My standard disruption questions:

• Impact: Is the impact on my 6 levels predictable?
• Probability: How how is it for management to hard to pull off this strategy?

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• 3 Big Questions for GoTo (Gojek + Tokopedia) Going Forward (2 of 2)(Winning Tech Strategy – Daily Article)
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From the Concept Library, concepts for this article are:

• Sustaining vs. Disruptive Innovation / Clayton Christensen
• Andreesen-Horowitz’s 4 stages of disruption

From the Company Library, companies for this article are:

• Barnes and Noble
• Daily Journal

Photo by Jp Valery on Unsplash

——-Transcription below

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Welcome, welcome everybody. My name is Jeff Tausen and this is Asia Tech Strategy. And the topic for today, two frameworks for predicting tech disruption. So I haven’t really talked about this. I mean, disruption is a huge topic and it’s a difficult topic because it’s actually kind of hard to predict disruption for companies. And it’s even harder to do anything about it. It’s kind of, even when companies see it coming, there’s not actually often a… an appropriate response that works. So it’s kind of a big subject. I haven’t really talked about it. I’m just gonna lay out, and I honestly don’t have a great answer for it. It tends to be more of the VC world, although companies face this all the time. It tends to get lumped in with the idea of innovation. Like innovation is kind of like tech offense, and disruption is like the defensive version of the same thing. It’s like you’re being disrupted, what do you do? And the answer is often innovation. So I’m gonna give you two common frameworks for that. One by Andreessen Horowitz, one by Clayton Christensen, which I think many of you probably know the second one. And I’ll talk about that and then I’ll give you sort of two companies to think about. That’ll be the topic for the day. Yeah, quick apology. I took off last week, both in emails and podcasts. I was really kind of tired. I’ve been doing this for two years every week. Haven’t really ever taken any time off. So I sort of just took a. bit to rest and I went to Singapore and I gave some talks and actually I met with a bunch of interesting people. I’ll be writing that up in the next couple days. Ant Group, Lazada. I actually sat down with the permanent secretary who oversees Thailand’s digital economy so I’m going to write that up. There’s some interesting stuff coming. But anyways, I took the week off. I’m back, charged up. Okay, with that, let me, well, actually do my standard disclaimer. Nothing in this podcast or in my writing or website is investment advice. The numbers of information from me and any guests may be incorrect. The views and opinions expressed by me may no longer be relevant or accurate. Overall, investing is risky. This is not investment advice. Do your own research. And last housekeeping thing. Oh, part three of my book is up in digital form only on Amazon. I honestly think this is far and away the best one. Like I think it’s the best thing I’ve done. It’s basically, this is when we really start to talk about, or I start to talk about. competitive advantage, which is the center of the book. So this is where we sort of go motes versus digital, which I teed up in the first two parts, but I didn’t really dig into it very much. Well, part three is where I dig into it. Anyways, I think it’s pretty good, but what do I know? Okay, with that, let’s get into the topic. Now, as always, there’s a couple key concepts to keep in mind. Today, I’m gonna give you really three. The first one will be… just be the four stages of disruption as defined by Andreessen Horowitz and something they’ve written about. I mean, this is something venture capitalists think a lot about. I don’t tend to think about this very much in terms of like, how do you open up a new industry? How do you launch a completely new product or service? How do you disrupt the whole market? I mean, those are VC frameworks. And honestly, I don’t have a lot of good data on. I don’t see deals coming across my desk that are private every day, I don’t see that. So the information I get is usually from two sources, I either try and talk to management and I look at financials that are SEC filed, so there’s some legal consequences for lying. Usually when you’re looking at that, you’re looking from the incumbent point of view, usually. So you’re looking at disruption as a, hey, we’re a big bookstore, we’ve got these new tools coming, what do you do? Anyways, but the four stages of disruption by Andreessen Horowitz, that’ll be one of the four concepts for today. And I’m gonna list that in the show notes and I’m gonna talk through it. It’s one of the frameworks for today. The other concept is sustaining versus disruptive innovation, which is, you know, this is Clayton Christensen 101. I’ll talk to that a little bit. It’s a really well-known innovators dilemma framework. It’s worth keeping in mind. Those will be sort of the two concepts for today. And I’ll go through those in detail. I’m not gonna tee them up at this point. And okay, so if you look in the show notes on the webpage, not in the podcast itself, I’ve put my standard graphic, which is my six levels of competition. And then why did I break that out in such detail? I mean, I really… When you look at competition, people usually talk about something simple like seven powers or Morningstar says like, hey, there’s six motes only. I really broke it into six levels and within each level, I broke it into the various subcomponents. For competitive advantage, I listed 15 different types. For digital operating basics, I listed seven. I really broke it out into a… let’s say not ridiculous, but excruciating level of detail. Okay, why did I do that? And that’s not usable for most people, it’s too much. I’ll write a simpler version of that in the next couple of months. One of the reasons I did that is because I wanted to see how digital technology, software, AI, blockchain, all this constant stream of new tools, new tech, how that impacts component by component. And I think it’s actually very effective for that. So when I start to look at say something like Web3, you can see these articles coming out every week. Someone writes a new article about how Web3 changes moats. What are the competitive advantages of Web3? And so far, and I’ve read most of them, I think they’re all wrong because I think they’re very simplistic and they don’t have a granular bottoms up approach. which is kind of what I’m doing. I’m working on a long article about this same subject where you can basically point to, look, web three is doing 15 different things. Here’s all those 15 different things, hit all the sub components of the six levels. It’s sort of, it’s boiling the ocean, but I think it’s actually fairly accurate, more accurate, let’s say. Anyways, in the show notes, I put the graphic of my six levels and then all the various digital tools, technologies, business models. in red that are sort of impacting all these levels. And I listed a bunch of them, I didn’t list all of them. But I’ve never really explained it beyond that. I’ve just kind of said, look, when you do this strategy, you gotta think about where you are, you gotta think about who your competitors are, where are your strengths, where are your weaknesses. And then you gotta think about how does this constant stream of tools change that, which is what that graphic’s trying to show, but I didn’t really say how you do it. Well, I mean, that’s disruption. A lot of that process is disruption. New tools wipe out previous motes and they create new ones. They make certain types of operating activity, like opening bookstores, which used to be very powerful. Not only is that not good, it’s a bad idea. And so you move to the digital operating basics. Or oftentimes the place this plays out the most quickly is in tactics. which is level six there, you know, someone comes up with a new tool for digital marketing every couple months. And all, you know, when you look at the standard digital marketing playbook, it changes all the time because the tactical moves, you know, you can do growth hacks, you can start to link into TikTok, then Shein, that level six moves all the time. And that’s mostly new digital tools. Digital marketing is a really… One of the reasons I don’t talk about digital marketing is because everything I say would be obsolete in six to 12 months. So strategy changes a bit slowly. Anyways, look at that framework. That’s kind of how disruption looks from the incumbent viewpoint, as opposed to the startup, which would be the venture capital view point. Okay, so let’s start with that graphic. Disruption as an idea. You know, two companies that come to mind. So I’ll give you two frameworks and I’ll give you two companies. Company number one, the daily news. Many of you I know are sort of, you know, value investor, Buffett Munger fanboys like myself. And you know, Charlie Munger is Chief Investment Officer, daily news. And you know, a lot of his investments show up there, which is how you can tell what he’s buying. But I mean, that’s a very weird. company for a guy like Munger to buy into. He’s buying into a newspaper. I mean, if there is any business that has just been digitally disrupted from top to bottom, daily newspapers have to be on the shortlist. And he’s not the only one that does this. In the last 10 years, Buffett has bought into newspapers as well. Even though in both cases, both guys will say, these are not just being disrupted, these are dying businesses. That’s how Buffett describes daily newspapers, of which he’s an investor, or he has been at certain points in the last 10 years. He says, this is a dying business. In the future, there will be no daily print newspapers. That will just be gone. These trucks that go around and throw the newspaper on your front stoop. which is something Buffett did when he was a little boy. And if you ever go to the Berkshire Hathaway meetings, they have newspaper throwing competitions. Young people today don’t even know what that is, but I can remember being a young guy and staying in my parents’ house, and every morning you’d hear a thump because the newspaper guy came by and hurled the newspaper and it hit the front door. That’s all gone now. Daily newspapers have been totally disrupted. They’re dying. But yet, Buffett and Munger have both bought into daily newspapers. And why? Because, in my opinion, yes, it’s being disrupted. Yes, it’s a dying business, but it’s dying in a predictable way. And it is underpriced versus where it is today. So yes, it’s dying and everyone thinks it’s bad. That’s true. But people are over-penalizing the company. It’s not as bad as everyone thinks it is. It’s bad, it’s just not dead yet. So he’s buying into a dying but not dead yet company which is cheaper than it should be. And he’ll buy and then in a couple years he’ll sell. So he’s sort of capturing the unwanted and the unloved which are, you know, great companies get overpriced, bad companies get underpriced typically. Okay, but you could look at daily news and everybody knew daily news was dying. We could just see it. There’s no reason to have all these trucks and printing presses and the cost structure’s ridiculous. And the local monopolies are being wiped out. And now it’s endless content anywhere you want in the world. Weekly magazines like Newsweek and Time Magazine and Forbes. Those used to be, all of these businesses, the daily newspapers and those magazines, those used to be incredible business models in the 1970s, 60s. You know, if you owned one of those, that was one of the richest people in town, and now it’s one of the worst. So that’s kind of a good example to think about. The other example, and so how do you assess that in terms of strategy? Well, it’s actually quite easy. It’s dying and it’s gonna be dead and that’s all there is. It’s not like we’re gonna innovate our way out of this one. It’s not like we’re gonna reinvent the wheel and pivot. and transform and you know this is not like a grocery store being disrupted where they have to move to an online meets offline model as a strategy which would be an incumbent response no no in this one you have to just get out so that’s actually a good scenario when you can conclude okay this one’s dead fine then we know what to do pull all the cash out put it somewhere else you know whatever. A less clear model which is similar would be Barnes & Noble. And Barnes & Noble is a fascinating case. Because you can go back to 2010, 2011, and you can pull the SEC filings for Barnes & Noble when they were facing Amazon. And the CEO, I’ve told this story before on this podcast, but the CEO had a choice. You know, we have, you know, their main business, Barnes and Noble, which is a US based company, was massive physical stores that had a huge selection, which means they had huge fixed costs because they had to carry a massive inventory of books. They had to have staff, they had to have two, three, four story bookstores. You know. So you had the real estate costs, you had the staffing costs, you had the inventory costs, you had a huge fixed cost structure just to keep this store open. And then you depend on traffic and people come in and they buy their books. And as Amazon came up, they had a superior business model in many ways in that they were more convenient because you could buy it on your PC or your phone. they had a much bigger selection because they didn’t have to just carry them in the store. They could have massive warehouses, so massive selection. And they were also to some degree cheaper. Now they will say they were cheaper because they didn’t have the physical stores. They didn’t have the fixed costs for operating staff. They didn’t have, now they did have the warehousing of books in the inventory. because most of these were operating as retail models. So this was online retail versus offline retail. Cheaper, now people often say online is cheaper than offline because of that. That sometimes is true and is sometimes not true. The number you actually have to look at is the sales and marketing cost. Oftentimes when you launch an online version of a retailer, you save money on the physical aspects, but you end up spending a lot more on marketing and sales, and sometimes it’s actually not that much cheaper. So you gotta kinda look at it because getting attention and traffic on a smartphone is actually very expensive. In many cases, it’s cheaper to open a store than to spend the money on customer acquisition online. Anyway, so it’s a little more complicated than people say. But generally for 10 years, that was true. The CEO, it was a clear disruption. The CEO came up with a plan and the plan was, we’re gonna basically copy Amazon. We’re gonna build an online bookstore. BarnesandNoble.com, which will compete with Amazon.com. We will launch a Kindle-like product, which was the Nook, which is a physical device. And we will help people start to self-publish. And we will be online stores plus offline stores. Now that’s different than the grocery stores because the consumer experience that is the winning consumer experience is a mix of online and offline. in bookstores, at least back then, it was not clear if offline bookstores were going to exist at all, or if this was going to go purely online. And most people thought that was the case, and for the most part, that is what’s happened. Most bookstores are gone. Now it turns out you can actually go 10 years later, and there are still Barnes and Noble stores around the US. The ones in New York closed. The ones in the major cities closed. But if you go out to suburbs, in where my brother lives out in sort of suburban California, there’s still a Barnes and Noble there, and it’s where people go on a Saturday to get some coffee and to shop. But within the store, they have a lot of games and other things and videos as opposed to just books. So it wasn’t, let’s say it’s 80% dead as a way to sell books, physical books, and mostly online, but not totally. Grocery stores, it’s more like, 70% is still physical and 30% is online. Fashion’s about half and half. Anyways, okay. So the CEO had a strategy question. What do we do? One argument, and investors were all over the subject, because Borders, the other big physical bookstore, had declared bankruptcy very around that time. So the options are, declare bankruptcy, just close. like the daily newspapers, look, we’re dying. Let’s just get all our cash out, give it all back to the investors, do a new business, but let’s just exit this space because it’s a dead space. That’s the newspaper conclusion. The other one would be to basically jump in and try and become the Amazon, which is what the CEO did. But that means, that’s in terms of digital transformation, that is a complete transformation. Most digital transformation, when I talk to companies about this stuff, you know, my standard line is, okay, you’re a fashion company. You need to become a fashion company plus a software company. You need both skill sets now. Because it’s not enough to just be a fashion company, but it’s also not enough to be a tech company. You’ve got to understand fashion as well. You got to do both. Now you could argue for bookstores, you don’t need to be a bookstore company anymore. You just need to be a tech company. It turns out selling books, there’s not a lot there. And that’s pretty much what Amazon has done. They are not a book company. They’re a tech company that happens to also sell books along with a lot of other things. So this isn’t like going from one skill set to two. This is a completely new skill set and pretty much dumping the other one. Now you can do that, but that’s the mother of all digital transformations. It’s very, very hard. You’re going to have to go all in, in terms of staffing, management, capital. It’s going to toss a ton of money. Um, and that’s what the CEO did. And they actually did a fairly impressive play. Um, it was a good strategy. It was, no, it wasn’t a good, it was a solid strategy. It was one that investors probably wouldn’t want to do. It’s the kind of strategy that management that doesn’t wanna just close down their business does. You know, most senior managers, they don’t wanna just close the business because this is the peak of their career. You’re CEO of a company, there’s no next step. You’re basically retired when you close the company, usually. So, you know, usually management resists that. Investors will argue for it. And we see how it plays. And they went all in on this. They launched. And basically Jeff Bezos beat them. Because yes, it was a reasonable strategy, but management matters as well. And his tech team just ran circles around them for the most part. And it turns out that’s pretty much, it turns out you don’t wanna compete with Jeff Bezos in anything. It turns out he’s an unbelievably aggressive good CEO. If… know Jeff Bezos had been a weak CEO this might have been a better strategy. It turns out he’s awesome you don’t want to compete with him ever. It didn’t work and what ended up happening for those of you who don’t know the story, basically they spent all this money on the digital division. They pretty much closed most of it down. They still have an online website. They still have some of the retail stores around much smaller footprint than they did. and the business that turned out to be non-disruptible in Barnes and Noble was their academic bookstores. That they had bookstores on college campuses, which are basically captive customers, i.e. competitive advantage. That was the business that didn’t get disrupted. And that turns out to be the good one, which some investors ended up investing in, and that business did pretty well. But anyways, okay, so you start taking all this stuff apart. There’s two stories for you. It’s a really hard question. It is hard to predict how disruption is gonna play out. And then it is hard to execute against that as a management company and win. Some companies do it. Generally what I look for, I look for, let’s say you’re an incumbent, this is the incumbent view, I look for how clear is it about what’s gonna happen? Is it completely unknown? And an example of that would be in financial services and payment. I have no idea what’s gonna happen in payment in three to five years. There’s too many things that are moving. The technology’s changing. It’s crypto, it’s blockchain, it’s mobile payment, it’s credit cards, it’s cash, it’s debit cards, it’s Western Union, it’s all these new tech companies jumping in, it’s banks going. I mean, it’s so complicated. I can’t figure out what payment’s gonna look like. I can’t figure it out. I can figure out grocery stores, I can figure out retail, I can figure out some media. So that’s sort of question number one. Can you figure out what’s gonna happen? And that’s where my frameworks come into play. Here’s six levels, here’s the components, here’s the tools, let’s see if we can get a solid read on what’s really gonna happen. That’s question number one. Question number two is then, okay, how hard is it to pull this off? So if you’re talking to a fashion company, I can pretty much predict what’s gonna happen, in my opinion, in terms of disruption. I can see it play out. Here’s the strategy. We may change it in a year or two, but we can plot a very solid course to pursue. That’s the strategy. Okay, then question number two. How hard is it to pull it off? Are you a team of book managers with no tech experience going up against Jeff Bezos? Probably not gonna work out. or is this mostly about grocery stores adding some tech tools and it’s still mostly grocery and the tech companies are avoiding this space, which they are. Okay, so you kind of like, can I get a clear read on the strategy? Can I predict it? How hard is it to pull this off? High probability, low probability. That’s kind of how I see it. Okay, that’s kind of my take. And I think that’s kind of enough. Let me give you two other frameworks for looking at this. So at least you’ll have sort of three different frameworks for thinking about tech disruption. Now framework number one, this is just Andreessen Horowitz. I’m just, they write a lot of good stuff and this is just something they’ve published for years. So it’s not new, it’s kind of been floating around for a while, but they ask a very good question. It’s like, here’s a quote from them. If we’re so aware of disruption, then why do successful products or companies keep getting disrupted?” It’s a really good question. People understand it. They try to take it apart. They know it’s going to happen and it keeps happening. Okay, so they have four stages of disruption. I’m just going to read them to you. I’ll put them in the show notes. Number one, disruption of the incumbent. Two, and I’ll explain them. Rapid and linear evolution. Three, appealing convergence. Four, complete reimagination. All right, first of all, that’s not good language. Like I don’t like frameworks where like, you know, if I asked you to repeat those back to me, you couldn’t do it, nobody could. It’s vague language, it’s hard to remember, you know. So as a framework, it’s not that helpful if you can’t remember it off the top of your head. Okay, but let’s, that aside. Stage one, disruption of the incumbent. Here’s a quote from them. A new technology product or service is available and it seems to some to be a limited but different replacement for some existing widely used and satisfactory solution. That’s actually a really good quote. You can take that apart. It’s a new technology product or service. Fine. It seems to have a limited application. Limit is important. as a replacement, so it’s kind of a substitute, for an existing, widely used, satisfactory solution. Now, what they’re saying is, there’s already market behavior out there. We’re not creating, we’re not convincing people to do something they’ve never done. We’re seeing existing behavior for which there is a widely used, satisfactory solution. And then we come up with a different way of doing it. So we’re not creating demand. The demand exists, which is that really impacts adoption. Like, let’s say bike sharing. Like bike sharing was a really cool idea because there was already an existing demand to ride bicycles. It wasn’t like Segway where you had to convince people to use a machine they’d never used before. You know, people, everyone already knew how to do this. So I like sort of existing proven widely used demand. Now let’s come up with an alternate way of doing this that only applies to a subset. Now why does the subset matter? Because you want the incumbents to not respond. If you come up with a new technology for, you know, the incumbents already selling something there and this new tech applies to all of it, they’re gonna respond very quickly. But if you’ve got some funky weird tech that only applies to a small subset of their business, they will probably ignore the product or tech. And that’s the other part of their quote. Here’s another quote from them. The primary incumbent reaction during this phase is to essentially ignore the product or technology. Because the very nature of disruption. is such that the existing enterprises see more downside risk in betting the company than upside. So it’s like why would we shift our business in a major way to go after this small subset and not just keep doing what we’re doing and keep that. So phase one, stage one, disrupt the incumbent. That’s a pretty good scenario. All right, stage two, rapid linear evolution. Okay, now we’ve got two players looking for the same customer problem. We’ve got the dominant incumbent with a widely used technology, very satisfactory. We’ve got this small player on the side who’s got this different tech, different approach, but it’s a very limited application within the broader market. Now what stage two happens is the smaller solution, the disruptor, starts to sort of grow naturally in a linear fashion. Stage two is rapid linear evolution. They’re sort of filling out the product. They’re still the disruptor. They’re sort of innovating along a clear trajectory they set for themselves. They’re still focused on this small subset of customers, which we could call the earlier adopters. They’re following their vision and the incumbents are still largely ignoring them. But. There’s a path of evolution for this smaller player that’s just sort of nice and straightforward. Here’s a quote, “‘The heroic efforts to bring a new product or service to market leaves a lot of room left to improve. The path from where one is today to the next six, 12, 18 months is well understood.'” So they’ve got a clear path as this little disruptor on the side. “‘And to the incumbent,’ this is another quote, “‘to the incumbent leaders, the company looks like it is digging in its heels for a losing battle. They view you as being stupid. They view you as like, look, you’re pointed in the wrong direction. Why are you doing this in the corner of the market? So that’s rapid linear evolution. And then eventually what happens is between stage two and three, the disruptor camp starts to become undeniable. The traction is clearly there. The ability to dismiss this becomes harder and harder for the incumbent. All right, stage three, appealing convergence. Quote, the market redefinition. Now what happens now is basically the market starts to be redefined. It’s no longer just a little subset on the left plus the traditional market. We start to look at the market in a new way. It starts to get the market definition proceeds, and the market itself begins to call for the replacement of the incumbent technology with the new technology. Suddenly the whole market starts to wake up to the capabilities of these new products. And then what happens, this is appeal. So they call that the convergence, the two different worlds converge. And the smaller disruptor runs out of room to grow with the early adopters. And the next battleground they target is the incumbent customers. So the smaller company realizes, okay, the next phase of growth is the whole market where the incumbent has been ignoring us. And they start to move into there. And you see this all the time. I mean, we just like, digital payments, you can see this all the time, the Ant Financials and the Square and the new banks, they come in with some new tech on something simple like payment. It’s on the side, the big banks don’t really think about it too much, it’s a different market. And then eventually new banks says, no, no, we’re a digital bank, and they start going after everything. Right, so that’s the sort of appealing convergence. And last phase, stage four. complete reimagination. The old world and the new world completely combine and we start to see something that is new for the incumbent but is also new for the disruptor. What the disruptor thought they were building also changes. Basically the whole world shifts and now we have to look at it. We almost have to all start becoming innovators again. You know, once we get a completely new digital bank, let’s call it new bank or, you know, see money in Singapore now. Eventually, we’ll be talking about it completely after the convergence, we’ll be talking about a completely new animal for both parties. And we’ll have to basically start over. So they call this the innovator’s curse. That you disrupt, you do well, but there’s no time to sort of celebrate your achievements because you realize we’re all getting disrupted again because the world’s different now. So that’s kind of the Andreessen Horowitz pitch. Disruption of the incumbent. then a rapid linear evolution of most of the incumbent, then an appealing convergence, then a complete re-imagining. It’s pretty solid. I use this on a regular basis when I’m looking at something like retail or media. Banking, as mentioned, I can’t really figure out banking terribly well. Manufacturing, it’s pretty easy. Healthcare, because I’m kind of a healthcare guy. I find this model more often than not gives me a heads up on what’s coming next. I use it fairly frequently. Anyways, that’s sort of model number one, framework number one. I’ve listed that in the show notes so you can look at it there. For those of you who build out frameworks, I think this is worth putting in to one of your key frameworks. There’s a handful of frameworks I always use. Five Forces has always helped. So I have my own digital frameworks. This one is one of my standards, which brings me to the last framework for today, which is Clayton Christensen, Innovator’s Dilemma. I think many of you are familiar with this. If you’re not, you should definitely read his book, The Innovator’s Dilemma. It is one of the great business books of all time. It will just totally shape how you, you know, you’ll see the world differently after you read it. And that to me is always the best books. Like once you read the book, you can’t unsee it. You know, you always see it everywhere. I love books that sort of reshape how you view the world. Now that said. I don’t actually use this framework very much. In fact, 5% of the time. So it’s really cool in my opinion. I’ve never found it that usable. Now maybe that’s just because that’s the way I look at where I focus and other people do use it. But I’ll give you the summary. You know, quote from him. One of the most consistent patterns in business is the failure of leading companies to stay at the top of their industries when technologies or markets change. Okay, that’s just more disruption. He tended to focus a lot more on technology, disrupting other technologies. It’s one thing if you’re a supermarket, and why did Walmart defeat Sears and department stores? That’s one type of sort of innovation and disruption, which is more about the business model changing and the markets changing. He focused a lot more on one technology would disrupt another. And he was mostly a B2B guy. I think most of his frameworks don’t work in the B2C world very well. But when you start thinking about, okay, I mean, he would talk about companies like IBM, which was awesome at mainframe computing. but then they completely missed personal computers. And they tried, but Apple and others jumped in and took it, Compaq and them. Apple Computer, which then was very good at personal computing, didn’t really jump into portable computers very well, laptops for a long time. You know, that was other companies. And then we could look at say Microsoft, which did very well in PC era. operating systems, but they really missed out on mobile almost entirely. Nobody uses Microsoft’s mobile operating system. You know, we see this pattern over and over in tech of, you know, one tech paradigm, the leader not being able to make the jump to the next one. And then what’s cool is they often come back. So it’s often like the leaders in PC operating systems, Microsoft, they miss the jump to mobile. iOS got it. So, and we see that pattern all the time. But then what we also see is when they’ve missed that paradigm shift, they often come back on the next one. Which is what happened. Like now Microsoft is all over cloud. I mean, they’re one of the leaders. So they missed the mobile paradigm, but they caught the cloud one. We actually see that pattern all the time. They miss number one, but they catch number two and come back. And you could say the same thing about Apple. They had those success in the 80s, the 90s, you know, they failed pretty much. And then they came back the next decade. Um, that’s kind of an interesting pattern to watch anyways. Well, so this is the question. Why do you miss and in the tech world, and there’s a whole lot of factors, bureaucracy, arrogance, you have sort of a fixed cost commitment to a certain way of operating, um, executives get tired. the executives aren’t owners anymore. There’s a whole lot of reasons why this happens. But the one Clayton Christensen pointed to, which is what blew everybody’s mind, was he said they actually fail because they do what they’re supposed to do. What they’re doing as good managers is they’re staying close to their customers. They’re studying their customers, they’re looking at what their customers want, they’re allocating their resources. against what their customers want. They’re innovating aggressively against what their customers want. And that’s the mistake. That’s the dilemma. By doing what their customers want and staying close to them and serving them well, they get disrupted. Hence the whole thing is called a dilemma, the innovator’s dilemma. So let’s say you’re an incumbent company and you’re looking at a new technology. and they tell you, hey, take this apart and tell us what you do. What a good manager will do, they will start to ask questions like this. What do our customers want? Do they like it? Is this valuable to our customers? Okay. How big will this market be? Is this gonna be an opportunity for significant growth or is this some tiny little ancillary no growth side market? Will the investment… profitable because this is ultimately about resource allocation. We identify the opportunity, then we put our limited resources against that versus something else. As you do this as a good manager, you align your activities, your investment of time, money, people, capital into things that fit the needs of your customers or new customers who represent a significantly large opportunity. Okay. Well, you know, the Andreessen Horowitz model I just gave you, the whole thing was premised on the idea of… There’s an incumbent market and there’s this little quirky side market that this disrupter goes out after. And the incumbent doesn’t care about that little market. Why? They don’t have the same needs. It’s a small market. Doesn’t look like there’s any growth. It’s weird. Our customers don’t even want that stuff. Why would we spend our money on stuff that our customers don’t want? So examples. These are all his examples. You know, companies like Xerox were building large photocopy centers for their large, you know, business customers. Okay, fine. Those large business customers would have very little interest in little tabletop copiers that you could put on your desk at home and print 20 pages. Right? Not their customer base, it’s small. tech doesn’t, the tech is completely different. It would take time and energy and you know, when IBM, the example I just said, when they were selling their big mainframe computers, their customers were big companies, government, industrial companies, those people had very little use for personal computers. That’s not what, you know, IBM didn’t want to buy 10,000 personal computers, they had a big mainframe. So, the analytical investment process that a well-managed company would have, it would be almost impossible to have a good case for diverting resources from your known customer needs in established large markets and customers to unknown needs in small or insignificant or markets that don’t even exist. I mean, it’s just illogical. So a good manager doesn’t do that. In fact, that’s kind of what the investment process is for, is to weed out proposed products and techs that don’t address needs and don’t represent significant opportunities. So it’s that incumbent versus disruptor picture again. But the factor that matters is what Clayton called the tech performance trajectory. All products improve, all technologies improve. You wanna look at the rate of improvement. And what happens is it turns out when you’re focusing on your core products and your core technology and you’re doing everything you should be doing, the rate, the trajectory is lower. And these quirky little side technologies have a much higher performance trajectory. And they go from being nothing and small and ancillary to incredibly important and you didn’t see it coming because you misjudged the tech’s performance trajectory. And. That’s basically the idea. You can see it kind of overlaps with Andreessen Horowitz. The two terms he uses, which you should know, are sustaining innovation versus disruptive innovation. I’ll just give you the quick definitions here. Sustaining innovation is what a traditional company does. We keep investing more of our time and money and resources into the technology we have. We make it better. We make our semiconductors better. lighter, cheaper, with better energy efficiency and higher performance. We make our cars get better gas mileage. We make our copiers print more pages faster at lower cost per page. We sort of improve the existing product or service. That’s sustaining innovation against the same customer needs and concerns. And basically within your same position within what he would call a value network. The argument is a mature business has a value network. There’s an ecosystem, all the companies have their roles. You invest within your role in the ecosystem. So we could call sustaining innovation to be incremental innovation. And incumbents are very, very good at this. And this is how they allocate their resources and this is how they spend their money. That’s sustaining innovation. The other one is disruptive innovation. This is basically looking for the weirdo technology that has no value or limited value in the existing marketplace, the existing value network. Often these things are smaller, they’re cheaper. You’re repackaging existing tech into something simpler. You’re taking copier tech, which is very advanced, making these massive copy machines. And we’re taking the existing. tech and we’re just making it cheaper and smaller and putting it on people’s desks at home. We make it more convenient. You’re probably targeting a small, unattractive customer niche and all of this would be considered disruptive innovation. And the main difference is disruptive innovation is a recognition that the value network of the industry is going to change. And the incumbent is trapped within the current value network where they have to allocate their money in certain ways and do certain things. But then when the value network starts to change, the ecosystem changes, you’re not prepared for how things work now. So that’s disruptive innovation versus sustaining innovation. Now he actually breaks this out a little bit further. He says there’s low end disruption, which is about being cheap. And then new market disruption, which is about identifying entirely new customers you don’t have today. But anyways, that’s basically the idea. I mean, there’s a book on this. It’s awesome. You should read it. You’re pretty much gonna hear a much better explanation than what I just gave you. That said, the only time I use this is I basically ask myself two questions. Is this technology disruptive or sustaining? So we’re looking at a new tech, AI, computer vision, whatever, is this a disruptive technology or a sustaining technology? Sustaining technology means it’s gonna be incremental improvements, but it’s not gonna change the overall. structure of the industry. Everyone’s going to stay in their place. This is going to make you better. Or is it a disruptive technology where all the roles are going to change and the activities are going to change? And then sort of what is the strategic significance of the disruptive tech? If it’s disruptive, what’s the strategic significance? Those are both questions from Clayton Christiansen. Anyways, I thought I should cover that. I think it’s a good framework to have. So I’ve given you three frameworks for how to think about disruptive technology. I’ve given you my two simple questions. Um, and then we gave you the Andreessen Horowitz and I gave you Clayton Christensen, but there’s a lot more on this. I mean, you can read book after book about innovation. Uh, Rita McGrath, uh, Columbia, she writes about this. A lot of people write about innovation, which is really disruption. Um, those are kind of the three I think about most, but there’s a lot here. Anyways, it’s a big subject. I think you kind of know my approach and I thought I should at least touch on it. It could be a whole nother podcast on innovation. I mean, that should really be an entire podcast. It’s just innovation and technology because it’s pretty complicated. Okay, I think that is the content for today. So the two concepts, Andreessen Horowitz’s Four Stages of Disruption and then Clayton Christensen’s Disruptive versus Sustaining Innovation. Both of those are in the concept library. But my library doesn’t have a huge amount on innovation and disruption. Like it’s such a big topic. And I’m definitely not an expert in that. I kind of know the standard stuff. Okay, but that’s the content for today. As for me, I had a pretty fantastic week. I was in Singapore down on the marina for a week. First of all, I mean, flying around was back to normal. No PCR tests. No, nothing. I mean, it was just I had to register online for both Singapore and Thailand. But apart from that, there was nothing to do, which is really a pleasure. Hanging out in the Marina Bay, lots of meetings. I ate too much. It’s like being in New York or San Francisco. Like you just end up like there’s too many good restaurants and it’s too detailed and it’s too complicated. So I went to like the Gordon Ramsay restaurant. in Marina Bay Sands, you know, the big casino. That’s where the conference was. And it was unbelievable. Like, and I don’t know anything about food. I was like beef Wellington this and steak tartar this. And you know, I find it all really like one, it’s good. Even I can tell that. And I find it all really interesting. Like for about two days. Like that’s as long as I can be a foodie. Like two days. I’m like, hey, that’s really cool. This is steak Wellington. I don’t even know. I look up what steak Wellington. After about two days, I’m like, yeah, okay, I don’t care. It’s like, hey, just give me a burger. I don’t like, but definitely like, man, there’s a lot of money in Singapore. That was my takeaway. Man, there’s a lot of money there. There’s a lot of professionals there. There’s a lot of tech companies. The whole digital banking scene of Singapore, it’s just moving. For those of you who aren’t familiar, digital banking is a huge deal in Asia. in China and also there’s a separate outside of China story. And you really got to look at Singapore as maybe the epicenter of that. They just issued four banking licenses, digital banking licenses recently. Sea Limited got one, Grab got one, Ant got one, and some consortium got the other one. You know, and there is so much financial services and tech talent in Singapore now. Man, it’s really interesting. So I’m going to keep my eye closer on that. But you can see it walking around. Like it’s, you know, everyone’s dressed well. Everyone’s driving nice cars. You know, every martini is $20. Like it’s, it’s like being in Palo Alto. Anyways, yeah, it was pretty awesome. And it’s, yeah, I was just really in a good mood. I mean, this is, you know, coming home to Bangkok, flying into Singapore, you know, flying around. This good living, it’s just good living. So anyways. That was kind of my week, fantastic. Thanks to those of you who I met there. It was really fun to chat with people and yeah, I appreciate it. Anyways, that’s it for me. I hope everyone is doing well wherever you are and yeah, sorry for sort of disappearing for a week. I really just needed some downtime, but I’m sort of back. Anyways, thank you much. I hope everyone’s doing well. Talk to you next week. Bye-bye.