You’ve Got A Product, Not A Company

There was a brief period of time during my senior year of college when I got the idea into my head that I should take a year off and pursue a startup. I had a prototype of mobile support software running (think Wufoo for apps), so I scheduled a meeting with a local angel investor. I’m paraphrasing, but his words went something like this:

First of all, don’t quit school. Finish your degree, get the expensive piece of paper and make your parents proud. You might hear stories about successful people who dropped out, but the reality is that you don’t hear about the people who fail, of which there are many. You have the rest of your life to create a company, but a limited number of years in which you can enjoy college. Don’t waste that opportunity by quitting now.

I ended up taking his advice and finishing up my senior year, which in hindsight was a very good decision. But he made another comment that has stuck with me for a long time:

What you have here is a product, not a company.

He explained what he meant, but it didn’t really click for me at the time. I thought he meant I needed some bullshit business plan about how I would take over the world, while I was very much stuck in the need-finding process of the d.school curriculum I was currently a part of.

Enter The Innovator’s Solution, Chapter 1

Recently my friend Greg recommended the Innovator’s Solution to me, which is a book about creating growth companies. I’ve only finished chapter 1 so far, but it feels like the missing puzzle piece from my previous conversation has finally clicked into place.

Raynor and Christensen outline three strategies for creating disruption, which they call new market disruptions, low end disruptions, and the sustaining strategy.

The sustaining strategy is what established players with deep pocket books tend to gravitate towards. In a world full of pressure to always be making more money for the next earnings call, established companies have good reason to want to be moving up market into more lucrative and profitable territory. A sustaining innovation…

targets demanding, high-end customers with better performance than what was previously available… The established competitors almost always win the battles of sustaining technology. Because this strategy entails making a better product that they can sell for higher profit margins to their best customers, the established competitors have powerful motivations to fight sustaining battles. And they have the resources to win.

In contrast, new market disruption products…

are so much more affordable to own and simpler to use that they enable a whole new population of people to begin owning and using the product, and to do so in a more convenient setting. The personal computer and Sony’s first battery-powered transistor pocket radio were new-market disruptions, in that their initial customers were new consumers – they had not owned or used the prior generation of products and services.

and low end disruption products..

are those that attack the least-profitable and most overserved customers at the low end of the original value network.

The latter two disruptive strategies tend to work against entrenched players because they have no motivation to fight those battles. In the low end disruption case, big companies are relieved to be rid of their least profitable customers so they can focus their energies on the more attractive market upstream. In the new market disruption case, most big players don’t notice the disruption is happening until it’s in the final stages, because the new market is a group of customers they aren’t serving at all.

Taking A Step Back – How Does This Apply To Me?

Because the book is full of examples outside of the tech industry (like steel), it has forced me to remember that I live in an echo chamber. Too often I have tunnel vision in which I make assumptions that I’m going to create a business that centers around the internet, and often mobile apps. While this might be true most of the time, it’s worth remembering that technology is simply a tool. Yes, it’s true that using some form of internet enabled tech is probably what my future products will end up being. Silicon valley companies today tend to be low end disruption companies that are using a new market distribution channel (the internet) to take out large swaths of overserved markets, which appears to be working. But, in the global arc of the world, it’s also likely that the internet isn’t the tool we will be using in a hundred years.

For me as an independent, coming to terms with these concepts has given me a new framework in which I can evaluate ideas, even if I don’t plan on being a high growth funded startup. For example, I’m considering rebooting AppFaqs with a hard lean towards other independent iOS developers, because I believe most one person shops are over served by the various customer support software out there. Being a small shop myself, I think it’s within reason to believe that I can make money at the low end of the spectrum, rather than catering to big businesses (which was never really something I could get excited about). On the other hand, I’m also toying with the idea of launching a new product in September using whatever new technology is announced at WWDC this year. I believe it’s possible that I can out innovate in the very short term in the sustaining innovation channel, and make the product an attractive acquisition for an established company.

It’s still rare for me to see business models that I don’t believe are bullshit, but the ones that I’ve seen framed using the above models seem to have a lot more strategic planning built into them. Companies are strategic boats that we steer using products that fit a specific customer’s needs within a specific market. Products in and of themselves are not companies, even if my engineer’s mind wants that to be true. You hear a lot about product-market fit, but what you don’t hear is that finding product-market fit is an ongoing process dictated by the specific customer you are trying to target, which in turn is always changing based on where you are at within your current disruptive strategy. My future self would do well to remember that.

In any case, if you haven’t yet read the Innovator’s Solution, you would do well to pick it up.

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