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By that logic, no startup that somehow touches on established players markets would be worth doing. A bit like saying Writely should never have built a web-bas

by phreeza 16y ago

By that logic, no startup that somehow touches on established players markets would be worth doing. A bit like saying Writely should never have built a web-based text processor because Microsoft can "easily muscle in" and eat their lunch.

hugh3 16y ago
What I should have said is that the car industry, unlike the software industry, has huge advantages for big players (due to the enormous capital cost of... well, nearly everything), and small advantages for first movers (due to the near-nonexistent network effects).
- jbooth 16y ago
  Yeah, but the product cycle is 2-4 years. Plenty of time for you to get rich by being bought out by the big guys to accelerate time to market, or by land-grabbing a decent market share in that window before they catch up to you.
nostrademons 16y ago
That's largely true. Writely and Word are in different markets - the market for web-based cloud word processors is very different than the one for full-featured desktop word processors. Same goes for most of the web startups that have succeeded. Somebody is inevitably going to bring up Google, since there were established players in search when Google was founded. But at the time of Google's founding, all the established players in search thought that their business was in portals, leaving the search market itself open for a hungry competitor. Clayton Christensen has more on this in The Innovator's Dilemma/Solution. Innovations that make things better for an established market's existing customers tend to be sustaining innovations, benefiting entrenched players. Even if a startup gets a foothold on one, they can and will be bought out or outcompeted by a big firm, which has more resources and every incentive to pour them into development. Innovations that make things better for a new and untapped customer base, however, tend to be disruptive innovations, the sort of which new successful startups are made. The defining characteristic of disruptive innovations is that they're less profitable than sustaining innovations: therefore, at every point in time, the large entrenched competitors have every incentive not to succeed in the startup's market. Things like the PC for IBM, the web for Microsoft, free online access for newspapers, and search for Altavista. Note that in all cases, those companies did enter the new market, they just didn't succeed in it. Because it was not in the company's interest to succeed: A success would mean that the company's overall profit is less than it started with, which is awfully hard to justify to shareholders. I'm not entirely sure which category Tesla fits into, but I'm having a tough time seeing a $109k roadster and $57k sedan as disruptive innovations, which usually target cheaper market segments that big companies overlook as unprofitable.
- pchristensen 16y ago
  I pretty much agree, just one more thing to add. Disruptive innovations are more about the market and business model than the technology itself. That's why relatively crappy inventions can take root. For instance, PCs were not good compared to mainframes or workstations, but they were bought by people that weren't buying workstations. This gave them the chance to build businesses and improve until they could later compete with, and displace workstations. For Tesla, what is the disruptive market? I'm not sure. Their cars do the same things as other cars, with different inputs. If their "disruptive" niche is to be an eco-fashion symbol, and that gives them time to build a car whose TCO is 20+% less because of the difference in fuel cost per mile, then they have a shot. For what could truly be disruptive to personal transportation is Better Place ( http://www.wired.com/cars/futuretransport/magazine/16-09/ff_agassi?currentPage=all http://www.wired.com/cars/futuretransport/magazine/16-09/ff_... ). Sure, it's expensive, limited, and poor right now, but if it can work in Israel, Denmark, and Hawaii, and prove and grow the business from there, it can change things in a much bigger way than Tesla can.
  - eru 16y ago
    You can sell electric cars on subscription where the customers pays per km driven. That might be a disruptive business model. Some companies are already doing so.
- dgreensp 16y ago
  I agree with some of your points, but I think "avoid competition / competitors' markets" is a fallacy and bad advice. Successful companies succeed in the face of competition, and capitalize on some opportunity, which could be a technology, a market shift, a business model, or a partnership. You can often turn this "seizing a (unique) opportunity" truism into a "looking where others didn't" story in hindsight, and start getting excited about real "off the map" innovations, as if there's something inherently good about that, business-wise. In Google's case they simply came up with a better business model, though their tech strength helped. Altavista was a search company. Google didn't succeed by not stepping on Altavista's toes in the "portal market" (which I'm sure is entirely distinct from the web search market), they just built a better search business.

by phreeza 16y ago

hugh3 16y ago

What I should have said is that the car industry, unlike the software industry, has huge advantages for big players (due to the enormous capital cost of... well, nearly everything), and small advantages for first movers (due to the near-nonexistent network effects).

jbooth 16y ago
Yeah, but the product cycle is 2-4 years. Plenty of time for you to get rich by being bought out by the big guys to accelerate time to market, or by land-grabbing a decent market share in that window before they catch up to you.

nostrademons 16y ago

That's largely true. Writely and Word are in different markets - the market for web-based cloud word processors is very different than the one for full-featured desktop word processors. Same goes for most of the web startups that have succeeded. Somebody is inevitably going to bring up Google, since there were established players in search when Google was founded. But at the time of Google's founding, all the established players in search thought that their business was in portals, leaving the search market itself open for a hungry competitor. Clayton Christensen has more on this in The Innovator's Dilemma/Solution. Innovations that make things better for an established market's existing customers tend to be sustaining innovations, benefiting entrenched players. Even if a startup gets a foothold on one, they can and will be bought out or outcompeted by a big firm, which has more resources and every incentive to pour them into development. Innovations that make things better for a new and untapped customer base, however, tend to be disruptive innovations, the sort of which new successful startups are made. The defining characteristic of disruptive innovations is that they're less profitable than sustaining innovations: therefore, at every point in time, the large entrenched competitors have every incentive not to succeed in the startup's market. Things like the PC for IBM, the web for Microsoft, free online access for newspapers, and search for Altavista. Note that in all cases, those companies did enter the new market, they just didn't succeed in it. Because it was not in the company's interest to succeed: A success would mean that the company's overall profit is less than it started with, which is awfully hard to justify to shareholders. I'm not entirely sure which category Tesla fits into, but I'm having a tough time seeing a $109k roadster and $57k sedan as disruptive innovations, which usually target cheaper market segments that big companies overlook as unprofitable.

pchristensen 16y ago
I pretty much agree, just one more thing to add. Disruptive innovations are more about the market and business model than the technology itself. That's why relatively crappy inventions can take root. For instance, PCs were not good compared to mainframes or workstations, but they were bought by people that weren't buying workstations. This gave them the chance to build businesses and improve until they could later compete with, and displace workstations. For Tesla, what is the disruptive market? I'm not sure. Their cars do the same things as other cars, with different inputs. If their "disruptive" niche is to be an eco-fashion symbol, and that gives them time to build a car whose TCO is 20+% less because of the difference in fuel cost per mile, then they have a shot. For what could truly be disruptive to personal transportation is Better Place ( http://www.wired.com/cars/futuretransport/magazine/16-09/ff_agassi?currentPage=all http://www.wired.com/cars/futuretransport/magazine/16-09/ff_... ). Sure, it's expensive, limited, and poor right now, but if it can work in Israel, Denmark, and Hawaii, and prove and grow the business from there, it can change things in a much bigger way than Tesla can.
- eru 16y ago
  You can sell electric cars on subscription where the customers pays per km driven. That might be a disruptive business model. Some companies are already doing so.
dgreensp 16y ago
I agree with some of your points, but I think "avoid competition / competitors' markets" is a fallacy and bad advice. Successful companies succeed in the face of competition, and capitalize on some opportunity, which could be a technology, a market shift, a business model, or a partnership. You can often turn this "seizing a (unique) opportunity" truism into a "looking where others didn't" story in hindsight, and start getting excited about real "off the map" innovations, as if there's something inherently good about that, business-wise. In Google's case they simply came up with a better business model, though their tech strength helped. Altavista was a search company. Google didn't succeed by not stepping on Altavista's toes in the "portal market" (which I'm sure is entirely distinct from the web search market), they just built a better search business.