Apple and Innovation

The e Economist wrote (in a cover story) a couple weeks ago:

Apple has at least four important wider lessons to teach other companies.

The first is that innovation can come from without as well as within.

Second, Apple illustrates the importance of designing new products around the needs of the user, not the demands of the technology.

A third lesson from Apple is that smart companies should sometimes ignore what the market says it wants today.

The fourth lesson from Apple is to fail wisely.

Peripheral Vision

Steh Levine writes: “One of the great challenges of business in general and smaller, fast growing businesses in particular is figuring out the balance between near term focus and long term vision. While all companies become slaves to the calendar (striving for quarterly sales targets, specific product release dates, etc.) too many never look up to see where they are really headed…To borrow an analogy from mountain biking (sorry cycling season is in full force and it’s on my brain), companies need to be focused on where they are headed, as opposed to where they are, and use their peripheral vision to avoid current obstacles. In cycling you look up trail focusing not on what you’re riding over at the moment, but what you’re about to come upon (and by the time you’re there, you’re focused on the next thing). The faster you’re moving, the farther ahead you need to be looking (because it’s on you before you know it).”

TutorVista

The Economist profiles K Ganesh:

TutorVista further hammers home its labour-cost advantage through its pricing model. It offers unlimited tuition in a range of subjects for a subscription fee of $100 per month in America (and 50 a month in Britain, where the service launched earlier this year) rather than charging by the hour. Tutors are available around the clock; appointments can be made with only 12 hours’ notice.

It is too early to gauge the impact of the service on educational outcomes, says Mr Ganesh, but take-up is brisk. TutorVista has 2,200 paying subscribers at the moment (most of them in America) and hopes to boost that figure to 10,000 by the end of the year. The company is expected to become profitable in 2008. Even cheaper pricing packages are on the way. Launches of the service are planned for Australia and Canada. Mr Ganesh is also investigating the potential of offering tuition in English as a second language to students in South Korea, where high rates of broadband penetration make the market attractive. Get that right, and China looms as an even bigger prize.

Clay Christensen Interview

Business Week interviews the author of “The Innovator’s Dilemma” on the 10th anniversary of the book’s publication.

The book’s themethat good management is no guard against the disruptive power of new entrants who go after new customer groups or low-end marketsremains important today. “More than ever it has become shorthand for a classic problem,” says Patrick Whitney, director of the Institute of Design at the Illinois Institute of Technology. “People never have to explain it, they just mention Clayton’s name or The Innovator’s Dilemma and everyone gets what the problem is.”

Ten years later, however, the innovation landscape is rather different. Globalization has exponentially expanded where threats lie. Design thinking and its focus on the customer has captured the minds of managers. And as chief executives increasingly look to reinvent their business models, innovation is no longer defined in terms of mere technological breakthroughs. So how relevant is a book that chronicles the upending of the disk drive, steel, and earth excavator industries?

Steve Jobs Story

New York Magazine writes: “he Steve Jobs story is one of the classic narrativesmaybe the classic narrativeof American business life. Its structure has been rigorous, traditional, and symmetrical: three acts of ten years each. Act One (19751985) is The Rise, in which Jobs goes into business with his pal, Steve Wozniak; starts Apple in his parents Silicon Valley garage; essentially invents the personal-computer industry with the Apple II; takes Apple public, making himself a multimillionaire at age 25; and changes the face of technology with the Macintosh. Act Two (19851996) is The Fall: the expulsion from Apple, the wilderness years battling depression and struggling to keep afloat two floundering new businesses, NeXT and Pixar. Act Three (19972007) is The Resurrection: the return to Apple and its restoration, the efflorescence of Pixar and its sale to Disney, the megabillionairehood, the sanctification as god of design and seer of the digital-media future.”

Outcomes vs Activity

[via Om Malik] Chris Michel writes:

It is all about outcomes and not activities.

Most people tend to confuse activity with outcomes and it is a breathtakingly expensive mistake. In a world of infinite choices, choosing which activities will occupy your day is likely to be your single greatest driver of effectiveness. Beyond picking the right objectives to pursue, you need to focus on the results, not just the means to that end.

Need for Financial Planning

Basab Pradhan writes:

Great products, and anchor customer wins are the things that hog the limelight with startups. But in my opinion, sound financial planning is the unsung hero of the early stage of a companys life.

Sound financial planning can mean the difference between survival and an early demise. More commonly, an absence of financial planning means you have to raise a round of funding before you expect to do soand that is never optimal for a young company.

Your primary tool is your budget. The most important purpose of a budget is to forecast cash flows. It is easy to become lax about forecasts, especially beyond the next quarter, since there is so much uncertainty in the early stages of your business. You might be asking yourself: How do I forecast revenue when I havent sold anything yet!? But the absence of revenue is not a good enough reason to leave a revenue line out of your budget.

HP’s Turnaround

WSJ writes how HP reclained its lead over Dell: “H-P owes that remarkable turnabout to something Mr. Bradley concluded within weeks of arriving at the Palo Alto, Calif., company: H-P was fighting on the wrong battlefield. H-P was concentrating its resources to fight Dell where Dell was strong, in direct sales over the Internet and phone. Instead, he decided, H-P should focus on its strength, retail stores, where Dell had no presence at all. H-P was neglecting that advantage, Mr. Bradley found as he visited retailers and H-P factories, hearing complaints about late or incomplete deliveries. He worked hard to fix the logistical snafus and build better relations with the retailers, helping H-P surpass Dell in world sales late last year for the first time since 2003.”

Business Core

800-CEO-READ Blog writes about a new book “Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable Growth” by Chris Zook:

Zook has always stressed looking at the industry profit pool rather than the market size. He suggests it is changes in the profit pool that signal the need for redefining a company’s core. Your company could be losing your share of the pool (U.S. vs. Japanese automakers) but the market has not changed; the profit pool could have shifted to a different point in the value chain (Intel and Microsoft in PCs); new technology could completely change the economics of an industry (Amazon in books).

The core is where companies must find strength to withstand industry turbulence, Zook argues. But he also suggests that all companies have hidden assets that can be utilized when a company must redefine its core. Like any good consultant, Zook has classified them into three broad categories. The first is undervalued business platforms ranging from adjacencies into new geographies to support services to non-core businesses. The second is untapped customer insights, a familiar idea often hard to act on. Finally, underutilized capabilities are the most abstract of the three and were the least often used in the companies Zook examined.

PR

Guy Kawasaki talks to Margie Zable Fisher:

# The client doesnt understand the publicity process. PR folks need to better educate people about how publicity works. The first thing many clients ask is, Can you get me on Oprah or the front page of the Wall Street Journal? The answer might be yes, but the process to get to the yes may take months or years, and may first include a series of smaller placements.

# The scope of work is not detailed and agreed upon by both parties. Heres a typical example: a client signs an agreement to spend $3,000 per month. Client expects to get three publicity placements per month. PR person expects to work 20 hours, regardless of the outcome. The inevitable disconnect leads to customer frustration and the feeling of being burned.

# The client has not been properly trained on how to communicate with the media. Proper training for interviews is crucial; otherwise, key messages can be misconstrued, and even negative stories can result. Clients seldom blame themselves when this happens.

Platform Architects and Networks

N. Venkat Venkatraman writes:

Platform architecture is essentially network-centric. it involves coordination of modules (or sub-components) designed and delivered by different independent entities. So, while we may credit Apple for shifting the music industry to the network era, its success equally well depends on the broader ecosystem that it has orchestrated. Microsoft–despite succeeding in architecting the Wintel platform–has been unable to win with Zune thus far. Similarly, GM OnStar is a relatively closed (GM-centric) telematics platform that has not yet been adopted by any non-GM automakers for it to be considered a network-centric strategy while Microsoft is initially partnering with Ford Motor Company to launch a new dashboard OS. When Microsoft extends this experiment to deliver this functionality to non-Ford cars, it becomes a platform architect in the same spirit of Windows and Office platforms.

Platform architects earn revenue in two ways. There is direct payment from the users of the platform (e.g., Windows Vista or Office 2007, Sony PS3 or Xbox) or indirect payment from other parties involved in business transactions (e.g., advertising in the case of Google or transaction fee in the case of Visa or Amazon or eBay). The choice depends on network characteristics and customer propensity to pay for different features under different conditions.

Facebook’s Challenges

VentureBeat writes:

Facebook is growing quickly, adding between 100,000 and 150,000 new users per day, the company tells us, with the highest growth rates coming from abroad.

The break-neck growth shines a spotlight on two challenges possibly at odds with each other. The first is pragmatic: find more ways to monetize, possibly with an eye to go public. The latest example of Facebooks efforts here is Marketplace, its classified-ads service. The second strategy is more exploratory, but more exciting: provide a users social context, such as a list of their personal interests, their friends and groups to other sites and applications. This creates an online social ecosystem of sites offering any number of services.

Next week’s Tech Talk is on Facebook.

Operating Cash Flow

Matt McCall writes:

Cash is the life’s blood of any company. It comes from either the company’s operations or from raising capital. There are a number of definitions of cash flow. I prefer to focus on what the core operating business is generating or burning net of any financing activity. As a result, I look at Operating Cash Flow minus Cap-X. A gross generalization of this includes (apologies to all of my accounting & finance profs):

Net Income: plus depreciation, amortization and other non-cash cash income statement items, minus working capital needs, minus core, recurring capital expenditures (exclude large one time charges)

Since both working capital and cap-x can vary significantly monthly, you should average across a period of time that smooths out the swings such as the average monthly cash flow for a 3 or 6 month period. You should also understand how this changes as your business ramps since it will impact your financing needs.

Presenting Better

Pamela Slim gives some tips:

# As soon as you get to your location, set up and test your equipment. Schmoozing, coffee and furniture re-arranging can wait.
# Check and double check to make sure you bring the right presentation, and right version of the presentation, to the live event. Am I the only one that does last-minute changes to a presentation and mistakenly saves it to the wrong place on my hard drive?
# Fully charge your laptop battery, and bring a backup if necessary, even if you are planning to use a power cord.

Venture Capital and Parenting

Matt McCall writes:

One day, I was going through a bipolar moment. One of our companies was about to sell for a nice multiple on invested capital. However, later that day, another company informed us that it had lost two major customers and was in a severe liquidity squeeze. Since your attention always goes to the fire drill of the day, I jumped into crisis mode on company B while much of the euphoria from company A receded. Ironically, later that day, I was talking with a friend about children. He mentioned the quote above. You’ll often find yourself, as a parent, happy that one of your children finally mastered a hard task but find yourself stressed because another is struggling due to health, friends, academics or the like.

I began to think about the children/portfolio analogy and realized that there were a lot of other common lessons. Most of these relate to how you interact or manage the deal. One of the most difficult tendencies to avoid as a venture capital is to jump to deeply into the day to day operations of an entrepreneur’s business. VC’s have to walk the fine line between being helpful and being meddlesome. Many of these lessons also apply to CEO’s and how they manage their lieutenants.

Rules of Success

VentureBeat has a post by Igor Shoifot about “the ingredients to success in todays brutal Web 2.0 world.”

1. Work: get customers by resolving real pains, listen to them, create what they really want/enjoy, more importantly – co-create with them, address technological issues of scalable growth, build multiple revenue streams, greedily capture the key distribution channels by being valuable to the channels, incentivize, put low cost at the foundation of your growth and assure that growth brings business, not just eyeballs (that is, unless you are in a magnificent real estate business a la Youtube/Skype/Myspace).

2. Play: give customers real and compelling reasons to come back, and often, get their creativity going, make them enjoy (better: compete) expressing themselves, turn them into your best marketers by honestly serving them better than anyone and by passing as much value onto them as you can (or even more!), build viral growth mechanisms (and, no, incessant daily emails reminding your users to buy something are not a viral growth channel).

3. Shut up: If you really-really want to succeed for sure, then forget about everything else in life and concentrate on what youre building, that is, yes on #1 (working) and #2 (playing).

Why Many Tech Products Fail

Michael Mace writes:

Most of our companies tend to focus on building what I call how products. That means products that focus on enabling technologies to let people do a wide range of tasks. For example, building a web browser and a WiFi connection into a product that doesnt currently have them is a classic how move, because it enables the user to potentially do a lot of different interesting things.

The problem with the how approach is that normal people dont think this way. They are much more focused on what, as in What does the product do for me? Because they dont understand technology at a deep level, they cant see the possibilities created by a great enabling technology. And even if they could see the possibilities, they dont have the skills necessary to adapt it to their needs. Even an (allegedly) simple act like pairing a wireless device to an unfamiliar WiFi router can be enough to give a typical user hives.

In competitive situations, how products usually lose to whats…

Rising Competition

WSJ has an article by Dr. McAfee and Dr. Brynjolfsson:

If this brutal competitive cycle — first described as “creative destruction” by Austrian economist Joseph Schumpeter in 1942 — makes you uncomfortable, we’ve got some bad news.

We’ve been studying competition in all U.S. industries, not just the high-tech ones, and we’ve observed a remarkable pattern: On average, the whole U.S. economy has become more “Schumpeterian” since the mid-1990s. What’s more, these changes have been greatest in the industries that buy the most software and computer hardware.

Over the past dozen years, in other words, information-technology consumption is associated with the kinds of competitive dynamics we’re accustomed to seeing in the IT-producing industries. And because every industry will become even more IT-intensive over the next decade, we expect competition to become even more Schumpeterian.

Relationship Marketing

Stephen Johnston blogs about comments made by Lester Wunderman at the Forrester Marketing Forum:

# We used to be in the business of direct marketing now were in the business of relationship marketing.
# We will eventually move on to personal marketing, which will be facilitated by the use of data.
# Four goals for direct marketing: Relevance, relationship, repurchase, and retention.