underperforming products based on disruptive technology can become performance competitive in the future.
Once suppliers have overshot customer needs, customers change the attributes on which they base their purchase decision. The basis for product choice evolves overtime.
Functionality → Reliability → Convenience → Price.
Companies move up market to seek higher prices and margins, which leads to over-satisfying customers and creates space for low-margin, low-price competition.
Always observe and measure how your customers are actually using your product.
How the Innovator's Dilemma unfolds…
Disruptive technologies are developed in established firms.
Their largest customers are unimpressed, as they value different criteria.
The established firms back sustaining innovation as they want to protect margin, avoid cannibalisation and serve their existing customers.
Established firms struggle to justify entering small, poorly defined low-end markets that are less profitable.
Established firms can dramatically increase short term profit by stopping their low-end, low-profit lines.
New entrants form and find a new market for disruptive technology.
New entrants benefit from the fast evolution of their technology.
New entrants move up market, and begin to capture it.
Established firms react too late.
Everyone moving up market creates a vacuum in low-end value networks, attracting new entrants with better technology and cost structures better suited for competition.
How to avoid being toppled by disruptive innovation:
Embed projects to develop disruptive technologies close to the customers that need them. Demand from the right customers increases the chances of resource allocation.
Divert some resources of main company business to address disruption.
Seed disruptive technology projects in a separate division that can get excited about small opportunities and small wins.
Expect disruptive innovation to be rejected by the established firm’s immune system. Disruptive innovations are so intermittent, that no company develops a capability to routinely handle them.
Established firms have established processes, which by their very nature are designed to be repeatable and address specific tasks. The mechanisms that create value for organisations are intrinsically inimical to change.
Values are the criteria by which decisions about priorities are made. They a way of programming everyone to act in a consistent way.
Plan to fail early and inexpensively.
Find and develop new markets that value the attributes of the disruptive product
Creating new markets is a less risky and more rewarding approach than competing in established markets. By doing so, you are replacing competition risk with market risk. Make sure to have enough resources for a second chance if your initial market entry fails.
Once customers reach a desired performance level for an attribute, they become satiated and are less willing to pay more for further improvements.
A product becomes a commodity when all market needs for each attribute are satisfied by multiple products.
Markets graduate from competing on functionality → reliability → convenience.
Early adopters → functionality.
Early majority → reliability.
Late majority → convenience.
Watching what customers do is more powerful than listening to what they say.
Link Full Book Summary · More Book Summaries
In the News
Google DeepMind has announced a new foundational model called Gemini, which is natively multimodal. Gemini is capable of processing text, code, images, audio, and video. It is considered the most general foundational model released, yet is has outperformed GPT-4 in various text benchmarks too.
It is available in three sizes: Ultra (for GCP), Pro, and Nano (for on-device).
This is a significant milestone in AI development, representing Google's effort to regain trust and compete with OpenAI.
It soon became clear that the technology was more impressive than the execution of the launch. Articles quickly emerged suggesting the ‘Hands-on’ demo had been faked, the benchmark results relied on heavy prompt engineering and there was nothing you could immediately try yourself.
Google DeepMind Gemini · Website
Quick Links
Measuring what doesn’t matter: Jeff Gothelf on OKRs · Article
The science of decision making · Article
Howard Marks and Annie Duke on luck, uncertainty, and more · Podcast
Product Leaders think about accountability and collaboration in org design · Article
John Cutler on why predictable delivery should not be the goal · Article
Ronnie O’Sullivan documentary. Extraordinary talent, turbulent mind · Prime Video
A Taxonomy of Dependencies in Agile Software Development · Strode, Huff · 2012
Dependencies can be significant obstacles to progress in software development. This paper proposes a taxonomy of dependencies, with 8 main types that nest inside three categories (task, resource, and knowledge). Hopefully, this will help teams identify and manage dependencies effectively.
Book Highlights
The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined
Peter Thiel · Zero to One
That’s the best way to immerse someone in the culture, style, and processes of a team. Give them the push they need to start running with the pack rather than leaving them standing on the starting line, reading some docs, hoping they’ll catch up
Tony Fadell · Build
Defining the initial use cases is crucial to getting the company aligned around creating near-term success, and showing the executive suite that the juice is worth the squeeze.
Martin Kihn and Christopher B. O'Hara · Customer Data Platforms
Best of X
How to get lucky (without being rich). Thought experiment: If you had to double your luck in 6 months, what would you do?
Luck Razor: If given 2 options, pick the one that has the most luck potential. E.g. Cocktail party vs watching Netflix. Which one has the highest potential for future luck?
Avoid Boring People: Avoid people that bore you. And avoid being the boring person in the room. The more interesting you are, the more interesting opportunities people share with you.
Poker Mindset > Roulette Mindset. Ridiculous but true statement...Playing a game of roulette thinking it's poker is better than playing a game of poker thinking it’s roulette. Assume everything is a game of skill. There's usually something you can control if you look hard enough.
Delete The Scoreboard: Relentlessly give to good people with no scoreboard in your head keeping track. You’ll end up lucky, fulfilled, and have a packed funeral.
Introduce People: If friend A and friend B can get value from each other - introduce them. It's a 30-second email for you and may change their lives forever. Networks are unique because they don't divide when you share them -- they multiply.
Get More Curious With Age: Curiosity is like your joints - it weakens with age. Assume your first thoughts about new trends are wrong. Age like Gary Vee or Mark Cuban. Put 20 hours into a new trend before you have an opinion.
Pursue High Leverage Relaxation: Rank all relaxation activities on this: A. Impact, B. Time it takes. Find the highest leverage one across both scores. Do it regularly. It's hard to notice lucky opportunities when your cortisol is through the roof.
Get Good At Advertising: The ultimate meta-skill. If you can create a persuasive ad or landing page, you can create a persuasive CV or job interview.
Don’t wait for the news: Historians now recognise the Roman Empire fell in 476 - but it wasn't acknowledged by Roman society until many generations later. If you wait for the media to inform you to do something, you'll either be wrong or too late. Work from first principles. Trust your gut.
Reverse Prison Advice: The cliche prison advice to a new prisoner is to punch the biggest person in the prison. Flip this on its head. Find the best people you know and help them as much as you can. (Share their projects, give feedback, make intro’s, etc).
The beautiful part of this thought experiment: It moves your focus from the visible 99% of luck you can't control, to the hidden 1% of luck you can control.And that 1% can keep you busy enough for 99 lifetimes.
George Mack · @george_mack