Doing Discontinuous Innovation

Discontinuous innovation creates economic wealth. Continuous innovation captures cash. Economic wealth, unlike what the financial services companies tell us with their wealth management services, is more than a pile of cash. Cash is the purview of the firm.  Economic wealth is the purview of the economy as it reaches well beyond the firm. Cash is accounted for where economic wealth is not.

Notice that no firm has an imperative to create economic wealth. To the contrary, managers today are taught to convert any economic wealth they encounter into cash. They do this with the assumption that that economic wealth would be put back, but that has yet to happen. Globalism was predicated on using the cash saved to create new categories, new value chains, new careers—economic wealth. Instead, we sent it to Ireland to avoid taxes. Oh well, we let the tail wag the dog.

Likewise, we are taught to lay off people, because we can put that money to better use, but then we don’t put it to better use. Those people we laid off  don’t recover. They work again, but they don’t recover. Oh, well. This is where continuous innovation takes you. Eventually, it is moved offshore. The underlying carrier technologies are lost as well, so those jobs can’t come back. The carrier technologies will evolve elsewhere.

I could go on. I did, but I deleted it.

Anyway, I’ve been tweeting about our need to create new economic wealth as the solution to globalism. Instead, the rage gets pushed to the politicians, so we’ve seen where that got us. The politicians have no constructive solution. We can solve this problem without involving politicians. We can innovate in a discontinuous manner. As a result of those tweets, a product manager that follows me ask, so how do we innovate discontinuously.

I’ll review that here.

  1. Begin with some basic research. That kind of research bends or breaks a constraint on the current way things are done in that domain.

Samuel Arbesman’s “The Half-Life of Ideas” gives us a hint in the first chapter with a graph of the experiments on temperature. Each experiment resulted in a linear range resulting from the theory used to build the measurement system that underlaid the experiment. The experiments gave us a dated collection of lines. The ends of those lines were the end of the theories used to build the experiments. You couldn’t go from one line to the next with a single measurement device, with a single theory. You had a step function on your hands after the second experiment.

The lines on the right side of the graph were replaced with later lines, later experiments. The later lines were longer. These later lines replaced the earlier step functions with another step function. A single measurement device could measure more. The later theory could explain more. The later theory broke or bent a constraint. The earlier theory did so as well when you consider that before the earliest theory, there was no theory, so nothing could be done. As each theory replaced the prior theory more could be done. Value was being delivered. That value escaped the lab once a manager got it sold into a market beyond the lab, aka innovated.

  1. Build that basic research into an infrastructural platform, into your technology/carrier layer, not into a product/carried layer. Do not even think about a product yet.

Moore’s technology adoption lifecycle starts with a technology. After step 2, that’s what you have. You have a technology. Products get a technology adopted. The technical enthusiasts is the first population that needs to be addressed. This population is the geeks. They insist on free. They insist on play. They refer technologies to their bosses.

  1. Explore what vertical industry you want to enter then hire a rainmaker known in that vertical. This rainmaker must be known by the executives in that vertical. This rainmaker is not a sales rep calling themselves a rainmaker.
  2. When the rainmaker presents you with a B2B early adopter, their position in the vertical matters. Their company must be in the middle of the industry’s branch/subtree of the industrial classification tree. They should not be on a leaf or a root of the branch/subtree. This gives you room to grow later. Growth would be up or down and not sideways to peers of the same parent in the subtree.
  3. That B2B early adopter’s vertical must have a significant number of the seats and dollars.
  4. That early adopter must have a product visualization. This product visualization should be carried content, not carrier. Carrier functionality will be built out later in advance of entering the IT horizontal. Code that. Do not code your idea. Do not code before you’re paid. And, code it in an inductive manner as per “Software by Numbers.” Deliver functionality/use cases/jobs to be done in such a way that the client, the early adopter, is motivated to pay for the next unit of functionality.
  5. Steps 3—6 represent a single lane in Moore’s bowling ally. Prepare to cross the chasm between the early adopter and more pragmatic prospects in the early adopters vertical. Ensure that the competitive advantage the early adopter wanted gets achieved. The success of the early adopter is the seed of your success. Notice that most authors and speakers talking about crossing the chasm are not crossing the chasm. There is no chasm in the consumer market.
  6. There must be six lanes before you enter the IT horizontal. That would be six products each in their own vertical. Do not stay in a single vertical. So figure out how you many lanes you can afford and establish a timing of those lanes. Each lane will last at least two years because you negotiate a period exclusion for the client in exchange for keeping ownership of your IP.
  7. Each product will enter its vertical in its own time. The product will remain in the vertical market until all six products in the bowling ally have been in their verticals at least two years. Decide on the timing of the entry into the horizontal market taking all six products into consideration. All six will be modified to sum their customer/user populations into a single population, so they can enter the IT horizontal as a carrier focused technology. The products will shed their carried functionality focus. You want to enter the horizontal with a significant seat count, so it won’t take a lot of sales to win the tornado phase at the front of the IT horizontal.
  8. I’ll leave the rest to you.

For most of you, it doesn’t look like what you’re doing today. It creates economic wealth, will take a decade or more, requires larger VC investments and returns, and it gets a premium on your IPO unlike IPOs in the consumer/late market phases of the technology adoption phases.

One warning. Once you’ve entered the IT horizontal, stay aware of your velocity as you approach having sold half of your addressable market. The technology adoption lifecycle tells us that early phases are on the growth side and that late phases are on the decline side of the normal curve.

There needs to be a tempo to your discontinuous efforts. The continuous efforts can stretch out a category’s life and the life of the companies in that category. Continuous efforts leverage economies of scale. A discontinuous effort takes us to a new peak from which continuous efforts will ride down. Discontinuous innovations must develop their own markets. They won’t fit into your existing markets, so don’t expect to leverage your current economies of the scale. iPhones and Macs didn’t leverage each other.

Don’t expect to do this just once. Apple has had to do discontinuous innovations three or four times now. They need to do it again now that iPhones are declining. Doing it again, and again means that laying off is forgetting how to do it again. It’s a matter or organizational design. I’ve explored that problem. No company has to die. No country has to fall apart due to the loss of their economic wealth.

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