Issue 21 - February 26th, 2021
The Innovator’s Dilemma, a book published in 1997 by Harvard Professor Clayton Christensen, is one of my top 3 favorite books of all time. His frameworks and thought processes have influenced a lot of my ideas and decisions over the years, and I felt compelled to share his knowledge with you today. If you have never heard of Clayton then I hope he has as much of an impact on your thinking as it has had on me.
The Innovator's Dilemma is the decision that businesses must make between catering to their customers' current needs, or adopting new innovations and technologies which will answer their future needs. The high level thought by Christensen which resonates with me is how he clearly distinguishes between incumbent market leaders and disruptive startup forces and how hard it is for the incumbent to steer course to save themselves from the revolutionary startup.
A classic question in startup land to founders is the following: “What happens if XYZ market leader enters this space?”. Clayton lays the smack down on that line of thinking to help people understand how hard it is for a big dinosaur company to pivot on a dime. Startups have an advantage in speed and they have a lot more room for error to find true innovation over a slow, large, incumbent company.
Clayton Christensen demonstrates how successful, outstanding companies can do everything "right" and still lose their market leadership – or even fail – as new, unexpected competitors rise and take over the market. There are two key parts to this dilemma.
Value to innovation is an S-curve: Improving a product takes time and many iterations. The first of these iterations provide minimal value to the customer but in time the base is created and the value increases exponentially. Once the base is created then each iteration is dramatically better than the last. At some point the most valuable improvements are complete and the value per iteration is minimal again. So in the middle is the most value, at the beginning and end the value is minimal.
Incumbent sized deals: The incumbent has the luxury of a huge customer set but high expectations of yearly sales. New entry next generation products find niches away from the incumbent customer set to build the new product. The new entry companies do not require the yearly sales of the incumbent and thus have more time to focus and innovate on this smaller venture.
For this reason, the next generation product is not being built for the incumbent's customer set and this large customer set is not interested in the new innovation and keeps demanding more innovation with the incumbent product. Unfortunately this incumbent innovation is limited to the overall value of the product as it is at the later end of the S-curve. Meanwhile, the new entrant is deep into the S-curve and providing significant value to the new product. By the time the new product becomes interesting to the incumbent's customers it is too late for the incumbent to react to the new product. At this point it is too late for the incumbent to keep up with the new entrant's rate of improvement, which by then is on the near-vertical portion of its S-curve trajectory.
Click here to watch a quick YouTube video explaining the The Innovator’s Dilemma.
Newsworthy Links To Share
CBRE invests $200 million into flexible workspace firm, Industrious, giving them a 35% ownership stake in the company. Industrious co-founder and CEO Jamie Hodari said the firm’s focus on customer service and being asset-light -- leaning on management agreements rather than being burdened by leases the way hotel brands do -- has been validated. WeWork if you recall inked long term leases directly with landlords which has led to the downfall of their company among other issues. Read more on Bloomberg.
IKEA is now selling tiny houses. IKEA partnered with media company Vox Creative and Wisconsin-based tiny home and RV builder ESCAPE to design the 187-square-foot dwellings. Unlike the assemble-it-yourself furniture that the Swedish company is known for, these tiny homes come prebuilt and are constructed on a flatbed trailer, making it easy to tow your digs anywhere. Read more on Architectural Digest.
The founders of Favor, which was sold to H-E-B Grocers in 2018, are back with a new startup called SunRoom Rentals recently raising an $11 million dollar Series A round. Sunroom Rentals leases units on behalf of property managers and apartment owners and since launch has signed more than 2,000 leases and had over 100,000 renters sign up for its services in fast-growing Austin, where it focused its initial efforts. Read more on TechCrunch.
Compass continues their acquisition spree this week acquiring KVS Title. Founded in 2010, KVS Title provides comprehensive title insurance and settlement services for residential purchases and refinance transactions for customers throughout the greater Washington, D.C. metropolitan area. KVS Title attorneys have an average of more than 14 years of settlement experience and have performed more than 70,000 settlements combined.
Home furniture startup, Burrow, announces a $25 million dollar Series C fundraising round to continue their expansion. Burrow participated in Y Combinator in 2016 with an initial aim of building sofas that, by virtue of being modular, were easier to move and adapt to a variety of living spaces. Now its product lineup also includes armchairs, ottomans, tables, rugs, lights and other accessories. The company says it launched 19 new products last year, including a modular shelving system. NEA, Red & Blue Ventures, Winklevoss Capital, and Michael Seibel all participated in this round. Read more on TechCrunch.
EarnUp announces $25 million dollar funding round led by Bain Capital. EarnUp is a consumer-first financial technology platform that intelligently automates loan payment scheduling. The EarnUp platform serves borrowers across the U.S., managing over $10 billion in loan payments. EarnUp’s deep data insights can help enterprise organizations with risk mitigation, cost reduction, and ensure that customers have access to the best credit products available based on their financial standing. Read more on SV Daily.