EPILOGUE

PASSING THE BATON

Managers rarely can exercise unbridled free agency. Powerful and predictable forces act upon them. These forces include the need to move up-market to maintain profit margins; the need to satisfy existing customers; the forces of commoditization and decommoditization; the mandate to grow from an ever-larger revenue base; and the fact that the processes and values that define the capabilities of one business model simultaneously define disabilities for other business models. These forces do not Calvinistically predestine managers to take a particular sequence of actions, but they strongly influence the types of choices that managers do and do not confront, and they shape the attractiveness of the different choices relative to the managers’ situations. In this book we have tried to show that when companies face the wrong side of these forces, they lead to predictable growth pathologies. But when companies harness these same forces, they can put wind in their sails. The predictability of these forces makes it possible to capture them and turn them to your advantage in seeking, exploiting, and sustaining new growth opportunities.

If this were a book for mariners, it would be filled with discussions of sailing with or against tides and currents, and how to set sail in order to take advantage of the prevailing winds. Such a book would make it easy to see that where and when you start, relative to the direction that those forces want to carry you, can make a huge difference in how easy it is to get where you want to go.

Similarly, we hope that this book makes it easy to see that where you start, relative to the direction of the competitive, technological, and profit-seeking forces acting upon you, can make a huge difference in the probability that you will succeed. This view simplifies the challenge of creating new-growth businesses. It means that when you start a new business you do not need to envision accurately the details of your strategy or predict foresightedly how technology will evolve. Rather, you need to focus primarily on getting the initial conditions right. If you start from a good place, then the choices that lead to success will look like the right choices. In order to exploit these choices, you need to create a business model whose resources, processes, and values can harness these forces so that they propel you toward success rather than blow you away.

Accurately researched and written histories would reveal that many founders of successful companies—including many of the disruptive companies arrayed in figure 2-4—had the wrong strategy in mind when they started. But due to some combination of intuition and luck, they put themselves in a situation in which they were confronted with attractive choices. Doing what made sense led to a next set of attractive choices, and so on. The initial conditions under which they started and the business structures that they created allowed them to catch the trends and forces that subsequently propelled them toward successful growth.

The structures and initial conditions that are required for successful growth are enumerated in the chapters of this book. They include starting with a cost structure in which attractive profits can be earned at low price points and which can then be carried up-market; being in a disruptive position relative to competitors so that they are motivated to flee rather than fight; starting with a set of customers who had been nonconsumers so that they are pleased with modest products; targeting a job that customers are trying to get done; skating to where the money will be, not to where it was; assigning managers who have taken the right courses in the school of experience and putting them to work within processes and organizational values that are attuned to what needs to be done; having the flexibility to respond as a viable strategy emerges; and starting with capital that can be patient for growth. If you start in conditions such as these, you do not need to see deeply into the future. Attractive choices that lead to success will present themselves. It is when you start in conditions that are opposite to these that attractive options may not appear, and the right choices will be difficult to make.

We also believe that the overwhelming odds that corporations will stop growing and be unable to restart growth can be deferred much longer than has so far seemed possible. Executives who understand how these forces create growth pathologies can counteract them better when the tide of these forces begins to shift from opportunity toward threat.

A principal refrain in this book is that blindly copying the best practices of successful companies without the guidance of circumstance-contingent theory is akin to fabricating feathered wings and flapping hard. Replicating their success is not about duplicating their attributes; it’s about understanding how to generate lift. Good theories are circumstance-based. They describe how managers need to employ different strategies as circumstances change in order to achieve the needed results. The use of one-size-fits-all processes and values historically has made the creation of growth torturous. One of the most valuable contributions you can make in the growth-creation process, therefore, is to keep watching for changes in circumstances. If you do this, you can understand when and why changes need to be made long before the evidence is clear to those whose vision is not clarified by theory.

Who? Me? Use Theory?

While The Innovator’s Dilemma sought to build a theory, our purpose in writing The Innovator’s Solution has been to teach you as a manager how to use theory. If your reaction has been that theory is too complicated—that you’re an action-driven manager and are not a theory-driven person—think again. Reread the passage in Molière’s The Bourgeois Gentleman in which Monsieur Jourdain finds the writing of poetry intimidating. Remember how delighted he is to learn that he can use the other option, which is to compose his love letter in prose, because he has unwittingly been speaking prose all his life? While you may not have known it, you have been using theory for the whole of your managerial life. Whenever you have taken an action or made a plan, it was predicated upon a theory in your mind that your actions would lead to the envisioned outcome. So using theory to create successful growth businesses needn’t feel strange. You are—though perhaps unwittingly—a practiced theoretician.

We conclude with a summary of our advice to executives who seek solutions to the innovator’s dilemma.

1. Never say yes to a strategy that targets customers and markets that look attractive to an established competitor. Keep sending the team back to the drawing board until they’ve identified a disruptive foothold that established competitors will be happy to ignore or be relieved to walk away from. If you create asymmetries of motivation, your competitors will help you win. Though you may not have done this before, it should feel good if you are accustomed to bloody fights of sustaining innovation against motivated competitors.
2. If your team targets customers who already are using pretty good products, send them back to see if they can find a way to compete against nonconsumption. When your customers are delighted to have a simple, inexpensive product because their alternative is to have nothing, all the techniques for pleasing customers that you learned in Marketing 101 will be easy and inexpensive. This also should spell welcome relief compared with the alternative, which is the massive investment typically required to make disruptive technologies preferable to the established products that customers already are comfortable using.
3. If there are no nonconsumers available, ask your team to explore whether a low-end disruption is feasible. They must devise a business model that can make attractive profits at the discount prices required to capture customers at the low end of the market, who can’t use all the functionality for which they currently must pay. If this isn’t possible either, then don’t invest—or at least, don’t invest with the expectation that this will create a significant growth business.
4. If the project leader ever uses the phrase, “If we can just get the customer to . . . ,” terminate the conversation. Send the team back to find a way to help customers get done more conveniently and inexpensively what they already are trying to get done. Competing wishfully against customers’ manifest priorities has shortened the tenure-in-job of some pretty good people.
5. If the team’s product or marketing plan focuses on market segments whose boundaries mirror your organization’s boundaries, or if the targeted market is segmented along the lines for which data are readily available (by product type, price point, or demographic category), send the team back. Ask them to segment the market in ways that mirror the jobs that customers are trying to get done. Remind the team that you still have no alternative but to hire a one-size-fits-all milkshake for at least two different jobs that arise regularly in your life. The milkshake business is stalled because quick-service restaurants keep improving the shake’s attributes rather than doing each job better and better—which would grow the category by helping shakes to steal share from the real competition.
6. If your team’s product improvement road map assumes that the basis of competition won’t change—that the types of improvements that merited good margins in the past will continue to merit those margins in the future—look at the low end. Often you can see there the opportunity to change the basis of competition.
7. If your disruptive product or service is not yet good enough and your team seems enthralled with industry standards and the attendant outsourcing and partnering deals, raise a big red flag. If you prematurely pursue modularity and open standards, or if you keep a proprietary architecture closed while the basis of competition changes, you’ll struggle to succeed. Remember what made Wayne Gretzky so good. It is better to develop competencies where the money will be made in the future than to cling tenaciously to those skills that made you successful in the past.
8. If your team assures you that you’ll succeed because a new venture fits your company’s core competence, tell them that you can’t deal in fuzzy concepts. Ask for answers to three specific questions:

   • Do we have the resources to succeed?

   • Will our processes—the ways we have learned to work together to succeed in our established businesses—facilitate what needs to be done to succeed in the new business?

   • Will our values, or the criteria that folks here use to prioritize one thing over another, enable the critical people to give the needed priority to this initiative when compared with the other initiatives that compete for their time, money, and talent?

   Use the answers to these questions to choose the right organizational structure and the right organizational home for this project.

9. Ask these three questions about each of the entities that constitute the venture’s channels as well. It’s not just you. The channel companies’ processes and values—their methods and motivations—can cause your venture to come off the rails or even stall before leaving the station.
10. Unfortunately, you may need to distrust the managers whom you have learned to trust. The managers in your organization who have most consistently delivered results in the past may be the least skilled at delivering success in new-growth businesses. In choosing the management team for your new venture, don’t look at the attributes that describe the people you might tap to lead a new-growth venture, or at the magnitude of their past responsibilities. Search their résumés for the problems they have grappled with, and compare them to the problems that you know this venture must confront.
11. Be sure that in the beginning years after a venture is launched, the development team remains convinced that they aren’t sure what the best strategy is, in terms of products, customers, and applications. Insist that the team give you a plan to accelerate the emergence of a viable strategy. Call a halt to decisive plans to implement any strategy before there is evidence that it works.
12. Be impatient for profit. When someone tells you as a senior executive that you must endure years of substantial losses before a new business will become huge and profitable, this flags a plan to cram a disruptive technology into a sustaining role in an established market. Some investments in sustaining technologies with extensive interdependencies across the value chain can indeed require years of massive investment. Let established competitors tackle those. In disruptive circumstances, patiently enduring years of losses generally allows a team to pursue the wrong strategy for a long time.
13. Keep your company growing so that you can be patient for growth. Disruption—and competing against nonconsumption in particular—requires a longer runway before a steep ascent is possible. If corporate growth slows and you then force the new businesses to attempt too fast a takeoff, you will force the management to make other fatal mistakes. The other side to this mandate is important as well. If you’re slated to lead a new venture and corporate management says you need to become very big very fast, what you really are hearing is that management is going to make you cram your disruptive technology into an established market. When you sense this, don’t take the job. You are very likely to fail.

Note that there is no mandate on this list that executives be brilliant strategists in order to supervise the building of new disruptive growth businesses. That’s the whole point of this book. The disruptive companies listed in chapter 2 didn’t succeed because their founders foresaw the entire strategy. If it depended on the brilliance of the founders and the correctness of their strategies, then success would be unpredictable indeed.

Many successful companies have disrupted once. A few, including IBM, Intel, Microsoft, Hewlett-Packard, Johnson & Johnson, Kodak, Cisco, and Intuit, have disrupted several times. Sony did it repeatedly between 1955 and 1982, before its engine of disruption got shut down. To our knowledge, no company has been able to build an engine of disruptive growth and keep it running and running. That reality has made this a risky book for us to write: Few business books say “Do this; no one’s ever done it before.” But there is little choice. Creating and sustaining successful growth has, historically speaking, vexed some great managers.

Given the existence of principles but no precedent, we have simply done our best to suggest how successful growth can be created and sustained. We have offered an integrated body of theory derived from the successes and the failures of hundreds of different companies, each of which has illuminated a different aspect of the innovator’s dilemma. And so we now pass the baton to you, in the hope that you will find our efforts to be a valuable foundation upon which to build your own innovator’s solution.