Innovate or Imitate...Fame or Fortune?

Innovation drives our industry, attracts the best talent,  attracts VC money, and wins fame for its leaders. Innovation leaders burst onto the scene, win early market leadership, but sometimes can't sustain the pace. Why do "fast followers" often jump in later and make fortunes? Is management responsible for the success or failure? Or, are these innovation leaders acquired by larger players before they have a chance to evolve into successful stand alone companies?

I have been on the leading edge, sometimes bleeding edge, of technology for most of my career. I have been fortunate to be part of start-up teams that have created "first-of-its-kind" innovations at companies like Forte Software, AltaVista, Napster, Bowstreet, and Groove Networks. All of these companies were first in their field, yet few of them realized the financial rewards one would expect. Is it all timing and luck? I don't think so.

Before exploring the reasons for success or failure lets review a list of innovation leaders and fast followers.

• AltaVista -> Google
• Napster -> iTunes
• VisiCalc -> Lotus 123 -> Excel
• Word Perfect -> Word
• Netscape -> Internet Explorer
• Apple Newton -> Palm Pilot -> Blackberry
• IBM PC -> Compaq -> Dell
• Double Click -> Google Ad Sense
• Ofoto -> Flickr
• Compuserve -> AOL -> @Home -> Comcast & Verizon

All of these companies were innovation leaders and market leaders. Yet, they were eclipsed by fast followers, in some cases multiple times, who imitated their innovation. My belief is that the technology was outstanding...the management was not.

Clayton Christensen wrote The Innovators Dilemma which I reviewed in an earlier post. The basic premise of the book is that management optimizes around protecting their existing business and fails to recognize and react to disruptive threats. However, the examples in Christensen's book play out over 10 or 20 years. The above examples played out in 5 or less years. Are the same factors at work here? Lets take a look.

AltaVista was the first search engine and the clear technology leader. The management at DEC didn't understand what they had and didn't invest the necessary resources to make it a business success. Later Compaq and CMGI squandered the search opportunity and tried to imitate Yahoo, Excite, Lycos, and AOL in the consumer portal game. Big mistake. Fault management.

Napster was the first P2P file sharing application to bring together search, FTP, and Instant Messaging. Brilliant technical synergy. There are lots of reasons for failure here, mostly management decisions and unfortunate timing.

VisiCalc was the first spreadsheet, invented by Dan Bricklin and Bob Frankston. I know Dan fairly well but have never asked him why he thinks VisiCalc fell behind and Excel moved ahead. This topic deserves its own post. My memory is that VisiCalc was slow to adopt the DOS platform. Lotus 123 moved ahead on DOS and achieved market leadership, but failed to jump onto the Windows platform fast enough. Excel did make the move and the rest is history.

IBM created the PC revolution and was the early leader. Compaq was a fast follower focusing on "transportable" PCs and won huge market share. Dell came in later and trounced them all with a better business model.

Compuserve was the first dial-up service provider. Together with Prodigy they dominated the market. Later AOL entered the game with superior marketing and original content. AOL absolutely dominated in the 80's and early 90's. Then @Home created the cable Internet market and took the early lead. It wasn't long before Verizon, Comcast, and other cable providers owned the broadband market. AOL never really made the transition from dial-up to broadband.

In nearly every case the early innovators were eclipsed by fast followers. Why did the fast followers take over market share leadership?

• Better business model (Google, Ad Sense, Dell)
• Better market position (Word, Excel, Comcast, Verizon)
• Better timing (iTunes, Flickr)
• Better platform choices (Blackberry, Word, Excel)
• Better management (all the fast followers)

It is overly simplistic to pin the success or failure of these innovators on one factor. There were a combination of factors at work. But in most cases the problem was not inferior technology, it was inferior management decisions.

So, were these early innovators led by technical visionaries who were not good managers? Will the imitators  and "fast followers" suffer the same fate and be overtaken by new fast followers?

The list of "fast followers" above are more than just imitators. They have continued to innovate far beyond the original idea or feature set and have maintained market leadership. If you look closely at these companies they have a  mix of technical visionaries and business management leaders. I discussed this with Robert Scoble who pointed out that it takes a different set of skills to start a company than it does to sustain a company. This balance of skills, I think, is the key to sustained market leadership.

Cisco is an example of an early innovator that kept their market leadership position over time. Their technical founders brought in professional managers to take them to the next level.

There is a rare breed of technical visionaries who are also great business leaders. Bill Gates, Gordon Moore, Larry Ellison, and Scott McNealy are examples. They are truly extraordinary and rare. However, I suspect that each of them has a strong business management team behind them. Bill Gates has Steve Ballmer. Larry Ellison had Ray Lane. The early innovators who failed did not have the business leadership necessary to sustain them.

Lessons for entrepreneurs;

• Never stop innovating
• Build a well rounded management team early
• Value sales and marketing talent as much as technical talent
• React quickly to disruptive technologies or business models
• Don't be too proud to imitate when it makes sense

Comments

[Richard Ruekema]

Don,

In my small world, I too believe that I was a technical innovator - but try as I might I could not find appropriate management skills that a) understood the market, and b) understood how the product was to address the market, c) be creative in finding a path into the market between the big boys.

In my case, it was the later that really killed me. Big companies that were simply shielding their customer customer from innovation, and continuing to milk them so the executive could collect their bonuses with minimal risk to their existing business models. (just a little bitter :>)

The short answer to this long post is that I echo your comment that it was management, not technical achievement, that made them successful.

Furthermore, I too congradulate Bill and Steve on their ongoing success in the market. Truly a unique partnership, with plenty of experts on the team, sure has made a successful company that continues to innovate AND manage the market.

[Vic Berggren]

Dag gone it Don! These posts get better and better by the day.

[Farhan Lalji]

Then you have the Jobs of the world who innovate, are pushed out and then come back in with similar drive and stronger business sense.

I definitely agree with a lot of this post - especially the Scoble's thoughts regarding two sets of skills and skills matching to innovation and prolonged success. But once you have some acceptance and recognition of the skills involved and the status of the orgainsation you're half way there. But what do I know? I'm still in the first month of my MBA ;-)

[Mitch Barnett]

Hi Don, fantastic article. I mean wow! I have a company that built an innovative product on top of BizTalk Server. So innovative, that it is even a year ahead of the BizTalk 2006 product development team. See: http://softwareindustrialization.com/DisplayPost.aspx?PostID=36

Barry Varga and I are the co-founders and co-inventors of the product. I will be the first to admit that my forte is on the technical side and not the business side. So, we did one thing right, we looked for a professional management team to help us.

The problem is how do tech guys qualify business people? How do marketing people understand a technical product that is way out there (like software factories, DSLs)? If the marketing and business people can’t understand the (technical) value proposition, how can they mange, market and sell the product? I guess we more or less had the same problem as Richard in his comment to you.

I would be interested in hearing how technical innovators can find like minded business and marketing people to join a company that a) doesn’t have a lot of money and b) the technical innovation is way ahead of its time (which definitely part of the problem).

Thanks,

Mitch

[scapola]

I completely agree with your statement on: "It is overly simplistic to pin the success or failure of these innovators on one factor. There were a combination of factors at work. But in most cases the problem was not inferior technology, it was inferior management decisions."

As an example of AV and DoubleClick demise to Google is the fact that AV had been using DoubleClick for years to deliver advertisment on search results based on keywords, and this was the main source of income. They even ventured into a short lived product which was similar to Google's and Overture's bidding model (view http://www.wired.com/news/print/0,1294,19110,00.html and http://www.wired.com/news/business/0,1367,20906,00.html).

Also just a quick correction on your innovation path, it actually was DoubleClick Media Network>Overture>Google

The true fast follower was overuture, google simply copied them and it happened to also win the search engine battle - and that made it win a good chunk of the advertising money.

[kayvaan]

Great topic! With regards to Dell, there was an interesting article in MSNBC Newsweek (http://www.msnbc.msn.com/id/6959937/site/newsweek) a ways back in which execs from Dell basically mocked companies still doing R&D in the PC Market:

"Dell finds it hilarious that companies like IBM, HP and Sony fund researchers to come up with ideas that break the mold. PCs, says Dell spokesperson T. R. Reid, have reached a period of "standardization." They aren't the glamorous gizmos they were in the industry's early days. "

The point being that Dell's management understood that the game had changed. So is that what the problem with many pioneers is? That they are simply not willing to admit that the game has changed?

[Narendra]

Don,

How exactly are ofoto and flickr competing? Ofoto (Kodak) is in the business of selling prints and they sell a lot of them.

[DonDodge]

Great comments. Keep them coming. The amazing thing to me is that so many companies can make the same mistakes. Maybe it appears obvious in retrospect...and maybe entrepreneurs should spend a little time studying history "lest they repeat it".

[kim pallister]

Great write-up. Couple comments:

- I think "bad management decisions" is a bit of a cop out. Isn't any decision that didn't result in victory in these cases a "bad decision"? More interesting is whether there's a common theme to the bad decisions (not recognizing a disruptive technology/strategic inflection point, unwillingness to change the existing biz model, etc)

- Completing your list: Moore had Grove. (I spent 7 years at Intel before joining MS a couple months ago).

- One interesting thing related to Intel and some of the other examples you give: Many of these long-term successes (MS, Intel, etc) made a SINGLE management decision that enabled the others to go well: They recognized that there will be distruptive threats & technologies, and that they will fail to see them; And so they built infrastructure, systems and culture to deal with that. Gates has his think week. Grove decoupled decisions from management hierarchies. Different systems (and not the only ones in either case), but both are recognitions that the guy on the front lines will see it and 'get it' before you will in the CEOs office.

[David D. McDaniel]

Interesting, but drastically oversimplified.

I would say that yes, bad management often plays a role. They always do in a companies failure, cutting edge or not. And yes, it is often not just one thing. Rarely is it in anything in life, including business. And yes, the cutting edge person is rarely the one to capitalize on the market because other companies (especially the big ones) have the advantage of capitalizing on their experience and user base.

But you say AltaVista should have capitalized on the portal game. Yet Google is king of the hill and it is hardly their portal portion that makes it so. That's a whole different ball-game that belongs to Yahoo.

Napster's biggest problem was that it allowed piracy. It was never in the market in the first place. iTunes approached it with having the labels interests "in place" from the get-go. To think you were going to make it any other way was plain silly.

The reason Excel won out had little to do with being an adopter on Windows although the failure for others to move to the platform in a timely manner certainly sealed the deal.

Comparing compuserve and AOL to the current market dominators is apples and oranges. They never stood a chance against a broadband companies that were already wired to the majority of people's houses. They knew it and they tried to stop it and there was nothing they could do about it. AOL was at least wise enough to build other value into their package.

The point that a lot of the innovators forget is that once the innovation is done the rules have changed. You get a very small window of opportunity before the rest of the companies come to play in your market. And that window happens to be when the market is small and you are having to develop it. So, if you can't stand on your own against the big boys you are in trouble. And that is often the case. There is a reason they got to be big boys in the first place. Just because you get to the playing field early doesn't mean you're going to win come inning 9.

The evidence of that is by looking at who tops the list of the things you are currently mentioning. A good number of them are big boys or acquired serious financial backing and seasoned management. (ie they may as well have been big boys)

[Eric]

That was a really interesting read. I won't elaborate as much as most of the other people posting here though.

I only hope to see Netscape > Internet Explorer > Firefox in the future.

[A Koltay]

Additional item to your list:
Speak Freely > Skype
http://www.fourmilab.ch/speakfree/

[Kris Olson]

Don,

A friend, Steve Blank, has written a book on sales and marketing for new products and companies-- called Four Steps to the Epiphany-- he co-founded e.piphany as well as Rocket Science Games. One major success for the founders and one colorful failure.

Steve's point is that what a startup needs to do is start with a very small team that goes out to find the market that is willing to buy their product. This team does not include a high-powered VP of Sales until the small initial team can repeatedly sell to the identified market. Then, it may be time to bring in an entirely new team.

It's one experienced entrepreneur's view of what type of management team is appropriate for what stage in startup's growth. An interesting perspective.

More info at
http://www.cafepress.com/kandsranch

[Lloyd D Budd]

I find it strange that you include in Netscape -> Internet Explorer in your list. It does not fit.

History and legal finders make it clear that Microsoft suffocated the market. Firefox has only had the success it has because Microsoft has abandoned users for five years.

[John Jan Popovic]

There is a difference and there is an existent distinction between the the terms like discovery, invention, innovation and clone or emulation.
So they are often misused, and not adequately applied.
Web was invention of Berners Lee, but in the sense of hypermedia interactivity it was a discovery, like Colubumbus, who was looking for India, but he has discovered America, a whole NEW CONTINENT of new opportunities!
AltaVista was an Invention, while google was its innovation, while Microsoft's - live.com is just a Google's clone with the wish to become its successful rival.

[Zeno Davatz]

Interesting.

[hi]

A lot of usefull info . Thanks

[Joseph Pally]

Awesome post.

"Never stop innovating" is the rule.

Innovation and Competition go hand in hand. The awesome Internet Explorer Browser could not have been made without the competition between Netscape and Microsoft.

All companies rise and fall. Some survive the bad times. Overall it is not the company that matters, it is the industry. It is continuous evolution.

Apple Newton eventually became IPhone. DOS became Windows Vista. Evolution is the nature of the tech industry - just that it is faster compared to the rest.

Those who never fail, never succeed.

[Nina Harrris]

As a current MBA student, I have been surprised how heavily weighted our courses have been towards leadership and the study of organizational behavior. And for good reason; more than individual functional business units, it is strong and savvy management decisions and leadership (plus a little luck) that propell businesses forwards, encourage, and deliver new technologies. To me it seems the 'chicken or the egg' question is clear here - knowledgeable and skillful management is the driving force behind all technological evolutions.

[Justin Goldberg]

It's extremely interesting to read the book 'The Ultimate Entrepreneur' written the ComputerWorld editors, which shows that DEC had three different competing internal projects going on to build the pc but lost to ibm, mainly because of coming out with competing products but also because IBM outsourced most everything in the ibm pc except the power supply and the hard drive, where dec made most everything themselves, and therefore were late to market.

It's also interesting because it foreshadowed them being acquired by Compaq.