Entrepreneurs Thrive on Pringles Chips
The Pringles potato chip is an example of a hyperbolic paraboloid shape. That particular shape in two dimensions is a surface that curves up in one direction, and curves down in a different direction, resembling a saddle.
In two dimensions a saddle gives rise to a contour that appears to intersect itself. A saddle point is a point which is both the largest element (maxima of a Hyperbola) in one direction and at the same time the smallest element (minima of a parabola) in a direction at 90 degrees (orthogonal).
Saddle point presents a stable as well as an unstable property at the same time. On one dimension the stationary points are the ultimate in stability, where things finally settle down. On the other dimension they are by their very nature the most unstable. Even a minor change will destabilize the equilibrium.
An interesting fact; a drop of water dropped on the curved up axis will always flow towards the saddle point. When it gets to the saddle point, it is not at all clear which direction it will flow. However, even a small blow in any direction, of the curved down axis, can sway that drop of water to flow in exactly that direction. Every subsequent drop of water will follow the initial path and flow in that same direction, even if the original blow is withdrawn.
So is the model for an industry a parabola, where things get to stability, or a hyperbola, the ultimate in instability?
It depends on the specific axis that a player, in the economy, is focused on. That focus determines whether the situation is considered stable or unstable.
Manager’s View: Economy is Lots of Cups
For established players, “Rational expectations” make them act as if the competitive factors are a parabola like curve. All players, after a long period of competitive maneuvers, arrive at the common stable point at the bottom. New entrants, at a different higher point are either uncompetitive or they also settle down to this stationary point.
The acting assumption is that this is how things work and will continue to work. Any movement or changes, by any player in the group, are quickly matched and the equilibrium is restored. You hear “We have been doing it for a long time and we have perfected the system”. Our job is to “continue to block and tackle”.
If it were true that various factors, in 360 degrees, all curved up like a parabola, the competitive model in a particular industry would look like a cup (think of a parabola in rotation).
In this scenario the competitive landscape of that industry would bring all the players ultimately to the same stable point at the bottom of that cup.
Wherever they start, all newcomers and all innovative initiatives would end up spiralling down to the bottom where the stationary point would be. In the relatively short term that is exactly how things work. New technology is adopted at their convenience and rapid progress in innovation is stagnated.
The manager’s view of the overall economy is one of lots of different cups. Their job is to protect their own special industry cup.
If the world were truly a cup, in an equilibrium, there would be no opportunity or incentives for a new entity to enter the fray. They would always lose out to the well established, more resourceful players. The implication of this scenario is that even in a “best case” situation, the new entrant is only likely to break-even and reach the existing stable point.
Entrepreneur’s View: Economy is Lots of Chips
Established institutions would like the competitive model to resemble a cup, where they control factors all around and continue to dominate the circumstances at the stable point.
The entrepreneur, on the other hand, has to believe that the industry model is a chip. In spite of the many factors where the situation has reached stability, there are some (emerging) factors that are causing instability at the apex point.
They do acknowledge the dominance of the existing players in several dimensions. However, they wish to focus instead on that dimension where things are most unstable. These are the factors that gives them the opportunity to compete even against well established dominant players.
Both are right in their own outlook. However, the difference in their worldview matters and makes a huge difference.
Technology and other factors, like the business environment, are constantly evolving. Fortunately, with new information and emerging technologies, there are always new emerging factors.
As such, in reality while the previous factors have a curved up feel with an existing stable point; the new factors are also emerging and create an apex point with possible instability. A more realistic model of the industry is closer to a chip rather than a cup.
Hyper change , continues to throw off new factors and issues. This insures that things will never settle down in a cup. The real word, will always be full of Pringles chips.
Entrepreneur’s Belief: Blow at the Right Place and Time
We saw earlier that even a small blow, just before the first drop of water hits the saddle point, is enough in changing the subsequent flow of water.
The implication is that even with small resources (blow), if applied at the right spot and time (saddle point), an entrepreneur can totally upset the equilibrium of the established order. Once achieved, the world changes and events flow in their chosen direction.
For an entrepreneur there are numerous opportunities, all around the saddle, even in an established economy.
The Real World
In reality, as the rate of improvement of the dominant business practices slows down, the incentives to search for and find new methods grow at the same time.
If the demand for that improvement is powerful enough, there are enough opportunities to have a radical departure and seek a breakthrough direction. Established players may be slow to pick up on these opportunities, they have the status quo to protect. That provides opportunities for the entrepreneur.
The entrepreneur still has to consider a lot of uncertainty that include not only the future states of industry but also the available alternatives. They select a course of action that accommodates flexibility in their plan, such as tailoring products and services to a range of customer needs that are not being served presently to their satisfaction or at an excessive cost.
The entrepreneurial model is competing against well established players so it has an uneven rate of adoption. For every big winner there may be many losers.
The winner is someone who either by careful research, trial and error or by sheer luck finds the right orthogonal factor and blows that right gentle puff.
Suddenly the events, like the drop of water, flow effortlessly in their direction and then every other following drop follows that path without an inordinate effort. The world changes. Schumpeter called it “creative destruction” and Christiansen calls is “ disruptive innovation”.
Entrepreneurs Thrive on Pringles Chips
The reality is that in an era of hyper change, Saddle points will exist all around us. Entrepreneurs are the ones who survive and thrive by eating those Pringles chips.
The Pringles Puff
After exhaustive efforts when the entrepreneur finally finds the right axis and makes the critical blow, the world changes seemingly without effort. They are in the zone. When that happens it is a magical moment. I wish to call it the “Pringles Puff”.
Key Lesson for Entrepreneurs
There are many things to consider. However, some of the things that emerge from this analysis, before you launch your boat , are:
Forget looking at copying the established order. No more needs to be said. You copy you lose. The bottom of the cup is for coffee grinds.
Identify environmental changes. Do a careful focus on the present and potential environmental changes that are confronting the industry. They may include competitor entrenchment, technological breakthroughs, political events, changes in cultural values and behaviours, customer dissatisfaction, or so many other developments. These may provide the unstable factors that, in turn, provide your opportunity.
Don’t jump without adequate preparation: It is risky enough. Prepare. Appraise the likely impact of environmental changes. Consider the size, likelihood, and nature of the effect of each environmental change upon the customers and existing firms. Reduce to a manageable number or high priority changes. You only have small puffs available to you. Use them sparingly.
Generate Lots of Ideas: Many will fail. So what! The only way to get good ideas is to generate lots of good ideas and throw away those that are not opportunities for you today. Many puffs may not do the trick but if you keep trying one of them may be the magical one.
Find a Niche: Market leaders, in their wake leave niches that provide an effective and lucrative entry strategy for a smart entrepreneur. This provides a direction where things are unstable. Ripe for your Pringles Puff!
Innovation: Can come from creating new techniques, procedures, services, products, marketing strategies or even an an unorthodox structure to execute.
Proactiveness: Proactively search rather than passively wait for market opportunities in view of the changing environment. Don’t wait till the leaders adapt it in their cup.
Help Me in Studying the Magical Pringles Puff
My present effort is in finding a more efficient process of reaching the Pringles Puff and to find it quicker and with a lower expenditure in resources.
I want to learn from Founders of Growth Companies who are past the birthing process and have reached a fast track. The specific interest is for studying the precise time and process when they reached the Pringles Puff and felt that magical flow when things started moving in their direction.
If you have a story to tell I have time to listen. Your comments and help in this effort will be greatly appreciated!
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Dr. Rajiv Tandon is an Entrepreneur, Educator and Mentor. He facilitates peer groups for CEOs of fast-growing companies in Minnesota. To learn more, sign up to get the email newsletter.