Monthly Archives: August 2012

Bezos’s Ding

We have talked about the impact of Jeff Bezos, in particular with AWS last year. I wrote:

To put a number on it, what Amazon has done is help cut the cost of launching an application by 99%.  Not only is Amazon’s cloud services an amazing business for it, Amazon,along with others surely, but with significant credit due to it, has made the world an innovation platform, enabling the low-cost, lean, prototyping innovation culture of today.

The NYTimes, a year later, is just catching up, yesterday writing about AWS’ role as an enabler of innovation. I particularly like this quote from David Risher, a former Amazon executive, at the end, implicitly tying Bezos to Steve Jobs:

Jeff thinks on a planetary level. A.W.S. is an opportunity, as a business. But it is also a philosophy of enabling other people to build big systems. That is how Amazon will make a dent in the universe.

Creating Cachet: Fifth Avenue versus Main Street

The most exciting story in apparel today is Uniqlo — the source of Japan’s biggest individual fortune and the fourth biggest apparel retailer in the world.  Uniqlo, only today, is moving to establish its beachhead in the US, as a base to spread across the US.  The WSJ covers it well this weekend.

One interesting aspect of the story is its changing strategy for establishing that beachhead.  The first attempt, which failed, involved opening small stores in NJ malls.  These didn’t perform well and were shut down.  The second try was opening massive flagship stores, the first in Soho, and the recent two on 34th street and Fifth Avenue.  I don’t know, but given the $300 million, 15 year lease on the 5th Avenue store, I would guess that it is unlikely that these stores will turn a profit on a store basis, yet these stores are the essential tugs pulling forward the launch strategy.  The US CEO explains the reasoning:

“Flagship stores on high-profile streets are extremely important to the brand outside of Japan.  They make a statement. They spur word of mouth. We can attract higher-level talent. I’m not sure Jil Sander would have worked with us back in 2005, before we had these stores.”

It’s an interesting example to keep in mind.  In order to attract the customers and the suppliers you are looking for, you may need to make the Fifth Avenue splash even if it’s with only one or two stores.  As a launch strategy, willy-nilly opening your doors on Main Street may not cut it.

Go Small

I’ve noted previously how, in enterprise and government (non-consumer) applications, the customer may have to implant the innovation into its supply ecosystem.  Nothing talks louder than money, and for IT customers, this means the CIO budget.  On that score, the WSJ reports that CIOs increasingly have the flexibility to move their IT spend from the IBMs and HP behemoths to the Silicon Valley upstarts, due to more responsiveness, more flexible pricing models, cloud computing, and general dissatisfaction with the titans.

This is also creating a number of exit options for these startups, as the behemoths try to buy their way to being more nimble.  As the WSJ notes:

Old-line tech vendors have taken notice. Microsoft in July paid $1.2 billion for Yammer Inc., which makes social-networking tools for businesses. IBM, Oracle and SAP have all spent billions for younger online software makers. And H-P executives talk about reinventing the company by expanding into three hot businesses that aren’t among its main ones today.

Enabling More Shots on Goal

One of the metaphors I have used in connection with finding talent is that of Antonio Gates, the San Diego Chargers monster TE who never played college football.  With too narrow a view of talent, Gates may have spent his life doing something in which we football fans never got to appreciate his pass-catching talent.  As I commented then, we need to embrace breaking down limiting beliefs about the narrowness of talent that are embedded in talent recognition processes:

Despite this, the way the recruiting process often works is very conventional and it takes a narrow view of things and it can whittle unconventional candidates out of the talent pool.  My thesis is that this is causing a huge economic and human deadweight loss to our economy and society as talented folks don’t get to move around or it takes them too long to make a cross-functional move.

With Antonio Gates at the back of my mind, it was interesting this weekend to tie it to global football or soccer as we Americans know it better.  Manchester City, the reigning Premier League champions, are working with a private provider of soccer match data, to release that data to fans (tying into another favorite topic of this blog regarding freeing data sets).  The expectation is that in Kaggle-like fashion, a crowd of smart people and fans will attack that data, mining new truths out of them.  As a club official says, capturing the power of empowering the crowd through open processes:

I want our industry to find a Bill James. Bill James needs data, and whoever the Bill James of football is, he doesn’t have the data because it costs money

Operation 99FighterDesigns

Last year, we talked about how defense procurement was backwards when compared to the innovation in consumer tech:

Contrast this with an industry, in which there is a stream of huge payments even before there is a product, and a massive stream of payments even where the product has missed numerous timing, cost, and performance benchmarks. The extreme example is defense procurement.  The Economist had a recent story about the F-35 Joint Strike Fighter, our next-generation fighter jet, and the most expensive military program in history. It is running 6 years late, and the planes are running at double the acquisition cost, and at a”jawdropping” trillion dollar cost to support and operate after the $400 billion or so it will cost to buy the planes. Despite this, apparently, Lockheed, the contractor, thinks it is doing a great job.

And earlier this month, we noted how the innovation of weapons procurement and computer cycles were on two different timelines:

Weapons platforms — with their costs as high as hundreds of billions or eventrillions in the case of the F-35 strike fighter — can take 15 years or more from design to completion and can be kept in service for 30-50 years given the investment in them.

In contrast, Moore’s law — the doubling of speeds of computer chips — acts in 18 month segments.

This is why this news is so cool.

DARPA — an incubator for the Internet and GPS — is going to offer a prize and run a Kaggle-like competition to create the next-generation Marine amphibious vehicle:

Darpa plans a series of “challenges” in which designers could compete for prize money, the largest award being $2 million for the best total vehicle design. The first challenge is to take place in the first half of next year. Darpa “hopes to see a broad spectrum of participants, from small businesses to large industry to academia, as well as individual engineers at various levels of expertise,” a spokesman said.

The goal is to get something more creative and less expensive than the usual weapon platforms plagued with cost-overruns, old technology, and time delays.  And the other great insight that DARPA is applying is having the crowd-sourced solutions compete with the traditional contractors to exert change on those players as well, implanting that innovation ethic into the traditional industry as well.

B-School Guerrilla Style

A nice post on the Times website — demonstrating the more generally applicable principle that giving access to the basics can be as important as addressing the quality at the top — in the context of business schools:

[Non-elite business schools] may lack Nobel Laureate professors and ivy-covered buildings, but they have managed to make business education more affordable for the people who need it the most. “There are hundreds of millions of small farmers, shopkeepers and potential entrepreneurs,” Davidson writes, “for whom mass business-educational tools could be transformational in ways that make a handful of top schools seem utterly irrelevant.”

Take, for instance, the University of California Irvine’s online courses, which anyone can download from its Web site, free of charge. Larry Cooperman, director of U.C. Irvine’s OpenCourseWare, said he started the program “guerrilla-style.” He persuaded professors to tape their lectures, post them online and see what happened next.

Their reach was instantly global. One-third of the Web traffic came from abroad. Testimonials poured in from users in India, Kenya and Poland. At an education conference in Africa, a professor from Malawi thanked Cooperman for the curriculum. “What are you talking about?” Cooperman asked in surprise. “We’ve implemented it,” the professor replied.

This effort and result is very reminiscent of Professor Christensen’s dictate that when starting the disruption of an area one should address the “simple” needs of the “less sophisticated” or unserved users rather than the more complex needs of the most advanced users.

Fed on Confidence

Actually, the other Fed; useful in considering the question of risk:

“[Novak] had confidence on his side,” he said. “Confidence is sometimes forgotten. When you have confidence like I have now, you don’t second-guess yourself. You just do it. And you’re like, ‘That was normal.’ And then you look back and you’re like, I can’t believe I just did that. I think that’s kind of what happened to him—which was an unfortunate situation for me.”

The Longest Runway

Warren Buffett wrote in one of his recent annual letters to Berkshire shareholders that:

The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money.  Think airlines.  Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers.  Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

So curiously enough, building airplanes — unlike operating them — are a tremendous market.  In fact, over the next 20 years, the portion of the market that consists of single and twin aisle jets of over 100 seats will amount to over $4 trillion dollars of revenue (so, $2oo billion a year if the revenues were smoothed out over the period).  Virtually, all of this revenue is earned today by Boeing and Airbus.

Unlike airlines, drawing repeat entrepreneurs enamored with the long past glory of flying, entering the business of creating jets has proven to be almost impossible.  This is despite the huge revenues and profits potentially available.  Unsurprisingly, the cost of building an airplane platform is expensive, at least $10 billion.  Other features of the market make that an even more unappealing investment, beyond its magnitude.  First, airlines gain huge discounts by purchasing huge orders of planes a decade or two in advance, thus leaving little business for a new entrant to compete for, even if enters with a next-generation plane.  Two, there is an incredible safety hurdle to overcome, and there would be a “bet the business” risk for an airline to purchase a plane from a new entrant and, consequently, suffer a crash.

The best candidate for breaking through the duopoly is Chinese state-controlled Comac.  Money is no object as becoming a serious player in the industry is a further sign of validation of the Chinese state as a power, so budget and balance sheets are not a constraint.  Also, growing Chinese airlines present a huge almost-captive market for Comac for beginning to gain the sales and safety record it needs to gain credibility outside China.  That said, it will still be a massive risk for Western airlines to turn to Comac.  The Chinese have made in-roads in other sensitive industries (see this week’s Economist article on Huawei, in telecommunications equipment, for example) in a short period of time, but airplanes are highly visible and passenger safety is an emotional issue, so this one may be different.

Enabling Manufacturing Hackatons

One of the things that you find in trying to innovate and develop software is that it is hard to outsource the coding elsewhere.  While there are exceptions to this rule, one sees the spur to innovation built into a process where people are able to tinker with and iterate their ideas in a hands-on fashion using simpler and more powerful software frameworks.

I have posted previously about coding reality with tools such as 3D printing, having the effect of unleashing that same dynamism into manufacturing. Extending the logic of the experience in software, a prerequisite to having that happen is keeping a base of manufacturing in this country. This defies the often-stated logic that the outsourcing of manufacturing is not an issue if high-value, innovative tasks remain in the country.

There is a lesson in this from the innovation of the spine of Germany’s economy – the centuries’ old Mittelstand system or the small and medium-sized enterprises that account for 70% of its employment.  As described in this FT excerpt, at the core of keeping the innovation of Mittelstand, was keeping production capacity within Germany, as there is a manufacturing ecosystem that is disrupted by losing manufacturing capacity.

Carl Miele imprinted the motto Semper Melior, or Always Better, on his company’s first washing machines more than a century ago and that ethos of constant improvement remains the same. Like other Mittelstand companies, Miele has always focused on the premium segment.

Developing and manufacturing products in Germany has also helped its engineers to develop new ideas. “Having production capacity in a country is important as without that it is harder to improve and innovate – some of the knowhow goes missing if production capacity is lost,” says Markus Miele, great-grandson of the founder.

Hermann Simon, chairman of Simon-Kucher & Parntners, a consultancy who will this month publish an updated version of his book on Germany’s “hidden champions”, says: “There are some Mittelstand companies who file more patents in a year than an entire country like Portugal or Greece. That’s where it starts.”

The Atomic Unit

Perhaps referring to a cousin of the routine rite, Fred Wilson urges founders to think of the concept of an atomic unit — the most fundamental unit of the service, such as a tweet (Twitter), post (Tumblr), sound (SoundCloud), relationship (Facebook), check-in (FourSquare) or story (Wattpad) — when designing their minimum viable product.  He advises:

When you think about an MVP, it’s really important to identify the atomic unit and make sure you focus the product crisply and cleanly on that object. If you think you have three or four atomic units, you are going to end up with a clunky and bloated experience and that is what you want to avoid at all costs with your MVP (particularly if you are mobile first).

In a comment to the post, Hunter Walk, long–time product manager for YouTube, notes:

At various points in YouTube’s development we also used this to help us understand how site features support the atomic unit of video. One mantra was “every feature needs to start or end with a video being played” – everything else would be superfluous

The atomic unit for many of the ideas on this blog would, I think, be the “talent-matter match.”