In a previous post, I had shown that business (and bacteria) grow in a S-shaped curve
https://adityasehgal.com/2014/07/13/business-and-bacteria-how-things-grow/
https://www.linkedin.com/today/post/article/20140713150608-9138224-business-and-bacteria-how-things-grow?trk=mp-reader-card

Both, old businesses, (eg. the PC business) and new business (eg. Apple) follow the same shape of the curve. In the chart below, the cumulative penetration of Apple devices, (driven by the iPhone) has almost caught up to cumulative Windows devices by 2013. Both grew on the S-curve. Clearly, the iPhone has done very well since launch !

Now, in the next chart comparing the iPhone vs Android and you can see that Android significantly outpaced the iPhone, while also growing on a S-curve. Why does the iPhone look so slow here ? Android is growing on a quarterly pace on the S curve, while Apple was growing on an annual pace. Clearly, Android did even better than the iPhone !

We all know the Android charge that unseated Apple’s dominance of smartphones was led by Samsung – but Samsung did not post the most stellar results recently (http://www.cnet.com/news/samsung-warns-2h14-will-be-tough-as-it-reports-weak-q2-results/).

They referenced new competition – from Chinese players like Xiaomi.

The next chart shows the user growth of the Xiaomi mobile OS (MIUI) – It is also exploding along a S-Curve, but this time the acceleration is driven monthly.

In a few short years we have gone from a market growing along the S-curve in decades (PCs) to annually (iPhone) to quarterly (Samsung/Android) to monthly (Xiaomi).

While the smartphone example is drastic, I believe the same trend is also impacting other industries.

In competitive markets, the rate of change itself may be growing along a S-curve.

The small piranha is now eating the shark which is in turn eating the whale. As the piranha grows it becomes the shark and the shark becomes the whale.

The predators are growing into their prey – companies that are growing fast today lose their way tomorrow and are eaten by smaller, nimbler competitors.
This is the essence of the Innovators Dilemma as laid out by HBS professor Clayton M Christensen.

But, why does this happen ? Surely large companies can see the small predator coming ? Surely they have more resources ? More people who are more experienced ? Wal-Mart saw Amazon coming from the day Amazon launched. Post office employees were probably using e-mail at home as soon as it was available – why then is the dominant e-mail provider not a national post office ? and why is the No 1 e-retailer in the world today not Wal-Mart ?

One answer is that businesses work at an internal speed, a cadence which is built up by systems and processes which grow as structures, from past success.
Speed of growth along the S curve is driven by accessibility of product/service (driving availability) and virality of message (driving awareness). The internet and other disruptive technology accelerates both awareness and availability.

In the smartphone example the faster fish (monthly acceleration/cadence) are eating the fast fish (quarterly cadence) which in turn are chewing up the slow fish (annual cadence) and these in turn have already gobbled up the slowest fish (feature phones which moved at a glacial cadence in relative terms).

Large businesses work at annual speed with a 12 monthly cyclical cadence.

In large businesses, there are many managers. Managers like to react in ‘planning cycles’. There are as many opinions as there are managers, and all these opinions are validated with data.
It takes time to generate & analyse data – and even more time to decide what to do, between the many stakeholders.
There are systems to improve ‘chances of success’ through research and following manuals. Most large organisations have BBF programs (bigger, better, fewer). Anything that doesn’t follow the process or is not approved by ‘the system’ is sent back. Without the right data, senior management is ‘unable to reliably decide’ whether the initiative is good or not. Gut feel is not good enough. After all – it is not validated !
Everything important is approved by an ‘Executive committee’ which meets at best monthly and has an agenda backlog of 3 months.
Employees with entrepreneurial instincts are crushed under the weight of management and process. Many vote with their feet – to go and create the new companies that attack and eat up their former employers.

Managers have an inflated view of their invulnerability and the superiority of their ‘team’ and ‘process’.
While the competitor is small, and is refining their product and service, there is contempt for the newcomer. There are a million good reasons why they will fail. Managers are smug in their superiority.

Often, the small player has a slightly different product/service. They establish a small new consumer preferred niche/segment that they are able to grow at turbo speed by making inroads into the dominant market segment.

The large company realises too late that they need to compete in the new segment of the market. There is still supreme confidence that their brand will become market leader in the new segment as soon as it is introduced – after all, don’t they have the brand with the best equity ? Unfortunately, by the time they get their act together they are the underdog in the segment – their ‘process’ slows them down further and they are always reacting to a fast improving competitor. They can’t understand how the competition is moving so fast.

On top, their new service is now competing with their old service and cannibalising it – often they make less money on the new service at the start so their financials are under pressure. The vast majority of employees are still in the ‘old’ part of the business – there is tremendous internal resistance to putting so much resource into the new business and ‘starving’ the old business. A fog of indecision and despair descends. At this point the entrepreneurial members of the team get sick of pushing water uphill and leave. The bureaucrats thrive.

The gap with the competitor widens. Management now starts missing targets and there is growing internal pressure. Eventually the company loses market leadership. It is now the beaten leader and a drastic turnaround plan is instituted to cut costs, reduce layers and make it competitive again. Many employees lose their jobs and a once-proud business stands humbled. Shareholders punish the company’s leadership.

The victor in the struggle keeps growing till the point where it too falls victim to a smaller, nimbler, less bureaucratic competitor, operating at a faster cadence.

How can the large fish avoid being nibbled away alive by the smaller fish ? There are many books on the subject and a comprehensive answer is way beyond the scope of this post. Some points to consider, however, are :

1. Understand that different things in the company should work to different cadences. Run processes in parallel rather than sequentially and focus resource on cutting cycle times of long lead time items. Ask the team for ‘impossible’ deadlines. Even where long term R&D/regulatory barriers cause unavoidable long lead times, initiatives can be started in parallel and phased to mature quickly one after the other. An example of this is how China has built its railways and cities – to the outside world it looks like a new city or high speed line appears every 6 months, but internally this is the result of many years of large, long lead time projects running in parallel, maturing quickly – one after the other. In summary – put lots of projects into the innovation funnel so you can have lots of speed later. The opposite of BBF.

2. When competing with a small fish (but one which has sharp teeth), drive the response at a completely different cadence – make sure the team understands that the ‘regular process’, ‘validation’ can be junked. Lead the response top down – with the project driven as the single focus of a senior director. Ensure the whole organisation understands the urgency of the problem. Expect – not twice the regular speed, but 10 times the regular speed and tell the team they can break any rule if they get the speed. Find entrepreneurs to lead the team, and then make sure you clear the decks and don’t slow them down. Change the metrics to daily, weekly, monthly from quarter, annual, 3 yearly. Incentivise as aggressively as you expect results.

3. At the first sign of success, pour in disproportionate resource to scale up. Plan to drive the new business to be the dominant proportion of the business even faster than the competitor. Don’t be afraid to cannibalise yourself with a slightly inferior product or financials – your competitor will cannibalise you if you don’t cannibalise yourself. As the business grows, aggressively cannibalise the ‘old world’ part of the organisation for talent and retrain them on the job as the business grows.

4. Don’t wait for perfection – Launch if you are 80% of perfect (except where human lives/health are at stake). Improve as you go. Roll out frequent, incremental product improvements every few days/weeks. every few months (or longer depending on the product life cycle and cycle time to gain critical mass in awareness/availability) consider launching variants or improvements of the product.

Don’t fall into the trap of thinking that the business is invulnerable – that the chances of success of a disruptive new player are small. Don’t think – ‘It wont happen to me’.

Remember the lesson of the sperm – the chances of a sperm fertilising an egg is about 600 Mn to 1.

But thats not the important point.

The world has about 7 Bn people today – clearly, 1 sperm has made it past odds of 1:600 Mn at least 7 Bn times !

Even with very low odds, given enough time, and enough tries – someone will disrupt your business – when that happens, you must accelerate or die.

For a very interesting opinion on the chances of you existing, go to :http://members.shaw.ca/tfrisen/chances_of_you_existing.htm

References :
http://technode.com/2014/06/20/xiaomi-software-integrated-whole-lot-third-party-services-users-engaged-ecosystem/
http://tabtimes.com/feature/ittech-os-ipad-ios/2014/01/15/why-apple-ios-device-sales-are-set-catch-windows-2014
http://www.nateriggs.com/smartphone-adoption-iphone-android-app/
http://www.asymco.com/category/industry/
http://books.google.com.hk/books/about/The_Innovator_s_Dilemma.html?id=SIexi_qgq2gC