Wisdom and Ignorance part 4: The reality of leadership
In the last post I talked about how just about every company, in particular startups, believes they are truly leaders in their field, even though, in reality, they do business in the same way as everyone else; they create products and services that have little differentiation from the rest of the field; and ignore the majority of customers in the market to go after the same 5 to 10 customers everyone else goes after.
There was a book that a lot of people quote, as the basis for marketing practices, called "Crossing the Chasm" by Geoffrey Moore. In it, he rightly states that you need to find a need that no one else is meeting and take leadership in it, but there are two issues that the book's adherents miss. First, Moore's premise only works for disruptive innovation and most startups and even established companies make small advances in standard technology (make it smaller, faster or cheaper). Second, Moore's definition of leadership means the innovation actually has to be seen by the market as leadership while most startups believe that if they say they are a leader in enough press releases then the market will believe it.
Drew Lanza at Morgenthaler stated as much in my interview with him a few weeks ago. And he doesn't seem to think making small advances is a bad thing. The venture community will fund companies that can make money by being competitive. Not every company needs to be a leader. If you can, that's great, but it is not necessary to be successful.
So let's just put it out there. There are rarely leaders in any industry; just groups of companies waiting for someone to choose a direction for them to all go. 99.999 percent of every industry is doing business in the same way everyone else is. The chance that any one company is actually a leader is very small. What you need to do is create the perception that you are doing something valuable. That takes time. That takes relationship. That takes conversation with the market. That takes the ability to be able to listen to the market, not just talk at it. And it takes a decision to not be part of the herd. The question is, how do you do that?
Next Week: Leader? Who says?
Just an aside as a member of the Lanza Fan Club, I wish that other members of the VC community were half as insightful as Drew. And he didn't even pay me to say that.
ReplyDeleteThanks for joining me in the 'contrarians of the month club'. I'm not a knucklehead - I'm just swimming against the tide.
ReplyDeleteI really do think that we go through these broad cycles. We do something disruptive, even radical, it gets adopted by the masses, and then we spend the next decade refining and improving it. Companies can be built to take advantage of either aspect of that cycle. Of course, there is nothing new under the sun. What we in VC consider disruptive was almost certainly working as a prototype in some University lab years before we ever saw it. But it's disruptive if the consumer says so, not if we do or don't.
Microsoft didn't invent the spreadsheet, but it has made untold gobs of money with Excel (which, by the way, is my favorite program of all time - you can make it do anything with just a smattering of VBA). And Google didn't invent the search engine (but, dang, that page rank algorithm was spooky good, wasn't it?).
On the other hand, Yahoo really was something new to me the first time I saw it and I still use it today. And Apple's success with the iPod started with their acquisition of the software that become iTunes. I love music. iTunes disrupted my musical life.
We've passed through the midpoint of the Information Revolution. The cell phone is to our revolution what the Model T Ford was to the industrial revolution - a diaspora of technology that changes all of our lives.
I think we're living in a period where the bulk of the innovation will be incremental. Not all of it, of course, just the bulk of it. The same was not true of the 1990's. Then, we really did disrupt lots of aspects of our lives through the new technologies (the web is the most obvious, but I'd put the mass adoption of cell phones in there as well).
There are three great exponentials that drive our Information Revolution - storage, processing, and communications. They are all in incremental mode today. Of course, since storage doubles every 15 months, processors every 2 years (Moore's Law), and communications every 4 years (because of the dirt involved), these horses are forever lapping themselves and, in the process, altering the dynamic between the consumer and the revolution. The two things that have changed my habits the most this decade are the iPod and the TiVo. Those are about storage, not processing or communications.
Of course, I could be totally wrong. If so, the beers are on me, right?
Drew