The Innovator's Dilemma

Due to the nature of my job, I spend a good amount of time in airport terminals catching up on some reading. I'm currently reading Lawrence Lessig's The Future of Ideas"-- it's really interesting so far.

Anyway, Lessig references a book called "The Innovator's Dilemma" by Clay Christensen. Apparently, this is one of those "classic" business books that I've been missing out on. Here's the gist of it: Successful companies are bad innovators because they resist betting on disruptive technologies until its too late. Why? By definition, a technology is "disruptive" when it fundamentally changes the market... that is, that same market that made the company successful to begin with. So in a sense, they are being perfectly rational: They are already seeing great growth and revenue from their core market, why risk it by introducing something new that might screw that up AND might not be as successful? Some people call this cannibalizing your market.

This behavior is exploited by startups all the time. Innovation and agility is their competitive advantage. They disrupt the marketplace, but once their innovation catches on and they become successful, they are doomed to face the same innovator's dilemma that gave them their opening in the first place. Apple/Motorola is a good example of this: the ROKR phone was a great opportunity to disrupt the MP3 player market, the cellphone market, and the market for ringtones-- instead of doing that, they delivered an enormous flop.

But, why must this be the case? Can startups avoid it? I think they can: just never stop acting like a startup. Keep your teams small. Force different your business units to compete with each other. Make them operate almost like independent businesses. Encourage a culture that rewards innovation and creativity above all, and give people ownership of their creations. Have a division that's resting on its laurels? Keep the best, most entrepreneurial people, spin the rest off, and invest that capital into the next big thing. The startups that are still successful as huge companies, such as Yahoo, Google, and Amazon, are famous for keeping that culture of innovation alive in their companies.

Christensen apparently gives his own solutions in his book. It's now next on my reading list-- I look forward to seeing what he suggests.