Where to Invest?

Where to invest was the question. My answer has always been in a company doing discontinuous innovation. But, like most things finding them is the hard part. Most of what we hear about these days is continuous innovations. What we don’t hear about is discontinuous innovation.

Since I’ve worked in startups well before the web came along, my problem has always been finding startups. Truth is that I didn’t find them. They found me. But, living in a startup desert, I’m looking for ways to find them. For a job search, watch your sales tax permit applications. That’s not much help for an investor, and it’s probably way too early. I know from cold calling SIC coded companies that the SIC classification system is very wide. You’ll end up calling a lot of companies that don’t do anything remotely like selling software.

The investor alternative is to find VC funds and put your money in one of them. If you’re going with discontinuous innovation, finding that VC fund will be the issue. I don’t know if VC funds mix discontinuous and continuous innovators together in the same portfolio. I do know that the continuous investments are smaller and get less attention from the VCs. Discontinuous innovations take more time, more money, and more VC attention.

You’ll hear about the continuous innovators and more than likely you won’t hear about the discontinuous innovators. Read the journals in the fields where you expect to invest. Read the SBIRs. Take note of the investigator’s names. Check their bibliographic information. When will one of their students bring the investigator’s technology to the market?

Anyway just a few hints on where to find the discontinuous innovators. Investing in a company that creates a category, and gets the near-monopolistic position is a good place to grow your money. The quick flip of the continuous innovators or the fast followers not so much.

Remember that the technology adoption lifecycle is more than some ordered Markov process transitioning populations. The populations organize the companies serving them. Early phases grow. Late phases decline. We hide that decline in things like cost management and large numbers. Early phases create wealth. Late phases capture cash. Discontinuous innovations begin in the early phases and transition into the late phases. Continuous innovation begin in the late phase and live short lives.

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