It’s hard not to notice that the players that were dominant in the cell phone market a few years ago have been marginalized by players such as Apple and Blackberry. It’s easy to attribute this to technology saying that the iPhone was so technologically superior to the phones of the time that it was inevitable, or that iPhone redefined the cell phone industry. However, it is important to note, I think, that the iPhone wasn’t mainly a technological innovation, in fact the technology to do most of what the iPhone does had been available for years, what happened was non-technology based disruption that largely was due to the incumbent industries inability to meet a very complex user need. Let’s look at the case of the iPhone to see what really happened.
Consumers were screaming for increased use of their cell phones, yet there was no solution in sight, but let’s for the purpose of limiting this post look at music as an example, keep in mind though that music is just one example and that you can replace “music” with “content” or “applications” in most places where I use the word. So, the consumers were screaming to use their cell phones for music, yet there was no good solution in sight. There were three parts of the infrastructure that needed to come into place, the content, the device and the network capacity, these were controlled by three types of actors with differing interests that would have to come together to put music on phones in a user friendly way: cell phone manufacturers, record labels (content providers) and phone carriers.
The manufacturers was happy with the way things were, incremental innovation, mostly in design, lowered the product life cycle so that new phones was bought all the time, they didn’t have to spend much on marketing, because consumers often bought what they were recommended in the (carrier owned) stores, so the best marketing was to have good relations with carriers, making sure both players made good money on selling that particular phone. The market mechanisms seemed to have stabilized, leaving no reason to think there was any change around the next corner. The manufacturers were largely dependent on the carriers. Since the stores where cell phones were bought generally belonged to the carriers, people chose their phone on the basis of what carriers offered them, the best thing a manufacturer could do was to be present in as many stores as possible, and just make sure they didn’t fall behind the other brands in innovation. Indeed a comfortable place to be for a large firm.
The record labels viewed cell phones as a treat, this seems to be their strategy with most new technology, so consumers were pirating music and putting it on their phones, with little revenue finding its way to labels. The labels would have preferred a pipeline of music that went through carriers, for example you would by a song for a few dollars through SMS or WAP. For consumers this took too long and was too expensive, for them it was easier to just use their pirated/ripped media library on their computer and use a cable or whatnot to transfer the songs to their cell phones. The phones didn’t have any storage capacity anyway to support buying a media library that would just work on your phone. In an effort to limit pirating, the music industry didn’t even make an effort to expand their market by finding a viable business model in cell phones or mp3-players.
The carriers on their part had a wholly different agenda, music didn’t really interest them. When a carrier imagined a future where wireless high speed internet access, together with technologies such as Skype was dominant, they got sick to their stomach, because that was a world where they were redundant. The carriers have been selling subscriptions that has a monthly fee and fixed prices on for example calls and texts, by adding free or cheap cell phones to the mix they could confuse buyers into buying subscriptions with crazy margins. If phones become internet based (with for example Skype as the carrier), they will at most be able to maintain the monthly fees, a prospect that will allow consumers to better understand what they are paying in relation to other carriers, this will lead to a lowering of the carriers margins, and force them to compete on price.
Needless to say, the phone carriers wanted to postpone the introduction of high-speed internet to phones and thus didn’t want music consumption to go through the high-speed connectivity that the consumers needed to effectively use their phones for music, because this connectivity could also facilitate other uses. For them the “pirate music on your computer then transfer to phone” model was sufficient, and no one bought a lot of music from the crappy stores they had anyway, why go into a market that clearly can’t be solved in their best interest? This stifled the innovation among the manufacturers, because, as noted above, they didn’t want to upset the carriers that they were so dependent on. And besides, they didn’t own any content that could be sold anyway, how would they make more money from adding functionality which someone else would get the revenue from (if anyone would get any revenue at all), and that their most important partners didn’t even want or push for? They settled for having the capacity to play music, in their crappy homemade players, and consumers would have to take it or leave it.
Enter Apple. Apple had three resources that allowed them to enter, they already had a deal with the record labels; the labels acting on their fear of becoming obsolete had agreed to sell music through iTunes for use in mp3-players, given that all effort would be made to limit the ability to copy the music, which suited Apple well. Apple also had the expertise to create ways for consumers to interact with the technology, this is really the only expertise Apple had that separated them, the technology, which is the third resource, was widely available, and Apple had a large engineering division that could make the phone. What happens is that Apple enters as a cell phone manufacturer and has a deal with the record labels. The high speed connectivity that carriers didn’t want and that the other manufacturers didn’t see any point in providing was pivotal to Apples plan, they wanted to make money not only on their phones, but on the extras as well, like iTunes. Apple also had a plan to sell other content, but let’s keep with the music for this post.
Apple had an advantage over the other manufacturers; they had a congregation that would buy their product no matter what. The iPhone was also perceived as an iPod with phone capability; to consumers this was just as good as phone with mp3 capability would have been. In addition consumers already knew how to consume music on mp3-players, they didn’t to the same degree know how to do this on their phones. Thus the iPhone was perceived as a better music player than the other phones, but not as inferior when it came to the phone capability. The incumbents in their infinite wisdom had their core competency in making phones, however this wasn’t perceived as important, because any technology company can make the phone part of a phone. These reasons add up to the fact that consumers wanted the iPhone, whether their carrier recommended them or not, this represented a shift in power, from the carrier’s power over the manufacturers, to Apples power over carriers. Even if the smart phone, here exemplified as the iPhone, likely will be the death of the carriers current business model (as noted above) in the not so distant future, the carriers needed to scramble to make sure they would be the one that had a monopoly on marketing the iPhone, because now the consumers would buy the carrier that had the iPhone, not the phone that carrier recommended.
Though I limited this post to apply to music it could just as easily apply to other content, such as movies or games. The point is that Apple sees an opening where the increasing needs of consumers are not reflected in the market offerings, and where the players that are necessary to fulfill this market need are looking the other way. If the three types of actors above had put their heads together, they likely would have seen this path to profit, and would have acted on it, but they were busy following different agendas. The genius of Apple lies in realizing that more sophisticated phones wasn’t the need at all, the actual need was made up of at least two different needs, the need for better phones and the need for some way to use the better phones. Apple set about to provide both at the same time, and it was this that gave them the ability to enter the market for cell phones with such a success.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Friday, 19 February 2010
Tuesday, 9 February 2010
Why brands matter
I came across a quote the other day, and I’ll poorly paraphrase it here. The quote explains why the Coca-Cola Company and many other firms have market values that are way above their physical assets and reminds us all that brands matter. Allegedly the brand manager for Coke in the 80’s said that, and I paraphrase to the best of my ability, “if all the factories and inventories of the Coca-Cola company burned down tomorrow, we would be back in business in 2 months, making just as much as we do today, if however, all knowledge of Coca-Cola disappeared from people’s minds tomorrow it would take us 100 years to come back”.
Building a brand may often seem costly and pointless, but keep in mind how important the brand has been for companies that target consumers directly. A brand may not always be the right solution, especially in cases where you only buy once (like building a house), or where the market is driven largely by price (like aluminum), but when it is the solution you had better take it seriously!
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Building a brand may often seem costly and pointless, but keep in mind how important the brand has been for companies that target consumers directly. A brand may not always be the right solution, especially in cases where you only buy once (like building a house), or where the market is driven largely by price (like aluminum), but when it is the solution you had better take it seriously!
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Wednesday, 3 February 2010
Choosing a company name
There are many things to consider when choosing a name, for a product or for a company, the central concept to keep in mind is that this is your brand name, not just a name that should appear in a business registry somewhere. The first thing to consider is your product, if you chose to market your product on the basis of a certain aspect of it, what is called a Unique Selling Point (USP), you should have a name that describes the benefit. Examples of this strategy are Duracell (durable battery cells), 7-Elleven (from the original opening hours) and Microsoft (small and therefore effective software). When your product is branded on the basis of more experience related aspect, names that trigger the imagination around the experience is more suitable, examples of this include Bounty (chocolate), Nike (the Greek god with wings on her shoes) and Häagen-Dazs (made up "to convey an aura of the old-world traditions and craftsmanship"). In this way company names can help the marketing of the product.
Another way to look at it is to classify names from fictive to descriptive on a continuum, on one end you have totally made up names, like Kodak, and on the other end you have names that describe the product, like Kellogg’s Corn Flakes. Descriptive names can also describe the situation of use, like After Eight, the target group, like Teen Magazine, or other aspects that are relevant to the product. In between you have names that are based on other things that are relevant to the company but not to the product, like Six Apart, that took their name since the two founders were born six days apart, names based on place of origin, like Scania, which is Latin for the place in Sweden the company was founded. Names can also be descriptive without it being of the product, like Camel for cigarettes or Amazon for the online bookstore. Yet another approach in here is to describe the product in another language, such as French, Latin or Greek. By choosing names that are not related directly to the product you lose the customers instant realization of what the company does when hearing the name, but you can make names that are more distinct from others, reducing the risk you will be confused with competitors.
A third way to name a company can be based on rhetorical principles, meant to induce people to remember the name better. One way is alliteration, the repetition of consonants in the word, like Coca Cola, if you repeat the vowel, this is called assonance, for example Poco Loco. You can use rhymes or imperfect rhymes, Poco Loco again, or Black and Decker as an imperfect rhyme, names can also rhyme in the beginning of the word, Copenhagen Consulting Company is an example of this. My personal favorite are oxymoron’s, United Nations is a good example, Soft and Crunchy another. Metaphors are popular, Microsoft Explorer or Apples Safari. Palindromes are word that can be read the same both ways, like Omo, the Norwegian detergent. Spelling errors annoy people, but it does stick to the brain, just make sure it’s obvious that it’s on purpose, have you for example seen del.icio.us? or Reddit (read it in) for that matter?
Just remember to pick a name that fits your product, that is unique, that is not too long, that has a free domain name, that is easy to remember, that doesn’t have alternate meanings in other languages where you plan to enter (like the Finnish anti-freeze Super-Piss) and that doesn’t get confused with other brands.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Another way to look at it is to classify names from fictive to descriptive on a continuum, on one end you have totally made up names, like Kodak, and on the other end you have names that describe the product, like Kellogg’s Corn Flakes. Descriptive names can also describe the situation of use, like After Eight, the target group, like Teen Magazine, or other aspects that are relevant to the product. In between you have names that are based on other things that are relevant to the company but not to the product, like Six Apart, that took their name since the two founders were born six days apart, names based on place of origin, like Scania, which is Latin for the place in Sweden the company was founded. Names can also be descriptive without it being of the product, like Camel for cigarettes or Amazon for the online bookstore. Yet another approach in here is to describe the product in another language, such as French, Latin or Greek. By choosing names that are not related directly to the product you lose the customers instant realization of what the company does when hearing the name, but you can make names that are more distinct from others, reducing the risk you will be confused with competitors.
A third way to name a company can be based on rhetorical principles, meant to induce people to remember the name better. One way is alliteration, the repetition of consonants in the word, like Coca Cola, if you repeat the vowel, this is called assonance, for example Poco Loco. You can use rhymes or imperfect rhymes, Poco Loco again, or Black and Decker as an imperfect rhyme, names can also rhyme in the beginning of the word, Copenhagen Consulting Company is an example of this. My personal favorite are oxymoron’s, United Nations is a good example, Soft and Crunchy another. Metaphors are popular, Microsoft Explorer or Apples Safari. Palindromes are word that can be read the same both ways, like Omo, the Norwegian detergent. Spelling errors annoy people, but it does stick to the brain, just make sure it’s obvious that it’s on purpose, have you for example seen del.icio.us? or Reddit (read it in) for that matter?
Just remember to pick a name that fits your product, that is unique, that is not too long, that has a free domain name, that is easy to remember, that doesn’t have alternate meanings in other languages where you plan to enter (like the Finnish anti-freeze Super-Piss) and that doesn’t get confused with other brands.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Tuesday, 2 February 2010
Stepping out of the box (part 2): Techniques for stepping out of the box
This post continues from this post, and explains some steps that can be taken to step out of the afore-mentioned box.
Start anywhere but at the start
If you were to write a book, a criminal novel, where would you start? Most people I guess, would figure out a plot, and then start fiddling with the details. What if you just started to write? Don’t have a plot; don’t know how it ends or who the killer is. Just write something crazy, introduce us to the situation where the protagonist comes across the murder. Put in as many weird details as you can, then start working them out. The result will be very different than if you start by deciding how the murder took place, how the murderer covered it up and then write the book. In inventing it’s the same, most people start either with a technology or an unmet need. Don’t do that, find somewhere else to start. Find a crazy theory of where to start.
How about this? Most people start companies that they either know something about or that interest them. Find out what you know the least about and start with that. Find something that interests no one and start there. Think about roads, extremely boring, and I know nothing about making them. Maybe that’s a good place to start, exactly because I don’t know anything I can’t have any preconceived notions, I don’t know that I have to make the roads using asphalt and stone, maybe because I don’t know that I had to go to a university to ask someone, maybe I went in to the wrong building and met the wrong guy, but maybe it turned out that he had just invented a cheap material that would be perfect for roads, only that he hadn’t realized what the material was for? Maybe he had invented something completely different and you could go with that instead?
Find a starting place that is outside the normal, then you force yourself to think in a new way.
Challenge yourself beyond your capability
The previous example also advocates this point. A friend of mine considers himself a pickup artist, which means he goes out twice a week to pick up girls, and are fairly successful. However, he never uses the same approach twice, so each time he picks up a girl the difficulty goes up, and so does his success rate. My theory is that the more approaches he use, the further he comes from what is normal to do when picking up girls, and the less he is categorized as “the guy who just want to get laid”. It also shows that he is having fun, he’s a cool guy, that loves what he is doing. He says random things, and because of that he get’s random results. My point is that for us that accompany him we always think “that is never going to work”, but sometimes it does, and we are as surprised each time. The thing is that you never discover new grounds if you keep doing the same stuff. A business example would be the notion that start-ups cannot sell to fortune 500 companies. So people will generally tell you to not try. Why not? You have nothing to lose, call Microsoft, tell them about your product, request a meeting. Don’t think your product is good enough? Well, then your that guy sitting on the sideline saying that’s never going to work while your friend steps out of his comfort zone and get the girls. Embarrass yourself, fail, but try; you will be surprised at what you can achieve!
Give yourself over to chance
We make our decisions based on our assumptions, that means that there’s systematic errors in your decision making. If you want something new to happen you can throw a dice. Should I go to that interview or that interview? Throw a dice, let chance decide, not because there’s faith and everything is supposed to happen and so forth, no, because then you end up in situations that you normally wouldn’t be in, and then you get to think about problems that you normally wouldn’t.
Ask someone different
Take the Play-Doh example above, the solution to the problem wasn’t anything that was in the toolbox of the director or the MBA’s, it was a preschool teacher that came up with a solution. Again, if you keep doing the same you get the same results, if you ask the same people you get same answer. MBA’s are all in the same box, so ask someone that’s outside the box, maybe that can shed light from an angle you haven’t seen. If you however are a preschool teacher try asking an MBA. If you are a CEO, try asking someone on the floor, of you are an entrepreneur try asking an athlete. Find people that are different than you, that think different, that knows less, ask them and listen to them. It's not always those that should have the answers that have them, we often just assume they do. Did you know that monkeys can pick stocks just as well as professionals? Often better? Consider this excerpt:
How about that? So maybe amateur investors should stop listening to professionals and go ask the monkeys, or even start making their own theories - that shouldn't be based on the ideas of the financial advisors. (I would go get a sociologist to explain the nature of socially constructed reality if I wanted to make money on stocks, stock brokers don't even know what it is and yet the sociologist will claim thatit controls their every move).
It’s ok to be wrong
Seriously. It is. Whenever in an argument over what’s right and what’s not, try to think “what if I’m wrong”. A good way to do this is to whenever you have a discussion about something, take a break, go to someone that agrees with you and argue the other point. Often we are so sure that we are right that we cannot for the life of us even consider the alternative, but remember that the other person is just as likely to be right if that person believe in her ideas as strongly as you do!
Question all assumptions!
It’s well known that kids have an easier time learning languages than adults. Is it true? I don’t know. It takes a kid two years to learn their first language in a way that they can make themselves understood, and still it’s a couple of years before they speak it any good. I’m pretty sure I could learn French in four years if that’s all I had to do. That kids can learn to speak languages easier than adults is a cultural assumption. It’s something we all (or most of us) believe to be true. The thing is that it doesn’t have to be true, it can of course be true, but if you start questioning these assumptions when you come across them you will surprisingly often find that maybe they aren’t always true. The man running the factory in the example above assumed that his product could only be used for cleaning wall paper. His assumption was wrong, now we assume that making Play-Doh was his best course of action, maybe we are wrong? When you talk to someone, try figure out what yours and theirs basic assumptions are. Challenge them.
Crisis
When everything goes as planned it’s easy to keep routinely doing the tasks you have always done. When crisis appear, that’s when you have to think about new ways to do something. In a way crisis force you to consider option you otherwise wouldn’t, a teenager might not get into the educational program she wanted, so she has to look for new options, a company might discover that their product is no longer in demand, so they have to find new products, or new uses for their products. A new father might discover that his life is turned upside down, so he has to change his routines and his survival strategies.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Start anywhere but at the start
If you were to write a book, a criminal novel, where would you start? Most people I guess, would figure out a plot, and then start fiddling with the details. What if you just started to write? Don’t have a plot; don’t know how it ends or who the killer is. Just write something crazy, introduce us to the situation where the protagonist comes across the murder. Put in as many weird details as you can, then start working them out. The result will be very different than if you start by deciding how the murder took place, how the murderer covered it up and then write the book. In inventing it’s the same, most people start either with a technology or an unmet need. Don’t do that, find somewhere else to start. Find a crazy theory of where to start.
How about this? Most people start companies that they either know something about or that interest them. Find out what you know the least about and start with that. Find something that interests no one and start there. Think about roads, extremely boring, and I know nothing about making them. Maybe that’s a good place to start, exactly because I don’t know anything I can’t have any preconceived notions, I don’t know that I have to make the roads using asphalt and stone, maybe because I don’t know that I had to go to a university to ask someone, maybe I went in to the wrong building and met the wrong guy, but maybe it turned out that he had just invented a cheap material that would be perfect for roads, only that he hadn’t realized what the material was for? Maybe he had invented something completely different and you could go with that instead?
Find a starting place that is outside the normal, then you force yourself to think in a new way.
Challenge yourself beyond your capability
The previous example also advocates this point. A friend of mine considers himself a pickup artist, which means he goes out twice a week to pick up girls, and are fairly successful. However, he never uses the same approach twice, so each time he picks up a girl the difficulty goes up, and so does his success rate. My theory is that the more approaches he use, the further he comes from what is normal to do when picking up girls, and the less he is categorized as “the guy who just want to get laid”. It also shows that he is having fun, he’s a cool guy, that loves what he is doing. He says random things, and because of that he get’s random results. My point is that for us that accompany him we always think “that is never going to work”, but sometimes it does, and we are as surprised each time. The thing is that you never discover new grounds if you keep doing the same stuff. A business example would be the notion that start-ups cannot sell to fortune 500 companies. So people will generally tell you to not try. Why not? You have nothing to lose, call Microsoft, tell them about your product, request a meeting. Don’t think your product is good enough? Well, then your that guy sitting on the sideline saying that’s never going to work while your friend steps out of his comfort zone and get the girls. Embarrass yourself, fail, but try; you will be surprised at what you can achieve!
Give yourself over to chance
We make our decisions based on our assumptions, that means that there’s systematic errors in your decision making. If you want something new to happen you can throw a dice. Should I go to that interview or that interview? Throw a dice, let chance decide, not because there’s faith and everything is supposed to happen and so forth, no, because then you end up in situations that you normally wouldn’t be in, and then you get to think about problems that you normally wouldn’t.
Ask someone different
Take the Play-Doh example above, the solution to the problem wasn’t anything that was in the toolbox of the director or the MBA’s, it was a preschool teacher that came up with a solution. Again, if you keep doing the same you get the same results, if you ask the same people you get same answer. MBA’s are all in the same box, so ask someone that’s outside the box, maybe that can shed light from an angle you haven’t seen. If you however are a preschool teacher try asking an MBA. If you are a CEO, try asking someone on the floor, of you are an entrepreneur try asking an athlete. Find people that are different than you, that think different, that knows less, ask them and listen to them. It's not always those that should have the answers that have them, we often just assume they do. Did you know that monkeys can pick stocks just as well as professionals? Often better? Consider this excerpt:
“In the four years since [Chicago Sun’s Monkey] has chaired and inspired this contest, his stocks have posted annual returns of 37 percent, 36 percent, 3 percent and, in 2006, 36 percent, beating the major indexes every time. It's proof that you don't have to be an insider CEO, an insider hedge-fund manager or a loudmouth on CNBC to make money in the market.”(read the entire article)
How about that? So maybe amateur investors should stop listening to professionals and go ask the monkeys, or even start making their own theories - that shouldn't be based on the ideas of the financial advisors. (I would go get a sociologist to explain the nature of socially constructed reality if I wanted to make money on stocks, stock brokers don't even know what it is and yet the sociologist will claim thatit controls their every move).
It’s ok to be wrong
Seriously. It is. Whenever in an argument over what’s right and what’s not, try to think “what if I’m wrong”. A good way to do this is to whenever you have a discussion about something, take a break, go to someone that agrees with you and argue the other point. Often we are so sure that we are right that we cannot for the life of us even consider the alternative, but remember that the other person is just as likely to be right if that person believe in her ideas as strongly as you do!
Question all assumptions!
It’s well known that kids have an easier time learning languages than adults. Is it true? I don’t know. It takes a kid two years to learn their first language in a way that they can make themselves understood, and still it’s a couple of years before they speak it any good. I’m pretty sure I could learn French in four years if that’s all I had to do. That kids can learn to speak languages easier than adults is a cultural assumption. It’s something we all (or most of us) believe to be true. The thing is that it doesn’t have to be true, it can of course be true, but if you start questioning these assumptions when you come across them you will surprisingly often find that maybe they aren’t always true. The man running the factory in the example above assumed that his product could only be used for cleaning wall paper. His assumption was wrong, now we assume that making Play-Doh was his best course of action, maybe we are wrong? When you talk to someone, try figure out what yours and theirs basic assumptions are. Challenge them.
Crisis
When everything goes as planned it’s easy to keep routinely doing the tasks you have always done. When crisis appear, that’s when you have to think about new ways to do something. In a way crisis force you to consider option you otherwise wouldn’t, a teenager might not get into the educational program she wanted, so she has to look for new options, a company might discover that their product is no longer in demand, so they have to find new products, or new uses for their products. A new father might discover that his life is turned upside down, so he has to change his routines and his survival strategies.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Stepping out of the box (part 1): Taking the red pill / Drinking the Kool-Aid
What is the box?
Coming up with radical inventions requires you to step out of the box, but what does this mean? Well, the box is a metaphor for your preconceived notions. The box is the Matrix. It is the world that has been pulled over your eyes and blinds you from the truth. It is said that Edison once fired a man for salting his soup before he tasted it; the reason is that this implied that the man was so blinded by the box that he forgot to check its validity. The man couldn’t know that soup needed salt if he hadn’t tasted it, but of course he assumed that he had to salt it because he had eaten so much soup that the salting was on autopilot. The box are all those things we take for granted. From the small things, such as “hamburgers are eaten with a side of french fries, not rice” to the big things, like, “the earth orbits the sun”, some of these assumptions may be true, but this isn’t really the point, the point is that the assumptions block us from thinking differently.
Why should we step out of the box?
First let’s look at why we are in the box. Our minds are designed to maintain the reality we believe exists, and generally this is very useful. What if you had to rethink how to open a door each time you walked through it? What if you had to decide if you liked your girlfriend each time you met her? What if the doctor had to convince you that the drugs you are taking actually will help each morning? It would make life extremely tedious, and the strain on our cognitive ability would be very high, so that our brains would require a lot more energy, i.e. we would need bigger brains and more to eat, which isn't good from an evolutionary perspective. Another reason we are in the box is because it is useful to maintain a sense of stability and reality. Research even shows that after people make a decision on any topic the brain will start to justify the decision so that you won’t change your mind so easily. This also goes for belief. Think about politics, when you decide that a certain party or politician is the one that should be elected it is really hard to change. This is called cognitive dissonance, and is just one of many mechanisms that help us maintain a healthy sense of continuity and reality, it makes us feel consistent. Historically this was useful because it freed up the brain to solve more important issues with its limited resources, in modern day society it's useful for that very same reason.
The problem with our sense of continuity is that it blocks our ability to think about what the world would be if it wasn’t the way it is. This is why US presidents are reelected more times than not. We strive for continuity, because we don’t understand how the world could be different. Stepping out of the box allows us to think about the world in new ways. It allows us to see things that others cannot see. First when you free your mind from the idea that transportation is either by foot or by horse can you start thinking about cars. Did you know that the wheel was never invented on the American continent before the Europeans arrived? They had circles, but no wheels, how weird is that? And no one can blame them, this is how our minds work. We see everything that exist as obvious and natural (the wheel for you and me), and everything that don’t exist, well it generally doesn’t occur to us.
Let me give you an example. I heard an anecdote that goes something like this: Once upon a time, in the olden days a man was running a factory, this factory produced a type of malleable sticky clay that was used to remove sot from the walls. You see, back in those days people warmed their houses by burning coal, and this left residue on the walls. A person would then buy some of this clay-like substance and roll it on the wall, the sot from the coal would then stick to the blob. Since the blob was white the coal would color it so you could even see when it was so dirty that you had to get a new one. One day however the sales started declining, a thorough market analysis revealed that people were using less coal to heat their houses, thus the demand for white clay-blobs fell as well. The manager of this factory started to worry, so he hired the best MBA’s in the kingdom to figure out what to do. The MBA’s effectivised the routines, lay off people, streamlined shipping and so on until they had reduced the cost of the factory to the point where it was impossible to reduce them further. The factory was however still in a crisis, because the problem of course wasn’t the cost, it was that no one needed their product. So what was he to do? In total despair he went to dinner to his sister, she was a preschool teacher, and as casual dinner conversation he explained everything and that he was probably going to lose his job and would have to shut down the entire business. His sister asked if she could look at the product and the manager fished out a piece of white clay from his pocket, his sister started molding it into shapes, and decided to bring it to her daycare the next day to show the kids. When she came back, she suggested making the clay in different colors, calling it Play-Doh and marketing it to kids. Today this business is much bigger than the wallpaper cleaning business of decades past ever was.
The moral of the story is of course that when you look outside the box of your usual surrounding you find solutions that you wouldn't otherwise find. This manager hired MBA’s, and no offence to MBA’s, they’re great, but they all think alike. If you need someone to think different, then don’t use people that think like you and each other. If you do the same, then how come you expect different results? MBA’s have a set of tools, and when you have a hammer, a surprising amount of problems looks like nails. Only when the manager (by chance in this case) got someone that thought differently to think about the problem could a radically new idea come about. To continue reading click here.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Coming up with radical inventions requires you to step out of the box, but what does this mean? Well, the box is a metaphor for your preconceived notions. The box is the Matrix. It is the world that has been pulled over your eyes and blinds you from the truth. It is said that Edison once fired a man for salting his soup before he tasted it; the reason is that this implied that the man was so blinded by the box that he forgot to check its validity. The man couldn’t know that soup needed salt if he hadn’t tasted it, but of course he assumed that he had to salt it because he had eaten so much soup that the salting was on autopilot. The box are all those things we take for granted. From the small things, such as “hamburgers are eaten with a side of french fries, not rice” to the big things, like, “the earth orbits the sun”, some of these assumptions may be true, but this isn’t really the point, the point is that the assumptions block us from thinking differently.
Why should we step out of the box?
First let’s look at why we are in the box. Our minds are designed to maintain the reality we believe exists, and generally this is very useful. What if you had to rethink how to open a door each time you walked through it? What if you had to decide if you liked your girlfriend each time you met her? What if the doctor had to convince you that the drugs you are taking actually will help each morning? It would make life extremely tedious, and the strain on our cognitive ability would be very high, so that our brains would require a lot more energy, i.e. we would need bigger brains and more to eat, which isn't good from an evolutionary perspective. Another reason we are in the box is because it is useful to maintain a sense of stability and reality. Research even shows that after people make a decision on any topic the brain will start to justify the decision so that you won’t change your mind so easily. This also goes for belief. Think about politics, when you decide that a certain party or politician is the one that should be elected it is really hard to change. This is called cognitive dissonance, and is just one of many mechanisms that help us maintain a healthy sense of continuity and reality, it makes us feel consistent. Historically this was useful because it freed up the brain to solve more important issues with its limited resources, in modern day society it's useful for that very same reason.
The problem with our sense of continuity is that it blocks our ability to think about what the world would be if it wasn’t the way it is. This is why US presidents are reelected more times than not. We strive for continuity, because we don’t understand how the world could be different. Stepping out of the box allows us to think about the world in new ways. It allows us to see things that others cannot see. First when you free your mind from the idea that transportation is either by foot or by horse can you start thinking about cars. Did you know that the wheel was never invented on the American continent before the Europeans arrived? They had circles, but no wheels, how weird is that? And no one can blame them, this is how our minds work. We see everything that exist as obvious and natural (the wheel for you and me), and everything that don’t exist, well it generally doesn’t occur to us.
Let me give you an example. I heard an anecdote that goes something like this: Once upon a time, in the olden days a man was running a factory, this factory produced a type of malleable sticky clay that was used to remove sot from the walls. You see, back in those days people warmed their houses by burning coal, and this left residue on the walls. A person would then buy some of this clay-like substance and roll it on the wall, the sot from the coal would then stick to the blob. Since the blob was white the coal would color it so you could even see when it was so dirty that you had to get a new one. One day however the sales started declining, a thorough market analysis revealed that people were using less coal to heat their houses, thus the demand for white clay-blobs fell as well. The manager of this factory started to worry, so he hired the best MBA’s in the kingdom to figure out what to do. The MBA’s effectivised the routines, lay off people, streamlined shipping and so on until they had reduced the cost of the factory to the point where it was impossible to reduce them further. The factory was however still in a crisis, because the problem of course wasn’t the cost, it was that no one needed their product. So what was he to do? In total despair he went to dinner to his sister, she was a preschool teacher, and as casual dinner conversation he explained everything and that he was probably going to lose his job and would have to shut down the entire business. His sister asked if she could look at the product and the manager fished out a piece of white clay from his pocket, his sister started molding it into shapes, and decided to bring it to her daycare the next day to show the kids. When she came back, she suggested making the clay in different colors, calling it Play-Doh and marketing it to kids. Today this business is much bigger than the wallpaper cleaning business of decades past ever was.
The moral of the story is of course that when you look outside the box of your usual surrounding you find solutions that you wouldn't otherwise find. This manager hired MBA’s, and no offence to MBA’s, they’re great, but they all think alike. If you need someone to think different, then don’t use people that think like you and each other. If you do the same, then how come you expect different results? MBA’s have a set of tools, and when you have a hammer, a surprising amount of problems looks like nails. Only when the manager (by chance in this case) got someone that thought differently to think about the problem could a radically new idea come about. To continue reading click here.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Monday, 1 February 2010
Familiarize yourself with the market in 3 steps!
Starting something new often requires you to read up on an industry and do those tedious swots, pestels and other analysis. The problem with these is often that the assumptions you take into the process are also the ones that comes out. If you think many small companies in the industry is an opportunity for intruders, well than that’s where you place it in the analysis, and that’s what you’re going to base your recommendations on. Only now it’s no longer just intuition, it’s derived from a model. Anyone else see the problem here? This framework doesn’t solve this, but helps you ground your understanding of an industry’s players in reality, and that’s a good start for a market analysis. The purpose of this analysis is the give you, the analyst, a tacit understanding of the industry as well as some models that describe it. So let’s dive in!
1. Define area, get lists
In my thesis I needed to understand “biotech companies in Norway”, I went to the business register and looked through the classifications that companies could choose from when they register the company. From this I chose (by using my preconceived notions) some classifications that may or may not contain biotech firms. The classifications included everything from "Research and development activities within biotechnology" to "Production of medical and tooth-technical instruments", as you can imagine some categories proved more relevant than others, but I’ll get back to that. Now I had a list of about 2000 companies, most probably not relevant since I included most categories that could be biotechnology.
This list of course can be anything; maybe you don’t want to look into a specific industry, but maybe a geographical area. If you want to start a company in your town, you could get a list of all companies in that town (however your dataset may be too big to actually get through) to understand what the major industries are and so forth.
2. Google, classify, sort, iterate
When I had the list, the next part was easy, I picked a category that I really believed in, "Research and development activities within biotechnology", started at the top and typed in each name in Google. The companies that have websites was easy, I just found somewhere it said in simple terms what they were doing and pasted it in next to the company name. For example the company Biosergen in Trondheim claims they are “a biotech company developing new drugs based on cutting edge biosynthetic engineering of natural products, combined with chemical synthesis”. Next to the “what we do” column I start making categories. This is where you should leave your assumptions at the door. Take the first two companies, and ask yourself “if I had to place both companies in a category what would that be”, for me it was “Biomaterials”, the third company then either fit’s in the category or needs a new category. After a few companies I realized this was not a good classification system, but by then I started understanding better, so I changed the categories. This is the iterate part of the process, change the categories.
The companies that do not have a website you can call and ask politely what it is they do, “Hey, I noticed you were classified as a --- company, but I can’t find your website. I was just wondering what field your company is in”. I noticed that I could do about 200 companies a day, and trust me, after a day or two you know the categories by heart and really gain an understanding of the industry that no SWOT or PESTEL analysis can give you. And if going through 2000 companies sounds like a lot, well, you are right, but over half of them were removed from the analysis because after 10 companies in the category I realized that I probably wouldn’t get any biotech companies from there. This of course depends on how thorough you need to be. If you have little time the try to spend a day, start with the most relevant category and just sample the rest, you still get a pretty good understanding of it all.
3. Model it
When you have worked for a while and are comfortable with your categories you should take a brake and define the categories you have come up with, then you start to see that some categories are overlapping or for some other reason should be better defined. For example for a while I operated with a category “Drugs” and a category “Therapy”, the distinction was really useless and I merged them, together with another category into “Treatment”. Other categories I ended up with was “diagnostics”, “research institution”, “services” and “supplements”. You should take the categories, define them properly, for instance “Treatment: Companies in this category are companies that a) at present or in the future will have as a core competency to treat ailment or b) facilitate that caregivers (such as doctors) use their products in order to give treatment or c) in any other way be a service provider based on their product that treats patients”. It is worth noting here that for my purpose I removed companies that weren’t based on biotechnology, because I was only really interested in that sector, not in for example hospitals.
Once you have the excel sheet with all the companies, sorted by category and with a short description of the company you can start modeling it. Make a box for each category, write down how many are in it, what they typically do, how big is this category, who are the biggest actors. Draw arrows and new boxes; try to make a model of the industry or area based on your analysis.
Extra tips and tricks:
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
1. Define area, get lists
In my thesis I needed to understand “biotech companies in Norway”, I went to the business register and looked through the classifications that companies could choose from when they register the company. From this I chose (by using my preconceived notions) some classifications that may or may not contain biotech firms. The classifications included everything from "Research and development activities within biotechnology" to "Production of medical and tooth-technical instruments", as you can imagine some categories proved more relevant than others, but I’ll get back to that. Now I had a list of about 2000 companies, most probably not relevant since I included most categories that could be biotechnology.
This list of course can be anything; maybe you don’t want to look into a specific industry, but maybe a geographical area. If you want to start a company in your town, you could get a list of all companies in that town (however your dataset may be too big to actually get through) to understand what the major industries are and so forth.
2. Google, classify, sort, iterate
When I had the list, the next part was easy, I picked a category that I really believed in, "Research and development activities within biotechnology", started at the top and typed in each name in Google. The companies that have websites was easy, I just found somewhere it said in simple terms what they were doing and pasted it in next to the company name. For example the company Biosergen in Trondheim claims they are “a biotech company developing new drugs based on cutting edge biosynthetic engineering of natural products, combined with chemical synthesis”. Next to the “what we do” column I start making categories. This is where you should leave your assumptions at the door. Take the first two companies, and ask yourself “if I had to place both companies in a category what would that be”, for me it was “Biomaterials”, the third company then either fit’s in the category or needs a new category. After a few companies I realized this was not a good classification system, but by then I started understanding better, so I changed the categories. This is the iterate part of the process, change the categories.
The companies that do not have a website you can call and ask politely what it is they do, “Hey, I noticed you were classified as a --- company, but I can’t find your website. I was just wondering what field your company is in”. I noticed that I could do about 200 companies a day, and trust me, after a day or two you know the categories by heart and really gain an understanding of the industry that no SWOT or PESTEL analysis can give you. And if going through 2000 companies sounds like a lot, well, you are right, but over half of them were removed from the analysis because after 10 companies in the category I realized that I probably wouldn’t get any biotech companies from there. This of course depends on how thorough you need to be. If you have little time the try to spend a day, start with the most relevant category and just sample the rest, you still get a pretty good understanding of it all.
3. Model it
When you have worked for a while and are comfortable with your categories you should take a brake and define the categories you have come up with, then you start to see that some categories are overlapping or for some other reason should be better defined. For example for a while I operated with a category “Drugs” and a category “Therapy”, the distinction was really useless and I merged them, together with another category into “Treatment”. Other categories I ended up with was “diagnostics”, “research institution”, “services” and “supplements”. You should take the categories, define them properly, for instance “Treatment: Companies in this category are companies that a) at present or in the future will have as a core competency to treat ailment or b) facilitate that caregivers (such as doctors) use their products in order to give treatment or c) in any other way be a service provider based on their product that treats patients”. It is worth noting here that for my purpose I removed companies that weren’t based on biotechnology, because I was only really interested in that sector, not in for example hospitals.
Once you have the excel sheet with all the companies, sorted by category and with a short description of the company you can start modeling it. Make a box for each category, write down how many are in it, what they typically do, how big is this category, who are the biggest actors. Draw arrows and new boxes; try to make a model of the industry or area based on your analysis.
Extra tips and tricks:
- You can use several categories for each company, but from different sets. For example a company can be "Treatment" in one column and "Oslo" in another. But in each set of categories you need to be mutually exclusive, if one category is "Treatment" and one is "diagnostics", you don't want a company to be in both. Have mutually exclusive categories in each category "set", but feel free to use more sets based on different criteria.
- The initial list should be made thinking it's better to include companies that's not what I'm looking for, than to exclude companies that I am looking for.
- Many lists that you can get also contains more information that the name of the company that can be useful when modeling, such as location, revenue, year founded an d so on.
- If you are more people, try spending a few hours on your own classifying the first 100 companies, meet and see what categories you have come up with. Why do you have different categories? Which are best? Try then to classify the next 100 together using a system you have agreed on. If you still have companies to classify separate and do different companies, you now have a common understanding of the industry.
- Use this analysis before the swot or pestel or whatnot, the findings here can be valuable in understanding what it is you will do, and what topics you should look into in the other analysis.
- After modeling try to talk to people who work in the industry, how do they perceive it, do they agree with your understanding of the industry? Did you miss anything?
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
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