To all our readers, Happy New Year, and I hope many of you enjoyed CES 2014! Exhibitions like CES are a great way to see sneak previews of what new, up-and-coming technology might be ‘the next big thing’. So it’s worth reminding ourselves that identifying the mega-wave of tomorrow isn’t necessarily finding the fanciest, flashiest, most feature-laden products being launched today. In my opinion, one of the most insightful and fascinating mantras for anticipating new markets and trends came from Chris Dixon a few years ago, when he wrote:
This insight, which he posted on his excellent blog is rooted in Clay Christensen’s theory of disruptive technology introduced in The Innovator’s Dilemma. The theory, if you’re not familiar, goes something as follows:
1. At the top end of a market, products tend to improve (i.e. accumulate features) more quickly than the average customer can use these new features.
2. Market leaders usually ignore disruptive technologies because they appear ‘underpowered’, and not particularly impressive compared to their own high-end products. The market leaders then surrender the low-end, low-margin slice of what they perceive their market to be, and focus on the top where their real profits are generated.
3. Meanwhile, the ‘toys’ at the bottom of the market begin to poach customers away from the market leaders, by offering a product that is cheaper, simpler, and solves a user need more basically and effectively than the top-heavy, feature-laden behemoths found upmarket.
4. In doing so, these toys have created a whole new market, and may even be solving completely new and different problems than in the old market. (Think of Snapchat and Vine as examples of the new kinds of jobs that cameras are performing, which could’ve never happened with the previous generation of feature-laden, pre-cellphone digital cameras.) The old high-end products are now isolated to a niche of power users.
Even the smartest and most innovative Silicon Valley tech companies can get ambushed like this. As a (now infamous) example, in 2009 Eric Schmidt, the CEO of Google, called Twitter a “poor man’s email system” that has “aspects of an email system, but doesn’t have a full offering”. I can’t think of a better example of yesterday’s toy becoming today’s biggest thing than Twitter, which didn’t replace email at all, but instead completely revolutionized the way we discover and communicate about things happening in the world. XKCD, as usual, illustrates this very nicely:
Now, this doesn’t mean that every toy being played with today will turn into tomorrow’s IPO- in Chris’s words:
“To distinguish toys that are disruptive from toys that will remain just toys, you need to look at products as processes. Obviously, products get better inasmuch as the designer adds features, but this is a relatively weak force. Much more powerful are external forces: microchips getting cheaper, bandwidth becoming ubiquitous, mobile devices getting smarter, etc. For a product to be disruptive it needs to be designed to ride these changes up the utility curve.”
In essence, the most profoundly disruptive products look the most like toys because they address the user’s needs in a creative and fundamentally innovative way, even if it appears silly or amateur-ish to the incumbents. The disruptive products that succeed, therefore, are the ones whose creativity is rooted not just in product features, but rather in its core value proposition.
So what does this mean for TandemLaunch? On one level, we need to be thinking about the new technologies that we scout, develop and commercialize through this lens- how are they disruptive, who are they disrupting, and why. But on a more fundamental level, we could ask this same question of TandemLaunch itself. Does it make any sense to ask whether TandemLaunch itself is acting like a toy?
I believe that for an early stage startup incubator to be described as a toy would be a very high compliment indeed. Consider one of the great success stories in the field: Y Combinator. Back in 2005, YC’s customers- startup cofounders- were being overserved at the top end of their market by investors, while most startups just needed a simple, streamlined and creative solution to get them off the ground. As Paul Graham, the YC cofounder and leader, wrote in this 2007 essay:
“Startups are undergoing the same transformation that technology does when it becomes cheaper. It’s a pattern we see over and over in technology. Initially there’s some device that’s very expensive and made in small quantities. Then someone discovers how to make them cheaply; many more get built; and as a result they can be used in new ways.”
By offering a cheap, fun, high-throughput but fundamentally creative and effective way to launch startups, YC has gone from an interesting experiment to a massive success story with graduates like Airbnb and Dropbox, yet is still described in the popular press as “sleep-away camp for startup companies”.
So what about TandemLaunch? One of TandemLaunch’s main insights is that outside of a few select places in the world (Silicon Valley, essentially) the odds of a successful founding team finding each other ‘by accident’ is very small. Hence, one of the core TandemLaunch value propositions could be thought of as ‘providing the setting for technologies, cofounders, and industry partners to find each other in a deliberate, and not accidental manner’. Or phrased another way, ‘providing the setting for creative people to get together and play with cool stuff, and see if they can make a company with it’. Maybe the smart move for TandemLaunch is to embrace this idea of being a cool toy. After all, it’s not the fancy features that make the difference for a disruptive product or company- it’s the creative, novel value propositions that address customer needs in innovative ways.
For TandemLaunch to climb up the utility curve, maybe instead of asking ourselves “What additional features could we add to our model to launch companies more effectively”, maybe we should be asking, “How can we be more like a cool toy?” After all, Backtrack (the wearable health project I’m currently co-leading along with Alex Daskalov) didn’t come together as a TandemLaunch company because of all of Tandem’s fancy features- it came together because Tandem gave us a way to meet up and play around with the idea. Time will tell whether we’re successful or not, but we wouldn’t have gotten anywhere without that initial ‘playtime’ to hash out our ideas.
So I hope all of you have a great start to 2014, and go out and find the next big thing- or go make it yourself. And remember, you’re not looking for fancy products with bigger and louder bells and whistles- you’re looking for something that seems overly simplistic at first glance, but for some reason is used fanatically by your 15 year old cousin and all her friends. It might be worth your while to pay attention. In a world of fancy features versus cool toys, I’d invest in the toys.