Innovation drives our industry, attracts the best talent, attracts
VC money, and wins fame for its leaders. Innovation leaders burst onto
the scene, win early market leadership, but sometimes can’t sustain the
pace. Why do “fast followers” often jump in later and make fortunes? Is
management responsible for the success or failure? Or, are these
innovation leaders acquired by larger players before they have a chance
to evolve into successful stand alone companies?
I have been on
the leading edge, sometimes bleeding edge, of technology for most of my
career. I have been fortunate to be part of start-up teams that have
created “first-of-its-kind” innovations at companies like Forte
Software, AltaVista, Napster, Bowstreet, and Groove Networks. All of
these companies were first in their field, yet few of them realized the
financial rewards one would expect. Is it all timing and luck? I don’t
think so.
Before exploring the reasons for success or failure lets review a list of innovation leaders and fast followers.
- AltaVista -> Google
- Napster -> iTunes
- VisiCalc -> Lotus 123 -> Excel
- Word Perfect -> Word
- Netscape -> Internet Explorer
- Apple Newton -> Palm Pilot -> Blackberry
- IBM PC -> Compaq -> Dell
- Double Click -> Google Ad Sense
- Ofoto -> Flickr
- Compuserve -> AOL -> @Home -> Comcast & Verizon
- Nintendo –> Xbox
- Friendster –> Facebook
- Blackberry –> iPhone
All
of these companies were innovation leaders and market leaders. Yet,
they were eclipsed by fast followers, in some cases multiple times, who
imitated their innovation. My belief is that the technology was
outstanding. The management was not.
Clayton Christensen wrote The Innovators Dilemma which I reviewed in an earlier post.
The basic premise of the book is that management optimizes around
protecting their existing business and fails to recognize and react to
disruptive threats. However, the examples in Christensen’s book play
out over 10 or 20 years. The above examples played out in 5 or less
years. Are the same factors at work here? Lets take a look.
AltaVista
was the first search engine and the clear technology leader. The
management at DEC didn’t understand what they had and didn’t invest the
necessary resources to make it a business success. Later Compaq and
CMGI squandered the search opportunity and tried to imitate Yahoo,
Excite, Lycos, and AOL in the consumer portal game. Big mistake. Fault
management.
Napster was the first P2P file sharing application
to bring together search, FTP, and Instant Messaging. Brilliant
technical synergy. There are lots of reasons for failure here, mostly
management decisions and unfortunate timing.
VisiCalc was the
first spreadsheet, invented by Dan Bricklin and Bob Frankston. I know
Dan fairly well but have never asked him why he thinks VisiCalc fell
behind and Excel moved ahead. This topic deserves its own post. My
memory is that VisiCalc was slow to adopt the DOS platform. Lotus 123
moved ahead on DOS and achieved market leadership, but failed to jump
onto the Windows platform fast enough. Excel did make the move and the
rest is history.
IBM created the PC revolution and was the
early leader. Compaq was a fast follower focusing on “transportable”
PCs and won huge market share. Dell came in later and trounced them all
with a better business model.
Compuserve was the first dial-up
service provider. Together with Prodigy they dominated the market.
Later AOL entered the game with superior marketing and original
content. AOL absolutely dominated in the 80’s and early 90’s. Then
@Home created the cable Internet market and took the early lead. It
wasn’t long before Verizon, Comcast, and other cable providers owned
the broadband market. AOL never really made the transition from dial-up
to broadband.
In nearly every case the early innovators were
eclipsed by fast followers. Why did the fast followers take over market
share leadership?
- Better business model (Google, Ad Sense, Dell)
- Better market position (Word, Excel, Comcast, Verizon)
- Better timing (iTunes, Flickr)
- Better platform choices (Blackberry, Word, Excel)
- Better management (all the fast followers)
It
is overly simplistic to pin the success or failure of these innovators
on one factor. There were a combination of factors at work. But in most
cases the problem was not inferior technology, it was inferior
management decisions.
So, were these early innovators led by
technical visionaries who were not good managers? Will the imitators
and “fast followers” suffer the same fate and be overtaken by new fast
followers?
The list of “fast followers” above are more than
just imitators. They have continued to innovate far beyond the original
idea or feature set and have maintained market leadership. If you look
closely at these companies they have a mix of technical visionaries
and business management leaders. I discussed this with Robert Scoble
who pointed out that it takes a different set of skills to start a
company than it does to sustain a company. This balance of skills, I
think, is the key to sustained market leadership.
Cisco is an
example of an early innovator that kept their market leadership
position over time. Their technical founders brought in professional
managers to take them to the next level.
There is a rare breed
of technical visionaries who are also great business leaders. Bill
Gates, Gordon Moore, Larry Ellison, and Scott McNealy are examples.
They are truly extraordinary and rare. However, I suspect that each of
them has a strong business management team behind them. Bill Gates has
Steve Ballmer. Larry Ellison had Ray Lane. The early innovators who
failed did not have the business leadership necessary to sustain them.
Lessons for entrepreneurs;
- Never stop innovating
- Build a well rounded management team early
- Value sales and marketing talent as much as technical talent
- React quickly to disruptive technologies or business models
- Don’t be too proud to imitate when it makes sense
