january 2005 the next big thing? generating ideas and creating innovative products douglas abrams
TRANSCRIPT
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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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Generating ideas & creating innovative products
• Selecting the right industry
• Sources of opportunity for innovation
• Identify innovation inflection points
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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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Examples of current tech trends and mega trends
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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Examples of current tech trends and mega trends
• 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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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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Generating ideas & creating innovative products
• Selecting the right industry
• Finding opportunities
• Identify innovation inflection points
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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
65-9780-5381 (hp)