The Next Big Thing: Ideas and Innovative Products

1. January 2005 The Next Big Thing? Generating ideas and creating innovative products Douglas Abrams

2. Generating ideas & creating innovative products • Selecting the right industry • Finding opportunities • Identify innovation inflection points

3. Product or service? • Odds of starting a company that made the Inc 500 list of fastest growing young private companies from 1982 to 2000 • Biotech – 265 times higher than restaurant • Software – 823 times higher than hotel • Choosing the right opportunity is the most important determinant of success

4. High risk, low return? • Product-based start-ups • High risk of failure • High return if successful • Service-based start-ups • Higher risk of failure • Lower return if successful • Choose an industry favorable to start-ups

5. Look for favorable knowledge conditions • Less complex production processes • Less reliance on knowledge creation – low R&D • More codified knowledge • Innovation from outside the value chain – universities and research institutes • Lesser proportion of value added in manufacturing and marketing activities

6. Look for large, fast-growing, segmented markets • The cost gap between new and established firms is smaller in larger markets • In fast-growing markets, new firms can serve new customers rather than customers of existing firms • Segmented market provide niches for new firms to enter and reduce retaliation by existing firms

7. Industry life cycles and structures • Choose a young industry – more demand and less competition • Enter before a dominant design has been adopted • Labor intensive rather than capital intensive • Advertising and branding less important • Less concentrated industries – smaller competitors

8. Generating ideas & creating innovative products • Selecting the right industry • Sources of opportunity for innovation • Identify innovation inflection points

9. Sources of opportunity • Technological change • Large, general-purpose, commercially viable, alter industry dynamics • Political and regulatory change • Allow more variance in ideas, increase demand • Social and demographic change • Alter preferences and create demand • Changes in industry structure • Change industry dynamics and open niches

10. Past and present trends and mega-trends

11. Past and present trends and mega-trends

12. Technology will become ubiquitous Broadband and wireless broadband Convergence, Integration and interoperability Worldwide, instant, always-on connectivity with no external devices Mobile computing, PC no longer sole computing device, speech and voice recognition Experience-based transactions (VR) Automation Examples of current tech trends and mega trends

13. Computers will move beyond silicon chips 20-ghz nano-silicon chips with 1 billion transistors 3-dimensional chips Optical computers DNA computers Nanotube computers Quantum computing Examples of current tech trends and mega trends

14. Technology and biology will merge • Micro-machines and Nano-technology • Biometric security • Bio-informatics • Exponential growth of machine intelligence leads to intelligent, conscious (?) machines • Neural implants to extend human intellectual capability • Merging of human and machine intelligence creates substrate-independent minds Examples of current tech trends and mega trends

15. Case study: Let’s sell books on the internet • Technological change – internet • Market change – disintermediation • Large potential market – fragmented • Timing – young industry

16. Which form to exploit an opportunity? • New product • New way of organizing • New raw material • New production process • More difficult to imitate • Exploit an innovation that is appropriate in the industry you are entering

17. Sold blocks of computers to large corporate buyers Case study: Onsale vs. EBay Onsale EBay Allowed anyone to sell anything to anybody Advantage of mass and momentum

18. Sources of new business ideas • Forces, trends and mega-trends tech, macro, social, political • Changing market structures and needs • Market inefficiencies • Products in the market • Personal experience, hobbies and pastimes, personal passions • Cross regional, discipline or industry

19. Recognizing opportunities • Check out opportunities based on innovations by universities and government agencies. • Identify weaknesses in established firm’s approach to innovation. • Pick jobs, social networks, or life activities that put you into the flow of information about new business opportunities. • Develop a mind-set or way of thinking that helps you recognize entrepreneurial opportunities when you come across them.

20. Opportunity mindset - observe yourself • In unfamiliar situations – traveling, trying new experiences • Ask Why and Why not? • Take notes, especially of problems – Bug Lists

21. Opportunity mindset - being there • Keep close to the action • There are no dumb questions • Be aware of the world around you – ready to spot trends

22. Opportunity mindset - being left-handed • Develop empathy for consumers’ needs • People are different from you • Ages, cultures, sizes • Talk and listen to kids

23. Characteristics of successful new business ideas • First mover advantage? • Not necessarily a new invention • Not necessarily a new idea • Notion that is poised to be taken seriously in the market place • Idea that is a tiny push away from general acceptance

24. Innovation evaluation framework • Original? • Feasible? • Marketable? • Profitable? • Sustainable competitive advantage? Good idea Viable business

25. Case study – Liquid Paper • Bette Nesmith noticed artist corrected mistakes while decorating holiday windows by painting over the error. • Tried the same at work but colleagues said she was “cheating” and one boss warned her not to use her “white stuff” on his letters. • Renamed the fast-drying, non-detectable fluid Liquid Paper & applied for a patent & trademark. • IBM wasn’t interested in buying her business. • Sold out to Gillette for $50 million within a decade.

26. Expect the unexpected - Velcro • Chance offers unanticipated insights • Be open to surprises • Velcro • Swiss mountaineers returned from hike covered with prickly cockleburs.

27. Expect the unexpected – TiVo • Personal TV machine • Used Sorbathane (the elastic material found in shoes) to dampen vibration and reduce noise • Less noisy than competitor products

28. Sometimes failure itself generates innovation • Post-It notes - failed glue • Scotchgard - spilled on shoes • Combat - failed additive for cattle feed

29. Generating ideas & creating innovative products • Selecting the right industry • Finding opportunities • Identify innovation inflection points

30. The technology adoption S curve Measure of performance Measure of effort invested

31. Implications of the S-curve for entrepreneurs • Technologies originally experience slow performance improvement due to learning curve • Transitions to new S-curve taken by new rather than established firms • Established firms have little incentive to go to new S-curve • Inferior performance • Limited application • Cannibalizing existing technologies • Can improve existing technologies

32. Timing the S-curve: Don’t go too early or too late • Look for paradigm shifts • Watch technological frameworks that scientists and engineers are using as they often signal new opportunities • After changes in core technology have time to settle but before a dominant design emerges • Try to establish a technical standard • Low price • Work effectively with complementary technologies • Simple products

33. Establishing a technical standard - Linux • Linus Torvalds, aged 21, couldn’t afford an operating system thus spun out his own. • Today, Linux has 15 million users & thousands of independent developers working to make the system better. • Made Linux “open source” software • Challenging the old assumption that the best software is proprietary and maintained by a single company.

34. Target an increasing returns business • Up-front costs are high relative to marginal costs • Network externalities • Complementary technologies are important to use • Producer learning is strong • Switching costs are high

35. Interesting product ideas • Tivocorder • A tiny, pen-shaped digital audio recorder. Once in your shirt pocket, it would continuously record the sound around you. At any time, while continuing to record, you could play back the last 20 minutes of whatever you've just heard • MP3-toothbrush • An MP3-playing toothbrush for use during a hygiene moment. • Weather-forecasting toast • The slice of bread pops up with a simple icon of the day’s outlook: a shining sun, a cloud or raindrops • A step towards integration of a modern household with internet technology

36. Sources and references • Finding Fertile Ground by Scott Shane, Wharton School Publishing • The Art of Innovation by Tom Kelley with Jonathan Littman, Doubleday

37. Contact us • Douglas Abrams • dka@parallaxcapital.com • necadk@nus.edu.sg • 65-9780-5381 (hp)