Big Bang Disruption with Paul Nunes

address books video cameras pagers wrist watches Maps books travel games flashlights home telephones dictation recorders cash registers walk men day timers alarm clocks and answering machines Yellow Pages wallets Keys phrase books transistor radios personal digital assistants dashboard navigation systems remote controls airline ticket counters newspapers and magazines directory assistance travel and insurance agents restaurant guides and pocket calculators what do all these things have in common Paul Nunes is back with us to tell us and share the insights of his other book the second in the series it's there behind me Big Bang disruption Paul Nunes welcome back thanks Aiden it's great to be back Paul let's get stuck in for each of those items I mentioned an introduction for example the source of the disruption is the same the programmable smartphone is a hybrid Computing and communication device with an endless number of small software apps well beyond individual products and services Services you tell us the very process of innovation itself is being disrupted maybe that's a lead-in to tell us about this concept of big bang disruption yeah that's a a great start because as you think about it not only of all those applications all of those products and services uh been interrupted disrupted by Innovation through the cell phone but what's interesting is how quickly those markets disappeared so we're going to talk a little bit about that that's the big bang of big bang disruption so what we've seen is a fundamental change A disruption in the nature of disruption and the way I like to think about it is to actually expand our view a bit about the history of innovation and try and understand Innovation from all its dimensions so the first part of innovation and traditional Innovation was always sort of traditional product Innovation you invest in r d you discover something you use technology you use new capabilities to make something better and you charge the customer for that investment in the r d so generally the product costs more so it's more expensive but it's better and this is sort of satisfied our Innovation needs for you know decades or as long as we've studied business in many ways but it's sort of the traditional nature of innovation invest in Innovation and you'll get paid back by the customers of it eventually when you find good things then around 1997 clay Christensen who I know you've had great exposure to on the show here McClay came out with a a great idea which was the innovator's Dilemma and the insight there was that you could actually make things that were cheaper that would actually sell more than the more expensive product because it was cheaper and it really fit all of the needs you know in Economist terms serve you know the marginal utility of additional features was less than the cost of creating them um so the product demand shifted down to these cheaper products so it was a cheaper and as good kind of solution but it's important that we think of that as in those terms cheaper and as good for a market maybe even a large large section of the market so that was a cost play of innovation but then in 2006 we had Kim abortion it came out with Blue Ocean strategy one of the first million seller thought leadership books business thinking books and Blue Ocean strategy really reinvented this idea of innovation because what they said was you know invent in the blue ocean don't go in the red ocean where other people are and what they said is you know you do that by mixing both the features and not really worrying about the price and you'll come up with something new that people might like even better maybe it's more expensive maybe it's cheaper but it's just new and somebody's gonna like it and I'll give you the two quick examples that they had one was Formula One hotels which was look business um folks don't really want crystal chandeliers they don't need marble floors they want a decent breakfast they most importantly want a nice a good bed so they can get a good night's sleep and the features they want are particular and they also kind of want a lower price so let's design this to be for them and it may not be for everybody it might not be for tourists who really want the French you know Parisian experience but it'll be just fine for our folks in in business and the other one that was used in the book and it's a great example is Cirque du Soleil Cirque du Soleil you get rid of the elephants and the Animals because they're really expensive and really hard to describe by train into the downtown of a city so you just use human acrobats and you can design a circus that actually works in an urban environment costs a lot less I know in fact because urbanites maybe like it better they might pay more for that experience than they even would for a traditional circus but that was the nature of Blue Ocean strategy find your segment find your right mix of offerings and you're going to get something good and that's the way to look at Innovation I like to think what we discovered in Big Bang disruption and came to the end of that was really this idea that disruption has been disrupted and that there's a new way of thinking about competition now it's interesting if you look at those three styles of innovation they have something that they share which is each of them is actually a dimension of what Michael Porter and others called generic strategy right because Porter originally said that there's only three ways to compete you can be but on product an offering on you know differentiation cost or Focus Niche you could be closer to the customer so I just like does it simplify you know differentiation Nation closer to the a differentiation cost and close to the company customer now the challenge is and that was called um a generic strategy the problem is that Porter went so far as to say you had to compete on one of the three because otherwise you'd find yourself in a model you'd be strategically straddling and straddle is the Strategic straddle is the word they use so and I always say I can't give you back you know your money if you went to business school I can't give you back your money but I can explain to you why today what you learned is maybe is wrong because what we found in Big Bang disruption is wait a minute there's a fourth option which is I can compete on differentiation cost and Niche all at the same time and these new products then become better on every dimension of strategy now how do I compete with something that's better on every dimension of strategy I can't what happens when people find out that there are products that are better on every dimension of strategy they get adopted immediately how do I know that's going to happen how do I see that coming well you can't because when something isn't better on all three dimensions in today's world customers don't adopt it so it looks like they don't want it and that's a profound challenge as well because what customers do eventually want they spend a long time seemingly not wanting it at that a challenge so we'll go into that in a bit more in in detail and sort of take that apart but that's the fundamental Challenge and the fundamental opportunity of this thing we call Big Bang disruption as Innovation Moore's Law hits traditional Innovation and you get a new way of doing things for those of you who've been joining us for this series part one was on jump in the ass curve that book was written in a diptych style so it had two parts the same for this book part one is really about what's driving these changes and part two is then kind of the solution what do you do about it it's the antidote to this kind of changes as well so we'll get through to that in part two today but I thought we'd contextualize it for audience poll with some examples you open with some great examples and please pick whichever ones you want to just go down the rabbit hold on here Garmin TomTom Magellan and Ron McNally and all their likely on unlikely source of disruption and what's interesting you say is the source of disruption was not out to get them it just didn't care what was in its path it just wanted to build something new that's a great Insight of my co-author Larry Downs he was the one who who really used to recognized that I remember the day he said that to me he's like you know Paul's were looking through this stuff these competitors they don't care they're not actually out to kill these other competitors they're just leaving them in the dust because they're doing what comes naturally thanks to technology so let's talk about that example you know talking about Garmin but the question is you know what was Garmin what was Tom Tom these were Standalone GPS devices I always say in 2007 something came along and I say you know how many people had a GPS device in their car and how many people were really satisfied with it and then the audience always says now you know don't like it I said well why didn't you like it and it's like well you know it was never up to date sometimes I'd go down closed streets or roads and um you know I was like well why was it so because you had to buy the map every six months and you know that was like 500 really in the old days you just to have them run a CD to put the new map on the car system and the other problem was it wasn't really linked to anything else I was doing particularly when the cell phone came out so it destroyed Garmin and Tom Tom in those days was of course how do we do navigation today we use Google Maps so Google came out or you know Waze or some of the others but in 2007 Google came out with Google Maps there had been other map apps but really this was the dominant one which intersected with our smartphone technology and so it was free on your phone and so what did Google Maps have that we just talked about differentiation it was real time updated as opposed to that it had you know connections to where the gas stations were all this other stuff it was easy to build in constant Innovation it was constantly updated it was constantly updating to your phone cost how much did it cost it was free free is always a good price now there are some things that are actually cheaper than free so we can talk about that at some point but really free is a pretty good start for Price competition and then the last thing which is interesting and you have to think about it a little differently to understand the niche part the focus part but the idea is it was actually closer to the customer because you could integrate all of your contact addresses and any search you were doing on Google you know so if you search the restaurant you could easily convert that address into the Google Maps and get a Google Maps map to the restaurant or wherever you're trying to go so in fact it was actually a very close to the customer and personalized product and so it's like wow what happens when I introduce something like that well and what happens is what we saw is that 80 percent of the market cap of Garmin disappears overnight um you know revenues strength I don't think it's a disaster it's it's not the innovator's Dilemma it's the innovator's disaster so nearly overnight you know garmin's business falls off and most importantly and as we think about it in many ways for share price share price was destroyed even faster than the revenues once the market recognized there's no way government can compete with this Paul gives a plethora of great examples in the book I'm going to let you buy the book and read the book to get those examples one for example is how Sleep Centers sleep health centers are being disrupted by something like the smartphone because you can monitor a lot of change in your sleep yourself now so you don't even need to have the hardware anymore so that's the way to think about this book but Paul I wanted to share the three characteristics that define a big bind disrupter because oftentimes like you give a great example of Napster that the music industry once that Napster was outlawed the whole industry breathed it aside of relief and went a few thank God that's over and then Along Comes iTunes and that gives way to Spotify and a multitude of other services so let's help our audience out here if you're an incumbent there's three characteristics that you need to spot for a change being on its way one Paul identifies is undisciplined strategy and we're going to take these one by one two is unconstrained growth and three is unencumbered development I'm gonna share on the screen a diagram that Paul provides in the book in order for you to get really get your head around this for those of you who are watching us on YouTube you'll get the best benefits of that but Paul and I will have empathy for you guys who aren't and Paul I'm going to tee you up for a quote about on disciplined strategy you say here big bang disruption contradicts everything you may already know about strategic planning according to academics including Porter Tracy Fred versaema businesses should align strategic goals along one and only one of three value disciplines low cost cost operational excellence premium product product leadership or customized offerings which is customer intimacy failing to choose led to ending up in a model big bang disruptors you tell us however are thoroughly undisciplined they start life with better performance at lower price and greater customization they compete with mainstream products and all three value disciplines as you told us right from the start but you pose this huge question how can better also be cheaper over to you Paul so how can you be better cheaper and more customer intimate at the same time well we have to go all the way back in some ways to Ronald Coast's transaction cost theory right because what happens is when you have this technology not only does Moore's Law make things cheaper but it also destroys transaction costs which makes it much easier for people to conduct business and accelerate the business of innovation but it also reduces the cost of things like platforms and stuff so really we saw four ways that things can be better and cheaper at the same time thanks to technology one was platform subsidies cross subsidies near or near zero marginal cost and net negative cost of innovation I'll unpack all those for us for a second so platform subsidies and the great one there is you know it's this thing it's the thing you started the discussion with this is the ultimate platform this is a super computer that Craig could never have imagined in every consumer's pocket essentially essentially around the world um this platform means I don't have to have a standalone GPS system to provide GPS Services it means I don't have to have a standalone platform to be a digital camera to be a flashlight to be a ruler to be any of these things because I'm doing it off of a platform subsidy and I'll give you a great example of that that I loved I was in Brazil and it turned out that the heat it's so hot in Brazil that half of the liquor of the booze and the bottles and bars tends to evaporate it disappears before it can be sold I say that is a bit of a joke because of course that's not the case the case is simply that the booze is going away but it's not getting paid for and it turns out that if you have to put in cameras to kind of watch what's happening to your liquor sales that would be a problem but since you have cameras in there already for security purposes it turns out that a very creative company was able to use those cameras with a little bit of software to actually see how much was in the bottles before the evening started how much was at the end and then calculate how much should be in the till I just love that story because it's I think it's a really good example of it that would never have been possible and no big Company software company would have gone off and tried to create that product if they weren't able to base it on the platform so it's an idea it's the sense of you know it's not just the phone cell phones like where are we seeing platforms that we can leverage that dramatically reduce the cost of new product to service entry second one is cross subsidies um subsidies and cross subsidies we think about Google and Google Maps and you say well Paul you know why is it free well it's free partly because of the advertising and partly because of all the other things they can be connected to it you know I can charge people to show their restaurant their gas station their and all the other things I can do with selling the information and stuff so we get into this really interesting thing of cross subsidies I'll give you an example where outside of so people don't think it's just this Tech but how every industry is being impacted is the idea of auto insurance well auto insurance when people are driving is really expensive because people make mistakes auto insurance when there's autonomous vehicles and the computers start making fewer and fewer mistakes driving there's going to be fewer accidents so if I buy a car that autonomously drives itself how much should I pay for accident Insurance well that might be a very small price as a percentage now what that means is maybe the customer is different maybe I don't sell insurance to the driver maybe I sell it to the maker of the vehicle maybe I saw too so what happens is not only do cross subsidies mean Source different sources of payment but you really have to think about you know who is a potential customer from there to say you know the odd the automaker isn't going to want to pay a thousand dollars a year for insured to give the customer insurance but they might be able to pay five or ten dollars a year and just build it into cost of a car so cross subsidies becomes this new fascinating area of innovation third way you can be cheaper and better is zero or near zero marginal cost and that just goes to the whole newspaper digital sort of things like once I have a copy it doesn't matter but I'll give you a real example where it was interesting how we still have this digital cost Advantage challenge which is during the mortgage crisis in the US a lot of banks had to get appraisals for home prices um every year to make sure whether or not they were underwater on their mortgage well it turns out if I have to appraise everybody's home just to find out whether they're underwater on their mortgage I mean the house is worth less than the loan is now I have all of these house appraisals so I can sell them to the consumer so what happened is the banks became a new sort of supplier um for appraisals now that's not a problem for most people but it's a problem for companies small com for all the small companies that were selling appraisals for 500 a piece and now every consumer of a mortgage was getting a free appraisal every year to the bank that was handling its mortgage and again you don't see it coming it just happens overnight and then the last one I love because the name is technical you know Mark Twain had a a saying that uh Wagner's music is better than it sounds um I like to think net negative cost of innovation is a better idea than it sounds and what negative cost of innovation means in a nutshell is because of Technology we could sort of understand it because of Cheaper Supply chains I mean now you can send a sneaker halfway around the world for three cents on a shipping container and these are all byproducts of Moore's Law really it's the lower cost of managing tracking all of the things that go into cost reduction huge amounts of deflation everything in the world's deflating and we'll talk a bit more about that when we get to pricing power and stuff but what's interesting is despite the speed of deflation there's also the costs of innovating and the costs of innovating are going down we have hackathons which I love we can talk a bit about that right you go out and you just ask customers and you ask you know college kids hey you know can you hack me something together that would solve this problem that I have um you know in a sense it allows you to put your big technical questions out and and ask for feedback so the cost of r d actually goes down as well but there's a an inflection point that says if you spend less on innovation then you're saving on deflation the next version can actually be better and cheap and where's the the example that really drives that home is think of an Apple iPhone right every year it comes out or every year or so in the fall it comes out with more features better stuff stuff that had to be researched and it's a better product but at the same time all the cost of the chips inside the iPhone and everything else came down in that year or two thanks to Moore's Law so what I can do if I'm ample is I can introduce a better product at the same price point or even less than the prior one and so we see that a lot we see that in automobiles the real price of an automobile the real price um has gone down for 40 years despite the fact that we get power windows we get all these things that go on in Windows nobody really or go on in cars nobody realizes the real cost of a car as a percentage of say the average family income for a year has gone down for 40 years but it's not the same car it's a much better car in fact you can't even get some of the features that you know they say I can't get a car without power windows try getting a car with you know I wanted my kids to have roll up Windows in a car so it was like it was actually kind of hard it's like oh yeah getting a model that has you know non-power Windows you know and it's like you know we don't really have those in stock uh so yeah so you know and so all that stuff kind of builds in for free um but into the next product and so we see this phenomenon of better and cheaper just everywhere whether it's you know coaching for college and College testing for example done online through Zoom or whatever so all these things different ways of delivery the deflationary costs it just gets better and cheaper and so we've been living through this era of better and cheaper Innovation that's been phenomenal for the consumer you say here once the right combination of Technologies and business models come together in a successful Market experiment mainstream consumers move on mass to the winner the adoption curve has become something closer to a straight line that shoots straight up and then Falls rapidly when saturation is reached or a new disruption appears so those life cycles of being at the top are so transient today and this one actually comes like you said it's Everett Rogers created the bell curve in the segments the customer segments that we all know and love of early adopters the innovators the early adopters late adopters laggards those are all terms that are in a you know our conventional strategy or business lexicon because of Everett Rogers and everybody kind of believes in the bell curve but it turned out that we recognized that one of the features of big bang disruption in the nature of Moore's lawyers is the thing we called uh near perfect Market information and that's a bit of a mouthful but what happens is that the short of that is simply and the example we like in the book and the example I love is my co-author and I were in New York he's a vegetarian it was late we wanted to get some dinner we walked you know you can't ask the hotel where to go because if you ask the hotel they'll tell you know the hotel restaurant's lovely right so uh so we went out the door the front door we took a right and in a moment we were at a Thai restaurant and the question is did we go into the Thai restaurant and have a Thai dinner it's like you know would you and the answer is no of course what's the first thing you would do you whip out your phone and you look at TripAdvisor Yelp or one of these services and find out like is it any good for real what are people saying and so the idea in short there is and of course it turned out to be one of the better restaurants supposedly in New York everybody loved it we went in and had a fantastic meal but the lesson is if I won't take a chance on a plate of pad thai yeah one night what are the odds I'm gonna buy your product without doing my research and knowing what the heck is and so I asked the other question you know the question of times when I talk about this you know what if um you know how many Teslas need to burn before people get the idea they catch on fire and the reality is you know pretty much one but two or three or four and and all of a sudden it gets around right you know a lie gets around the world is Mark Twain you know I guess I like Mark Twain music Eli gets around the world you know before the truth gets its shoes on right but today that's ever more true and you know whether it's a lie or true we have to realize we're living in this world of near perfect Market information now what that means for Big Bang disruption is it means that we don't have products that start get better word gets around it's getting better more and more people buy it we use the profits of that of those early adopters to you know invest more in research make the product better and come up this curve and all that now we only have two segments we have experimenters you know the early adopters and the masses because you know you like the example if you know I I'm old enough World enough to remember when you would buy like a watch from Japan that was digital and say you know it was really expensive sometimes it was very most times it wasn't as good a video recorder kind of thing it wasn't as good as the alternative but it was cool and it was really expensive sometimes really expensive and now you say well how what what happens today if you buy something really expensive that doesn't really work well do people say you're a brilliant innovator on the edge or do they say that you're kind of foolish man why didn't you wait for the right one and it's really more the latter now right buying something that's too expensive for too little value is just kind of foolish so what happens is changing selling changes dramatically and that we have to sell to people willing to take a chance and then learn from their experience what happens is you failed fail fail fail but then once it's successful once people say yeah it's all together you succeed wildly and Kindle is a great example of that so you get you know this unconstrained growth and what we actually call catastrophic success because what can happen is and you see it all the time you know demand is Way Beyond what any company can satisfy I'll give you a great example of that I like there's a company called American Giant and I love it because of the bit of hubris of the name American Giant how big do you think American Giant is well it was really you know about 30 people 30 million dollars in sales maybe whatever it was they made sweatshirts but they had the Good Fortune many years ago that slate.com put out an article that said it had the best sweatshirts in the entire world coolest best whatever and so then the question was well how many sales did that generate and it turned out it generated five hundred thousand requests for sweatshirts made by a small company in California now you would say well great you know so they must have had five thousand and five hundred thousand sweatshirt sales that year and the answer is of course they couldn't they had no ability to deliver anything close to that and nobody wants a fashion product wants to wait a year for a sweatshirt right so you can understand that there's a tremendous amount of lost sales there and it's not just you know companies like small you know Boutique custom-made sweatshirts because you know they would put sequins and stuff on it it was uh it was pretty hard to make but even technology companies whether it's you know Sega Genesis or any of the right I mean any of these technologies that we see they wind up out of stock you look at Bronco Ford Bronco the introduction in the U.S so the return of the Ford Bronco and how long you know returned this but it turns out that you have this huge risk than in the question of how much capability and how much inventory do I have and we'll talk some more about that as we go along but that's this idea of unconstrained growth once you get it right demand takes off and then of course you saturate the market and then we can talk about like GoPro and that because once you once everybody has it so you find a way to satisfy the market once everybody has it the decline in the demand is almost as fast as the run-up and that yields what we call the shark fin so there is no belt curve of adoption anymore it's really the shark you know long story short too late for that we end on this shark fin shape and it turns out that really you have to manage your business to the shark fin not to a belter that's why I really understood the second part of jumping the asker where culture is so important how people think the way your management thinks and also the people who are managing the business when it's up near the top of the curve are very different from the people who are finding out where the next curve is coming from and you have to almost oscillate between those two kind of modes of being as well with inside the organization at the same time because the speed is so quick because of that shark fin well exactly I mean the two or three things you have to deal with and when you've got that you have to realize that because you're competing against products that are better on all dimensions you don't really have segments of consumers that are making the trade-offs the thing is you're losing all these trade-offs the other thing that you have is you have 40 years or 20 years of you know uh and I love his work he's a great guy Jeffrey Moore's crossing the chasm but crossing the chasm was an idea in an era which said all right you know the tough part is getting from the innovators getting enough money out of the innovators and the early adopters to get to the late adopters and so there was that Chasm and it was like well how can I sell enough to to make it better enough to get there and so but now obviously the speed at which things get adopted and you know who the customer is it has accelerated so much that you don't have that and you have the problem of um which we'll get into the third part which is the unencumbered development you've got this problem of when consumers don't see it better on all Dimensions they just reject it and sort of fails or it looks like a failure and so a couple good products we have there you know a good one to see that with and we want to make it real is uh e-readers and ebooks right and the idea is well there were actually a ton of makers of ebooks before there was Kindle you know there was um you know rocket e-rocket ebook Rockets um um lots of them and then the question we can ask is well how many products how many e-readers did Amazon release before it released the Kindle and the answer is none it didn't have any run-up to its success it didn't because it didn't bother creating products that weren't going to be weren't going to dominate the market so what they did instead is they watched very carefully and learned from you know the Colossal it's uh you know Insight of strategy right which is I prefer to learn from other people's mistakes rather than my own uh you know they watched very carefully it's like all right well so it's I guess it's about battery length battery power and readability and paper white um you know for the contrast on the screen and all these different things um until we got to the exact and so we talked a little bit about that in the last sessions but now it becomes that much more critical because if you spend time making products that that you know won't meet the customers breakthrough point then they're just going to fail in those small curves because today with on yeah with near perfect Market information somebody's going to say you know it wears my eyes out my eyes get tired from the contrast it's not good and whether or not that's going to be true for everybody else doesn't matter the thing is they're going to read it on Amazon reviews and they're going to believe it and it's gonna and you're gonna see the failure of that offering so experimentation and low-cost experimentation becomes critically important now in Innovation because what I have to do is I have to find out is it good enough or isn't it good enough and I have to find out that I have to find that information fast and cheap so I can understand my thresholds and I have to understand that just because consumers are rejecting the threshold are rejecting something at a current threshold doesn't mean they're not going to love the product incredibly once it meets the threshold I might see you up for that with with a quote the idea of unencumbered development and I wanted as well Paul maybe you might expand on this one is often on this show we'll talk about the need to be disciplined within Innovation and I don't want our audience to get confused with this idea of undisciplined strategy it's not that it's undisciplined it's a new discipline it's undisciplined strategy it's not undisciplined innovation and so that's an actually it's a great point that you raise and we want to keep that it's undisciplined strategy because we're not limiting ourselves in a strategy to one of the generic strategies so that's that insight but Innovation is very focused and very limited because otherwise you you could you'd run out of uh investment costs the costs would overwhelm it even though the costs have come down in experimentation but that's why you have to have two or three different ways of approaching this um this disciplined it's actually disciplined Innovation which is I need to know all of the constraints I need to understand why on every strategic Dimension customers aren't buying why isn't it cheap enough why isn't it good enough why do you think it's not right for you and then you know we talked in the last session the the example I loved about the 399 dollar price point right it's like you got to know the price point exactly because that's where you can buy it without your spouse's permission uh but you need to know you need to learn these things ahead of time and and know these and so then what happened is you know when they went to Market Kindle was an enormous success now the other thing to remember about Kindle um which gives us a little preview into you know what we'll talk about uh in a bit but this idea that you know how many Kindles did Amazon make and the reality is well I'll give you a number but they didn't make any of them Foxconn made the original Kindles and Foxconn also made the the iPhone so guess what we've got somebody else even doing the making and that goes to the whole casino and the transaction costs and this opportunity now that we have two things we have with lower transaction costs we have you know an enormous increase in the ability to use third-party Partners but we also have an enormous ability to recombine components into new Innovations I'll take a little from here a little from that put it together and I'll get something else so let me say a few more words about that another example um which is drones and most of us have been annoyed by a drone recently or at least I have you can't go to a beat you can't go to a yeah right uh so but barring my uh disapproval or just like of drones the the fact is they they help us identify and spot disease in palm oil trees we actually did a lot of that at Accenture um you know so there are enormous business benefits to drones but the key is the question of why do drones sort of come out of nowhere and you know what made this phenomenon possible and then you ask yourself what is it that the Drone has that makes it possible well drones have you know plastic propellers and stuff we've always had plastic but they have nice cameras cheap even video cameras so you know a cheap video camera they have to have gyroscopes really cheap you know names of the and you say like well you know where have I seen all of these components before and then all of a sudden it Dawns on you it's like well hey that's just the flying smartphone and the key is it's not figuratively a flying smartphone it's literally a flying smartphone because the providers of all these component parts are the people the same companies that Supply the phone companies but they've run out of customers because there's only so many phones it's like well if I make high performance lenses and cameras for phones and phone sales Peak how do I double camera sales well I got to put in on something else so what we see is this recombination of all these different components and then somebody says you know I bet I can get a lot of these parts cheap from these people because it'll be incremental value out of their factories it may not be running at full capacity they're going to want to see more sales you know the meme chip um mem tip folks that do gyroscopes and that they're gonna you know it's like once the connect wears out once um you know the Wii thing wears out it's like well what do you do with those chips how do you sell more of those chips you know so they're glad to see you and so this idea of you know so there's never been a better time for recombinant Innovation and entrepreneurs in that way I was going to share a quote on it there's I love your writing in these books as well and I I wanted to share this with the view of this idea of experimentation because many incumbents think they have some type of competitive mode with costs for example and that they have r d teams Etc and and you say that is no longer the way with being buying disruption because the access and this idea of recombination you even talked about for example Steve Jobs and the Atari when Nolan Bushnell wrote about that for example like hacking together bits and pieces but this quote will tee you up and please think about the maybe your response from the perspective of what you've seen with incumbents thinking that they have this competitive mode which no longer exists you say here the third characteristic of big bind disruptors is that they are often born of Rapid Fire low-cost experiments on ubiquitous technology platforms and existing infrastructure development is unencumbered by the need for a business case or even a work plan which kills so many innovators with inside organizations experiments you tell us often conducted with real users directly in the market don't need budget approval or and aren't vetted before development begins when cost is low and expectations are modest entrepreneurs can just launch their ideas and see what happens now that's something Paul that doesn't happen in large organizations you need permission then you have this idea that the innovator goes you're better off seeking forgiveness than permission which eventually kills the idea further than the line because you don't have the backing of the organization and also then there's a change in mindset as you told us in jumping the s-curve where organizations are becoming more open to a small idea with a small Revenue stream at the beginning in the past they wouldn't even bat their eyelids at such things over to you to maybe expand whichever way you want on this there's a couple ways that I want to talk about that I mean one is the classic sort of the problem is you don't know what you don't know and what happens is in the past you would learn what you didn't know by going out to the customer and listening to them and maybe surveying them watching them but all these things had enormous costs so the cost of learning the decrease in the cost of learning about your customers is so profound that now anybody can learn from your customers and may not be you and it turns out that it's actually harder for you to learn about your customers than it is for other competitors and even an entrepreneur and you know give us some sort of examples even with you know closer to home for me but the things like you know even as a research when you worked as a researcher for a large company you have to ask permission you can't talk to these people and you probably know this for yourself as they say it's like you can't you know you can't go to my client you can't talk to folks and you know you want to talk to the CEO of what you know whereas if you're a journalist and or you know a researcher or oftentimes even an entrepreneur yeah you can get in and talk and you can talk turkey with these folks and uh and it's fine and so it's exactly right to your point and that what happens is the democratization of customer insight is a problem so now you've got lots of other people realizing that hey knowledge is power knowledge is money so if I know something about your customer that you don't they like this they need it to last you know they're not going to buy an e-reader seriously unless it lasts weeks they're not going to be charging it every day because or you know just some nugget of innovation insight that can be worth something to me so I'm going off to find it and you've got millions of people all trying to find what it is that people want and so what companies need is a new way to gather those insights and that's why I say it's you know Innovation is more focused than ever even though it feels unfocused because if you're in charge of innovation at a large company you've got to be saying you know what what what's flowing back to me about what I know about with the customer the customer wants and what's possible and I don't even know what are the costs you know what is it going to cost me to build this thing even if they wanted it so you're just inundated with all this information and then there's the fact that you know there's all these other people going out and getting it and so that's why we saw things like hackathons and all these other things that have become kind of standard the you know the eyeball monitoring and what you have to do is you have to bring Innovation to the learning because if you you know if you're relying on people going out then permissioning your employees and having enough employees and that's the interesting thing that we love in studying this was you can't hire enough people to beat the market in terms of understanding Market insight right so the point is you know you've got 5 000 commentators on you know a Trip Advisor telling you what the hotel is like well no Hotel can go off even when it surveys people because people don't give you the honest answer right so a curious thing with something like TripAdvisor just as an example of a customer a place where customers can do uh sort of real reviews people will say things to a Trip Advisor that they won't say on a customer survey right I mean there's the classic uh the whole thing of you know if I'm in the restaurant the the server the waiter or whatever you want to call it comes over it's like you know did you enjoy your meal oh yes it was lovely thank you like no I didn't the steak was overcooked but I'm not going to tell that to you I'm gonna wait till I get back get on uh TripAdvisor open day whatever and then I'm gonna let you have it um so this whole thing is it's hard to find out uh information the other side that I wanted to share the story of just because I loved it um because most of us don't remember the name Nolan Bushnell but Nolan Bushnell was the final CEO of Atari and Nolan Bushnell not only being the founding CEO of Atari he was actually good friends with Steve Jobs who worked at Atari for a Time and when Steve Jobs was pulling together Apple Nolan said hey you know as you're building your little computers there if you need parts you can use the parts for my warehouse just to help yourself take what you need you can have it at cost huh so what was one of the key parts that Steve Jobs needed to make his personal computer work well he needed the modulator that connects the TV to this PC so that you wouldn't have to buy a separate monitor now how do you make a TV work with a piece of electronics that's projecting stuff well Atari had that all figured out because that's how pong and all those work so it turned out it's a great story it comes from uh one of the wings of sea towns but the reason that's so important when you think about it is that if you didn't it even as early as the Apple computer if it weren't for access why you know wide access to parts at a low cost that Innovation wouldn't likely have not happened or wouldn't have happened for years so the power of low-cost components whether it's for drones whether it's for Apple PCS or whatever it's for if it's for putting you know screens onto refrigerators right why do we put TV screens on refrigerators I don't know why not you know why don't I have a TV screen um you know and then the another thing we looked at which was really interesting too is that you know the the technical specs of everything are available everywhere so you know I can decompose Parts as this is like you know now I'm a dishwasher repair person because I can go in I can see the blown out schematics I can see the exact part I need I order that right yeah you can do this 10 20 30 years ago you couldn't really do it a few years ago but you know how wonderful it is now that you can find and replace the part and you can order but if I can do that how easy is an entrepreneur I can build my own washing machine by Parts I can build anything I want from parts um so it's a profound age of recombinant innovation it sure is and I was telling you with yasi Shafi coming on the show and and that's what I found so interesting about his book about he calls it the magic conveyor belt where all these component parts come together and it's kind of miraculous how organizations can just bring all these pieces together get them created and get them to people on time and how also we're in this age of complexity where you know you have some change like the covert pandemic and all of a sudden some part some key part of my product is gone and I can't develop it anymore we'll come back to that again Paul there's one last thing I wanted to come to which was the maybe the last thought on the economics of big bang disruption because you asked two big questions here why now and why so loud so we talked in part one on jumping the ass curve about Moore's Law and in particular about how it costs are coming down but you also say it's the same with the costs of r d and this links to what you've just talked about is that I'm going to link it back to our previous episode part two of jumping ass curve Edge Centric strategy where you're actually touching the edges of society you know new marginal behaviors in the environment but also within your organization people who think differently and are differently neurodiverse individuals people who are more creative more entrepreneurial that you they're The Edge within your organization as well there's a brilliant little excerpt here I wanted to share before you take it away and this will help perhaps our audience get their head around this and also give you a flavor of the writing in the book you say exponential Technologies are also driving then the cost of r d typically these costs which include the price of conducting basic research prototyping and where necessary obtaining regulatory approval before Market launch are built into the price of each unit of the new Goods that are sold so developers must be careful to balance the need to recover research costs with the need to attract new customers if the new offering is a big hit and millions of units are sold recovering research costs will be easy but to ensure the big hit it often makes sense to charge a lower price at first to stimulate new markets foregoing early profits for many Enterprises that's a delicate balance and a risk that's hard to predict or to hedge that kills so many fledgling ideas because maybe you have the Innovation team who are saying we need to lower the price you know you've written a book I've written a book I wanted the price of the book to be lower to get it out there and then maybe when it's a hit increase the cost same thing with a new product and it really is this trade-off the good news that I see in that is that it's actually an advantage in many ways in for the incumbent who actually has some money to invest in maybe a deep pocket to continue to invest in learning actually entrepreneurs can more quickly run out of the money to build experiments for example so they only get so many you know if you have so much seed money you only get so many shots at building it now when we think about building something testing it and then learning because it really comes down to learning and I think it's really important to think about that as it comes to artificial intelligence now whatever we're talking about because the key is I mentioned you know we don't know we don't know and the key to Innovation sort of learning what will sell at what price and why and then building that product but getting all of that learning and knowing what are the relevant dimensions and all of that we need new ways of bringing that all together so that we have this learning experimentation phase that's why I said there are two segments there's a learning and experimentation phase and then there's the product launch phase when we know it's going to be good but in that earlier phase is exactly to your point how much do we spend how much you know and how good does it have to be and it's interesting I think and challenging because there are Show Stoppers there are ex existential questions of like look if it's not um you know of a certain the video quality isn't of a certain quality they're just not going to buy it period because it doesn't work you know and then maybe once it's at a threshold it works but you know it doesn't so like GoPro maybe it's like well GoPro may not be interesting at 720 you know P or whatever it is but at uh 1080 it is because now you can really see it and so now it's not some grainy thing it's like oh my gosh I can see the guy going over the cliff I could see me going over the cliff but knowing and that's probably a pretty good example to make it real about knowing that 720 versus 1080 is not going to work and why it takes a warning and you may actually have to you to find out 720 doesn't work you may have to actually release the camera and find out it doesn't work customers you know so it's this trade-off of learning and an investment that still exists was always the case in Innovation but now there's different ways of learning um that companies have to quickly Embrace and really drive down their cost curve I mean the last thing I'll add is that you know when I started in thought leadership even you know when we learned we'd do customer surveys and Boomerang came around and wow you know three million dollar research projects became three hundred thousand dollar projects between thirty thousand became three thousand dollars I could get 10 000 customer responses on a question I wanted to know the answer to complete overhaul reinvented the cost of research there's one last thing I wanted to because you mentioned that there your your experience is a thought leader many of our audience are also Lone Wolf Consultants like myself like yourself now where we do Keynotes and we do report leadership writing Etc and one of the things that came to mind as a kind of an analogy as I read throughout your work is that organizations need to be constantly collecting information and that information is you need to connect you need to collect dots in order to connect them and oftentimes this goes back to what we're talking about in part two of Germany S curve when you're so focused you miss changes in the environment you miss eclectic reading for example because you're so focused in your little niche and you need to be the master of that Niche yes you do but you also need to almost know a little bit more about a lot rather than just really really focused and it's something that always struck me about you and your writing is that you told me as well on one of our our shots in preparation for this series that you read every single Paper every single day and I just wanted to share that on a personal level for people to almost update themselves and to prepare themselves for this change that society's going through the workplace is going through working is going through is that you need to kind of broaden your horizons about how you think and also give yourself time to think yeah I'd say that's um you know a tremendous part of this whole innovation thing I mean we've talked a little bit about it today here this trade-off of focus versus expansion but um you know you really have to be able to see some of the stuff on the periphery and and particularly if you're going to try and understand why customers reject certain things right because the the challenges and is sometimes not finding what customers love it's finding out why they don't love something and uh and that can be terminated sometimes that requires knowing a bit about you know customers underlying beliefs morals and values you know so it's like yeah this may be a better product for me but I don't like you know you even see it today with the some of the pushback uh you know dare I say kind of woke companies but it's sort of you know but that has to be brought into the mix this idea of well I may love your product but if I don't like what you stand for I may not buy it whether that's right or wrong but the thing is how do I know ahead of time before I put my foot in it that we go what you're thinking what your values are as a customer in that and so to your point we need to use the technology I think not just to learn the simple functions but to really understand sort of a bit of the 360 of the customer um so that we can be both successful and stay successful beautiful way to end today's episode we're going to be back on for part two and we've so much to talk about we we've only got to chapter two by the way Paul and coming up in in part two and maybe even a part three is we're going to talk more about the shark fin for sure we're going to talk about the singularity the Big Bang the Big Crunch and entropy and bring out all those Concepts to life as well it's a fascinating book I have a copy there behind me I highly recommend this it's on Kindle it's on hard black you'll find it on Amazon big bang disruption and I want to sincerely thank the order of that book and he's joining us again for more episodes and hopefully again into the future Paul Nunes thank you very much thank you Aiden

2023-09-11 01:37

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