Tuesday, August 30, 2005

Lead User Bell Curve Diagram vs. "Crossing the Chasm" Bell Curve Diagram

When I first started studying innovation theory, I noticed that Eric von Hippel and Geoffrey Moore both used a bell-shaped diagram. At first I thought they were the same diagram, but it turns out I was wrong. See Figure 1 and Figure 2 below for von Hippel and Moores' bell curves.

Figure 1. Eric von Hippel's Lead User Bell Curve Diagram (Democratizing Innovation, pg. 134)

Figure 2. Geoffrey Moore's "Crossing the Chasm" Bell Curve Diagram (Wikipedia)

Both authors describe a bell curve. The x-axis is the same in both diagrams; it represents time. The y-axis, however, represents different things.

For Moore, the y-axis is the number of people who adopt an innovation in a given period of time (x-axis). For von Hippel, the y-axis is the number of people who begin to experience the need for an innovation in a given period of time (x-axis).

The curves are not necessarily correlated in time. Say an innovation to address the need is never invented. In that case von Hippel’s graph might show a bell-shaped curve but Moore’s graph would show a flat line, y=0.

Conversely, in a particular span of time, von Hippel’s curve may be flat while Moore’s graph shows a bell-shaped curve if a solution appears suddenly on the market to a long-standing unaddressed need. Even though the trend toward increasing need has already played out and everyone who wants a solution can obtain it, the diffusion will still be gradual and probably conform to a bell-shaped curve. This is because—as Moore argues—the mainstream of the market will refuse to adopt the solution until it is well proven by the early-adopters.

A question still remains in my mind about the difference between Lead Users and Technology Enthusiasts / Visionaries.

For another good post on this topic, see Adina Levin's weblog entry on Lead Users vs. "Crossing the Chasm".

Monday, August 29, 2005

“Not Invented Here” vs. “If You Want it Done Right, You Have to Do it Yourself”

Companies are often criticized for a “Not Invented Here” attitude. But what’s wrong with that attitude? Aren’t there just as many people out there advocating that “if you want a job to be done right, you have to do it yourself”? Having been there, I can see some legitimate reasons why some companies would have a “Not Invented Here” bias.

In some cases, there isn’t much to be gained from going with an outside vendor rather than building something yourself. It usually takes time and resources to search for and then evaluate a set of vendors’ offerings. And then what if you evaluate and find the solution doesn’t meet your needs? Worse yet, what if you can’t adequately anticipate your needs and get locked-in to a vendor that’s inadequate?

There is a strong chance that a vendor will not be able to meet your needs. Vendors look at the range of possible customers they can serve and they look for common requirements. But in doing so, they explicitly decide not to satisfy portions of the market. If you’re going to make a commitment to go with a vendor, make sure that you are well within their target market.

If it takes a lot of time and the chance of finding a good match are low and it’s a crucial piece of whatever you’re building, you’d really have to look at the option of externally sourcing and say it’s too risky.

In the innovation literature, I see two opposing views on this subject. From Eric von Hippel’s Democratizing Innovation, we learn “that when one or a few users want something special they will often get the best result by innovating for themselves.” (Democratizing Innovation, Eric von Hippel, p.g. 5)

But from Henry Chesbrough’s Open Innovation, it would seem that successful firms will need to look to the outside for innovation because of the decreased expenditure in corporate research.

If companies aren’t willing to take the risk on externally sourcing innovation but lack the budget to do-it-themselves, buyers of technology are going to need more efficient ways to evaluate vendors. Furthermore, suppliers are going to need to satisfy more of the fringe needs of their customer bases, perhaps by increasing the availability of toolkits for adapting their products to the needs of their customers.

Monday, August 22, 2005

The IP Spinout Model

In my last posting, I talked about a method aspiring entrepreneurs could use to find a compelling business idea. In that posting I talked about how to use the Lead User concept. Another technique is to the IP Spinout Model.

The IP Spinout Model involves finding an interesting invention developed at a university, or other research institution, and licensing the IP and its assets to form a business.

I came across a very helpful case study of the IP Spinout Model, that I'd recommend to entrepreneurs, particularly MBA students.

The IP Spinout Model: http://www.netpreneur.org/events/doughnets/020626/IP%20Spinouts%20HBS%20Report.pdf

If the document gets removed from NetPreneur.org, you can find it again at HBS Press. The authors are Houghton, Lalande, Miller, and Redmond.

Saturday, August 20, 2005

Become a Lead User

Eric von Hippel’s research into innovation has helped us understand that many innovative ideas come not from manufacturers, but from self-motivated Lead Users. This research has given rise to the Lead User Method (AKA Lead User Study or Lead User Research) which is helpful to companies seeking to achieve growth through innovation. More on von Hippel’s research can be found in his latest book, Democratizing Innovation.

Like big companies, individual entrepreneurs may choose the Lead User Method to identify compelling business opportunities, but it can be difficult to pull off on a shoe-string budget. An alternative is for the entrepreneur to become a Lead User. This would entail identifying an important trend, finding a job in a company involved in that trend, identifying an unmet need resulting from that trend, solving it, and then going off and commercializing that innovation as a separate business.

I have met entrepreneurs who have invented something in a large organization and then successfully licensed that technology and IP away to create a new business. Sometimes the startup can actually get re-purchased by the parent company once it becomes successful.

One man's Sustaining Innovation is another man's Disruptive Innovation

Students of Disruption Theory often get hung up assessing whether a technology is a “sustaining innovation” or a “disruptive innovation”. Oftentimes the hang up is caused by not realizing that the same technology can be considered sustaining and disruptive at the same time. It all depends on which competitors you'd like to compare the innovation to.

For example, consider whether blogging is a sustaining or disruptive innovation. If you compare blogging to an email alias, it is a more effective way for a journalist to attract a following because there are more standard ways, such as RSS feeds and search engines such as Technorati, for readers to find and consume relevant blogs than there are for readers to find and consume content from an email alias. Compared to email aliases, blogging is a sustaining innovation.

However, if you compare blogging to a newspaper, it is a less effective way to charge readers for content and therefore uninteresting to newspaper companies as a line of business. By turning their backs on blogging to make newspapers even better, newspaper companies are falling into the innovator’s dilemma. To newspapers, blogging is a disruptive technology.

To one incumbent, the new technology is an improvement along the desired trajectory of innovation and so to that incumbent the technology is sustaining. But to another incumbent, the same new technology could have poor performance and command lower margins yet disrupt that incumbent in the long run: in this case the technology is disruptive to that incumbent.

So when analyzing a technology according to Disruption Theory, it is important to list out the incumbent competing alternatives and to assess whether the new technology is sustaining or disruptive to each incumbent.