They Provided the Free Toolbox, Now It’s Your Turn to Innovate.
Why innovating products or launching a startup has not become easier.
In the early 19th century, Frederic Tudor’s business of exporting natural ice was attacked by companies that produced artificial ice. The innovative business of having ice delivered to your home was attacked by the even more innovative business of producing your own ice at home, in a refrigerator. This fight took years. The ice business had a single layer and a single vertical. The Tudor’s business was all about how to transport the ice from New England to other parts around the globe. (More on Tudor’s story; more on the story of the refrigerator).
Later businesses were more complex. In the 1980s, the mini steel mills attacked vertically integrated steel mills. Mini mills started with steel products with very low quality demands, and climbed up the food chain step by step. This took a long time. In the beginning the mini mills only captured the low margin parts of the market. To the integrated mills this looked great, because this way their average margin actually improved. It took the incumbent integrated mills some years to realize that they were holding up a price umbrella under which the mini mills could grow. Over time, the mini mills improved the quality of their products. Finally, the mini mills captured huge parts of the market, including the high margin elements.
The New York Times had an article on this in the 1980s, and it is still worth reading it to understand how a total change in an industry looks like not with hindsight, but as an observer of the early beginnings: The Rise of Mini-Steel Mills, by Lydia Chavez
The nature of innovation in 2015.
Today’s business are even more complex. Most sectors consist of multiple layers and verticals. In logistics for example it is quite easy to create a startup in niche, focussing on a single vertical and building upon the layers provided by other companies. Using the existing elements provided by other companies (which are sometimes also startups) means these startups need much less capital to grow. And because they start out from a niche, they see economies of scale or scope very quickly.
This kind of unbundling, that came to telecommunication companies some years ago, now impacts many other industries. For example FedEx has to fight off 30–40 startups, each one attacking FedEx in a different area.
Some examples for different industry sectors:
- Andrew Parker (@andrewparker) analyzed Craigslist, the classified advertisements website, to see which layers and verticals in there are already attacked by startups. In his 2010 analysis “The Spawn of craigslist”, he came up with roughly 30 news startups in the space that was initially all covered by a single startup.
- Tom Loverro (@tomloverro) looked at banking, and identified which startups are already moving into which layers and verticals. His analysis is called “Banking is under attack”. He also has some slides on this.
- Michael Dempsey (@mhdempsey) followed this way of thinking when he looked in logistics. He found 30–40 startups entering the space of FedEx and UPS in his analysis “Disrupting FedEx: The Startups Unbundling FedEx, UPS and the Logistics Industry”
There is need for CEOs of larger companies to react to that, if the company should survive. There is also the opportunity to grow quickly for the CEOs of smaller companies.
So this fight is now Chief Executive Officer against Chief Entrepreneurship Officer. (If you are not familiar with the Chief Entrepreneurship Officer, continue reading “Fire your CEO and hire a Chief Entrepreneurship Officer instead.”).
Here is your toolbox, now go and build great things.
I wrote earlier that you could build upon layers provided by other people, and I mentioned a toolbox.
What are these layers, and where is the free toolbox?
Let me give you four examples:
- Pete Szymanski (@SiliconValleyGC) compiled a list of insights into all aspects of how to create and run a startup, what he calls “An encyclopedia of Silicon Valley expert advice”. Each insight is a one sentence quote, together with the source for it.
- If you already know everything, and just need the tools to do it: Jeff Haden (@jeff_haden) compiled a list of “60 Great Tools and Resources for Entrepreneurs and Startups” for Inc. magazine (@Inc).
“Give me a place to stand and with a lever I will move the whole world.” — Archimedes
- Didn’t find what you were looking for? Bram Kanstein (@bramk) came up with “Startup Stash — A curated directory of resources & tools to help you build your Startup”. While Jeff Haden’s list doesn’t go beyond 60 entries, Bram Kanstein allows you to submit all the resources and tools you think are missing.
- If you feel you have an eidetic memory (the eidetic memory is also known as photographic memory. Cognitive scientist Marvin Minsky doubts it exists) and if you get easily bored by these short lists, try a longer list. Steve Blank (@sgblank) offers a list of “Startup Tools”. This list contains links to presentations, texts, software and tools, and the list alone is almost 250 pages long when printed. This is just the list of links, the actual texts and presentations not included. This would keep even Flash busy for a few seconds, and while Sheldon Cooper would certainly consider most of it obvious, he would still need some minutes to double-check on that.
Having said that, it is also much harder.
When you come across Steve Blank’s list, you notice that today’s problem is not the lack of information, but the overwhelming amount of easily accessible information, tools, and resources. You need another set of tools just to navigate that list.
Or you need a guide. Steve Blank wrote a piece about “Mentors, Coaches and Teachers”. Exactly, Steve Blank is the one with the almost 250 pages long list of tools and resources.
Even large corporations could use most of the tools startup use. Perhaps not for the existing business, but for trying out ideas for tomorrow’s market leading products. There is only little adaption needed to get the full benefit of these tools also in the context of larger companies. And I am not only talking about the software tools, but about the concepts and approaches.
Everything has changed. and everything is still the way it has always been.
To innovate, you need perseverance, a full toolbox, and a little help from a friend.
I wrote this article in Vienna, Austria, with love and a good cup of Viennese coffee. To continue the conversation, or discuss how I coach startups and corporate entrepreneurs, please get in touch via LinkedIn. But before you click that link, please log in to Medium and “recommend” and share this story. Thank you! I owe you coffee next time you are here.