Golden Handcuffs
In The Innovator’s Dilemma, Clayton Christensen gives many examples of how industry-leading companies lost their lead, often so badly they went out of business. As I’ve said before, this is something I’ve studied in rats writ large. In a great talk about the beginnings of the PC industry, Mitch Kapor describes meeting Ken Olsen, the CEO of Digital Equipment Corporation (DEC), a $15-billion-sales-per-year company destroyed by the PC.
“Meeting the needs of people who had never previously used computers was the foundation of this entire [PC] industry,” says Kapor. “Even after we [Lotus] had started to become successful, this was still not clear to some people.” This is what Christensen says, too: Disruptive innovations begin downmarket, among users not previously thought worthy of notice. For example, hydraulic-powered shovels started in sizes appropriate for digging ditches. The pattern Christensen saw was that the industry-leading companies ignored this market until it was too late. DEC was no exception. Olsen wanted to meet Kapor, who was flown by DEC helicopter to DEC headquarters. When they met, Olsen complained for 15 minutes about the flimsiness of the PC case.
“The stuff that made him smart was the stuff that was now making him incredibly dumb,” says Kapor. “They didn’t understand that they needed to stop doing all the things that had made them successful in order to have a chance to succeed.” I would put it differently. Our experiments with rats made one thing clear: The more successful you are — and DEC was very successful — the harder it is to try new ways of doing things.
Comment on another Kapor talk.
December 7th, 2007 at 2:41 pm
The bit about the helicopter made me laugh. I worked in marketing for DEC for a few months in the late 80s. The pièce de résistance of all our sales strategies was always just that: fly ‘em to DEC headquarters in the company helicopter, they’ll be putty in our hands!
December 11th, 2007 at 3:35 am
Seth, I’ve seen this throughout my career. What is strange is that everyone knows these stories in business, and yet they still seem to think they are not the stupid ones.
The problem is getting worse, as Paul Graham’s essay showed and which you pointed to in an earlier post. The cost of startups, at least software startups, is now almost zero, so they are proliferating. The majority will lack any social proof, so it takes a different skill plus luck to differentiate the wheat from the chaff. Graham argues that those, like Google, who have sat the other side of the table and been ignored by large corporates and investors, will be better equipped to function in this more uncertain ecology, where the acquisition of the right collections of talent and technology will determine success. But the tendency in business will be to cluster around what is known, like Hollywood does with stars, who then grab a disproportionate share of the cashflows, while not necessarily delivering success.