january 2005

January 2005

The Next Big Thing?

Generating ideas and creating innovative products

Douglas Abrams

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Douglas Abrams

Generating ideas & creating innovative products

• Selecting the right industry

• Finding opportunities

• Identify innovation inflection points

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Product or service?

Odds of starting a company that made the Inc 500 list of fastest growing young private companies from 1982 to 2000

Biotech – 265 times higher than restaurant

Software – 823 times higher than hotel

Choosing the right opportunity is the most important determinant of success

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High risk, low return?

Product-based start-ups – High risk of failure– High return if successful

Service-based start-ups – Higher risk of failure– Lower return if successful

Choose an industry favorable to start-ups

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Look for favorable knowledge conditions

Less complex production processes

Less reliance on knowledge creation – low R&D

More codified knowledge

Innovation from outside the value chain – universities and research institutes

Lesser proportion of value added in manufacturing and marketing activities

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Look for large, fast-growing, segmented markets

The cost gap between new and established firms is smaller in larger markets

In fast-growing markets, new firms can serve new customers rather than customers of existing firms

Segmented market provide niches for new firms to enter and reduce retaliation by existing firms

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Industry life cycles and structures

Choose a young industry – more demand and less competition

Enter before a dominant design has been adopted

Labor intensive rather than capital intensive

Advertising and branding less important

Less concentrated industries – smaller competitors

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• Sources of opportunity for innovation


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Sources of opportunity

Technological change– Large, general-purpose, commercially viable, alter industry

dynamics

Political and regulatory change– Allow more variance in ideas, increase demand

Social and demographic change– Alter preferences and create demand

Changes in industry structure– Change industry dynamics and open niches

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Past and present trends and mega-trends

Pre-industrial Industrial New Economy

Labor Production of primaryproducts

Production ofmanufactured goodsand services

Production ofinformation andservices

Technical efficiency Low Higher Much higherSocietal organization Rural Urban GlobalLocation ofproduction

Families or manors Firms and enterprises Anywhere

Transportationspeed

5 mph 60 mph 186M/miles/sec

Social classdetermined by

Birth Ownership ofproduction

Knowledge and skills

National wealthdetermined by

Abundance of naturalresources andconquest

Accumulation ofcapital and labor

Intellectual capital;knowledge and skills

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Past and present trends and mega-trends

Pre-industrial Industrial New Economy

Quality of life Illiterate, no books, noschooling, no travel

Literate, books,schools, travel

Access to all of humanknowledge, virtualtravel

Work Back-breaking work inthe fields

Factory or office work Tedious or dangerouswork performed bymachines; humansfocus on creativity

Entertainment None TV, Radio, Movies Interactive multi-media, virtual reality

Health Widespread hunger,debilitating disease

Hunger and diseasereduced by machinesand medicine

Hunger and geneticdiseases virtuallyeliminated throughnanotechnology

Life expectancy Avg life expectancy 30years; high levels ofchild mortality

Avg life expectancy 70years

100+ year lifeexpectancy; end ofaging through geneticengineering

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Examples of current tech trends and mega trends

Broadband and wireless broadband

Convergence, Integration and interoperability

Worldwide, instant, always-on connectivity with no external devices

Mobile computing, PC no longer sole computing device, speech and voice recognition

Experience-based transactions (VR) Automation

Technology will become ubiquitous

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20-ghz nano-silicon chips with 1 billion transistors

3-dimensional chips

Optical computers

DNA computers

Nanotube computers

Quantum computing

Computers will move beyond silicon chips

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• Micro-machines and Nano-technology

• Biometric security

• Bio-informatics

• Exponential growth of machine intelligence leads to intelligent, conscious (?) machines

• Neural implants to extend human intellectual capability

• Merging of human and machine intelligence creates substrate-independent minds

Technology and biology will merge

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Case study: Let’s sell books on the internet

Technological change – internet

Market change – disintermediation

Large potential market – fragmented

Timing – young industry

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Which form to exploit an opportunity?

New product

New way of organizing

New raw material

New production process

More difficult to imitate

Exploit an innovation that is appropriate in the industry you are entering

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Case study: Onsale vs. EBay

Sold blocks of computers to large corporate buyers

Onsale EBay

Allowed anyone to sell anything to anybody

Advantage of mass and momentum

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Douglas Abrams

Sources of new business ideas

Forces, trends and mega-trends tech, macro, social, political

Changing market structures and needs

Market inefficiencies

Products in the market

Personal experience, hobbies and pastimes, personal passions

Cross regional, discipline or industry

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Recognizing opportunities

Check out opportunities based on innovations by universities and government agencies.

Identify weaknesses in established firm’s approach to innovation.

Pick jobs, social networks, or life activities that put you into the flow of information about new business opportunities.

Develop a mind-set or way of thinking that helps you recognize entrepreneurial opportunities when you come across them.

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Opportunity mindset - observe yourself

In unfamiliar situations – traveling, trying new experiences

Ask Why and Why not?

Take notes, especially of problems – Bug Lists

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Opportunity mindset - being there

Keep close to the action

There are no dumb questions

Be aware of the world around you – ready to spot trends

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Opportunity mindset - being left-handed

Develop empathy for consumers’ needs

People are different from you

Ages, cultures, sizes

Talk and listen to kids

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Characteristics of successful new business ideas

First mover advantage?

Not necessarily a new invention

Not necessarily a new idea

Notion that is poised to be taken seriously in the market place

Idea that is a tiny push away from general acceptance

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Innovation evaluation framework

Original?

Feasible?

Marketable?

Profitable?

Sustainable competitive advantage?

Good idea

Viable business

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Case study – Liquid Paper

Bette Nesmith noticed artist corrected mistakes while decorating holiday windows by painting over the error.

Tried the same at work but colleagues said she was “cheating” and one boss warned her not to use her “white stuff” on his letters.

Renamed the fast-drying, non-detectable fluid Liquid Paper & applied for a patent & trademark.

IBM wasn’t interested in buying her business.

Sold out to Gillette for $50 million within a decade.

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Expect the unexpected - Velcro

Chance offers unanticipated insights

Be open to surprises

Velcro– Swiss mountaineers returned from

hike covered with prickly cockleburs.

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Expect the unexpected – TiVo

Personal TV machine

Used Sorbathane (the elastic material found in shoes) to dampen vibration and reduce noise

Less noisy than competitor products

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Sometimes failure itself generates innovation

Post-It notes - failed glue

Scotchgard - spilled on shoes

Combat - failed additive for cattle feed

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• Finding opportunities


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The technology adoption S curve

Measure of performance

Measure of effort invested

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Implications of the S-curve for entrepreneurs

Technologies originally experience slow performance improvement due to learning curve

Transitions to new S-curve taken by new rather than established firms

Established firms have little incentive to go to new S-curve – Inferior performance– Limited application– Cannibalizing existing technologies– Can improve existing technologies

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Timing the S-curve: Don’t go too early or too late

Look for paradigm shifts

Watch technological frameworks that scientists and engineers are using as they often signal new opportunities

After changes in core technology have time to settle but before a dominant design emerges

Try to establish a technical standard– Low price– Work effectively with complementary technologies– Simple products

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Establishing a technical standard - Linux

Linus Torvalds, aged 21, couldn’t afford an operating system thus spun out his own.

Today, Linux has 15 million users & thousands of independent developers working to make the system better.

Made Linux “open source” software

Challenging the old assumption that the best software is proprietary and maintained by a single company.

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Target an increasing returns business

Up-front costs are high relative to marginal costs

Network externalities

Complementary technologies are important to use

Producer learning is strong

Switching costs are high

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Interesting product ideas

Tivocorder – A tiny, pen-shaped digital audio recorder. Once in

your shirt pocket, it would continuously record the sound around you. At any time, while continuing to record, you could play back the last 20 minutes of whatever you've just heard

MP3-toothbrush – An MP3-playing toothbrush for use during a hygiene

moment.

Weather-forecasting toast– The slice of bread pops up with a simple icon of the

day’s outlook: a shining sun, a cloud or raindrops– A step towards integration of a modern household

with internet technology

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Sources and references

Finding Fertile Ground by Scott Shane, Wharton School Publishing

The Art of Innovation by Tom Kelley with Jonathan Littman, Doubleday

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Contact us

Douglas Abrams

[email protected]

[email protected]

65-9780-5381 (hp)

january 2005

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