Innovate or Die

I read a great definition of capitalism recently:

A system in which there are winners and losers, in which someone with a brilliant idea gets rich, while most of us get by.

I think of Apple CEO Steve Jobs when I read that. He had several brilliant ideas (like the Macintosh, the iPod and Pixar, to name a few). He’s rich while I’m getting by.

Then there’s Facebook founder Mark Zuckerberg. I should have been Mark Zuckerberg. I was a web designer and my partner was a web developer. We could have created Facebook… we had the technology. But Mark Zuckerberg had the brilliant idea. He’s rich while I’m getting by.

Guy Kawasaki, one of my favorite speakers, encouraged [pdf] a group of high school students to “challenge the known and embrace the unknown.” The story he shared is a telling example of innovation and the lack thereof:

In the late 1800s there was a thriving ice industry in the Northeast. Companies would cut blocks of ice from frozen lakes and ponds and sell them around the world. The largest single shipment was 200 tons that was shipped to India. 100 tons got there un-melted, but this was enough to make a profit.

These ice harvesters, however, were put out of business by companies that invented mechanical ice makers. It was no longer necessary to cut and ship ice because companies could make it in any city during any season.

These ice makers, however, were put out of business by refrigerator companies. If it was convenient to make ice at a manufacturing plant, imagine how much better it was to make ice and create cold storage in everyone’s home.

You would think that the ice harvesters would see the advantages of ice making and adopt this technology. However, all they could think about was the known: better saws, better storage, better transportation.

Then you would think that the ice makers would see the advantages of refrigerators and adopt this technology. The truth is that the ice harvesters couldn’t embrace the unknown and jump their curve to the next curve.

Challenge the known and embrace the unknown, or you’ll be like the ice harvester and ice makers.

This reminds me of the company I worked for in the mid-nineties. In the 1980’s, the company developed a large-format computer painting machine. At that time, all billboards were hand-painted, but this machine could produce signs faster, with greater consistency and with colors more vivid, than the best hand painters could. For the next ten years, they dominated the industry.

But by the late-nineties, advances in technology enabled other companies to develop large-format devices whose output began to first match, and then exceed, what the company’s machines could do. So now anyone with some capital could buy a $20,000 large-format printer, produce a product superior to what the company’s multi-million dollar patented painting machines could, and sell it for much less… which they did. During the dark days of plummeting profits and subsequent lay-offs, one of the VP’s told me that they had gotten “fat and complacent.” They were in danger of becoming an ice harvester.

It also reminds me of the industry I’m currently in, the Yellow Page industry. In the mid-nineties, when companies like AT&T and Ameritech were enjoying high profits from their Yellow Page monopolies, two Stanford University students were quietly setting up shop in a garage in Menlo Park, CA. I’m sure that the multi-billion dollar telecommunications companies could never have imagined that this newly-formed company named Google, with its measly $100,000 of investment capital, would ultimately be poised to topple them as the preferred medium that consumers would use to search for local business information.

So what’s the lesson for the small or medium-sized business today? Never assume that the products and services you sell today are going to be the same ones you sell tomorrow. If you focus exclusively on the how and neglect what you do and why you do it, then you’ll find yourself in the same position. Yellow Pages have been extremely successful “connecting buyers with sellers,” but they were asleep at the wheel and didn’t see that the Internet could fulfill that role and be in position to eventually displace their print directories. With all of their capital and resources at their disposal, they could have been Google. They should have been.

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