September 15, 2009

disruptive innovation watch disruptive innovation on vimeo For the last few years I have been fascinated with Clayton Christensen's theory of disruptive innovation and its application to business, politics, education, and insurgency models. What I find most interesting is that his theory, featured in both The Innovator's Dilemma and The Innovator's Solution provides a prescription for a small entrant with less resources to compete with and beat a large incumbent. To understand his theory we begin by looking at a set of customers for a good or service. A simplified segmentation of the market is defined as non consumers, mainstream customers, and higher end customers. The incumbent starts by creating a good or service that appeals to the mainstream consumer. Upon reaching market segment saturation, the company looks up market and innovates on the product to capture the higher end more margin rich segment. Often tech companies competing in the same market play this leap frog game of matching innovation to control more of the commodity market. Clayton defines these as sustaining innovations. In business the process is called profit maximizing resource allocation and the right competitor can use it to force an incumbent out the top end of the market. By continuing to innovate, the incumbent creates bloated products or services that have more value or performance than the consumer can utilize. The logic is that if I can please my most demanding customers then my main stream customers will be also be satisfied, but in reality it exposes the lower end of the market to the disruptive entrant who can enter in two ways: - By targeting non-consumers with a simple, less expensive and more convenient product - this is referred to as a new market disruption - By innovating on the business or manufacturing process so as to reduce costs and provide a product that over served consumers can get at a lower price. With both the entrant and incumbent competing in the same segment, the entrant has the margin advantage as the price equilibrium is set at the marginal cost of the incumbent. The incumbent is unable to compete, and the strategy becomes to abandon the low end of the market which contains their least profitable, least loyal customer base and refocus the business in the higher margin tiers with more loyal customers. With the incumbent effectively pushed out of the segment, prices fall to the marginal cost of the entrant. Now competing in a commodity market and faced with the same growth imperative as the incumbent, necessity begets innovation: The entrant must figure out how to apply the new innovation in the business, manufacturing, or product to move up market. Once this happens the incumbent abandonment, segment commoditization, and then entrant up market movement repeats itself through until the incumbent is forced out of the market. Here is where it gets interesting: by pushing the incumbent out of the market, the entrant becomes the incumbent and is now exposed to the disruptive entrant. So how does the...
contribution = rockstar Watch on Vimeo Social media and networking have fooled a lot of people and companies into thinking they are rockstars. Unfortunately the ease of access and near zero cost of distribution have created an internet that sounds a lot like this. (bad music playing) The abundance of fake rockstars have created an audience that is willing to be your friend, but not willing to listen to what you have to say, buy your product, or help you get a job. Unfortunately most people and businesses using social media and networking are following the funnel rule: Cram more people into your brand funnel, and maybe you can trick a few into listening to what you have to say. The problem with cramming is that it is costly both in time and brand credibility, and cramming is the most inefficient and absolute worst way to go about being a rockstar. If you really want to be a rockstar, you have to understand one thing, and one thing only: contribution. Your power and influence are directly proportional to the amount you or your business contribute to your audience. When you look at the essence of relationship and group formation dynamics, contribution is the key element that unites and brings people together. It is a simple yet powerful concept that if understood and properly implemented can mean the difference between being truly great and just being noise. This principle has not changed for thousands of years. When you look at all the rockstars throughout history, beethoven, einstein, gandhi, martin luther king jr., all have been immortalized not because they were interested in cramming people into their branding funnel, but because the impact of their contribution was so incredible people were naturally drawn to them. A great way to visualize the power of contribution is to use Seth Godin's analogy of circles. As Seth put it in his blog post, most people are putting all their energy into increasing the size of their first circle, when the real power and size of their network lies in the second and third circles. The only way to gain access to the second circle is to create a message, product or service so incredible, unique or valuable that it contributes to your first circle in such a way that your first circle wants to share it with their first circle. If it is really amazing then your newly created second circle will share it their first circle giving you access to the third circle and so on… One of our favorite stories of contribution and social networking is Zoe Keating. With nothing more than a cello and a macbook she is able to create beautiful loops of music that grow into incredible works of art. Is she actively seeking out new followers and friends for her twitter or facebook pages? No, but she has a razor sharp focus on following her passion to contribute some of the best music in the world. Her contribution shows in her numbers....

jeff monday

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