Please Give Me Another Chance! I Can Change!

The last post resulted in quite a few well reasoned comments and even three phone calls (one international). It seems that I've struck a chord. Three questions repeatedly arose:

1. What are you working on?
2. Why makes you think existing software company X/Y/Z isn't working on a disruptive solution to collaborate across domains?
3. What about standards across platforms?

Thoughts:

First: I didn't claim to be working on anything. But if I was, it'd have to meet the following criteria:

• It wouldn't be another Revit. Revit's amazing. What's the point?
• It'd have to be about something unique, significant and as meaningful as Revit is to the design space
• It have to be fun. Like the latest Flat Tires show (shameless plug).

Second: Because existing software company X/Y/Z creates evolutionary, not revolutionary technology. Why? Because Distribution trumps Disruption.

I can see you're confused. You think it's a conspiracy. Software company X/Y/Z have unlimited resources. Millions of monkeys. Shiny typewriters. Barrels of beer.

Well, you're wrong (and you like conspiracy theories). Please allow me to explain.

Imagine you're the CEO of successful software company with a few thousand employees. That means you've got thousands of mouths too feed, mortgages to make and braces to insure. And then there's shareholders. Shareholders are worse than customers. Because if you miss a quarterly market projection by a even a few cents (over or under - they don't care) and millions of dollars in shareholder value is going to disappear. Customers are stuck  - it's hard to transition to new software. But share holders can sell your stock and buy another in a day. Which makes the share price go down even further. And it can all happen before lunch.

It's also incredibly likely that your imaginary company has a few flagship products, and even a stable of applications based on that those products. And if you've been around a while (10 years or more), there's probably a developer network that further increases the value and market share of your flagship product.

But in software years, a decade is a really long time. And after a decade, what your flagship products do is going to being overshadowed by what they don't. Cracks are going to appear. And the rest of technology has evolved to the point that the questions your software once answered (successfully) have now created new questions - which your software can't answer. It's now become obvious that something else is necessary.

This is called an "Inflection Point". Decision time. What do you do? Jettison the past and embrace the future or duct tape the present and hold on for a few more years? Do you put all your geniuses together and figure out how to create the "Next Big Thing (TM)" or hog tie the tiller and ride out the coming storm?

Here's some real-world possibilities:

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Possibility #1: You're a smart CEO and you've already planned ahead. Knowing this day would eventually come, you've got another bigger, better, faster solution in the wings. For the past few years, a team of developers (quietly and outside of the public eye) has been working on the NBT (Next Big Thing) which you're ready to unveil at the appropriate time.

What could possibly go wrong?

Doing this is really, really expensive. It means funding a team of people to develop, test and maintain software that the market is not going to be able to use for a long time. But you can't let this new solution get too finished because if it's too "done" it'll be very complex. And without important customer input your new solution can evolve in a very wrong direction.

Note: it does (very, very rarely). One recent example was when Apple admitted OSX had been long ago ported to Intel hardware. But even this this was an evolution of their existing operating system (OSX). Not another OS entirely (like the transition from OS9 to OSX).

You've pissed off your customers. You need customer input to develop this stealth product. But word will get out; customers will talk. Whispers of this really cool thing that is being worked on. Way better than what you can get on the street. Customers will ask (a few will beg and ply you with alcohol) to help test it - but you won't be able to let them. Because those customers will inevitably tell your other customers. And so on. Until you need a team of people to support customers you shouldn't have using a tool that doesn't exist and they're not paying to use.

No developers want to work on it. Not the best and the brightest anyway. It won't have any customers. It's not generating revenue. It sucks resources from existing successful (even if technically "inferior") products that the best and brightest do want to work on. In other words, the developing team that works on this NBT are leeches. And the moment the market takes a downturn, all those developers are going to be on the chopping block. What will you do? You'll put the code on a shelf, tell HR to tell the developing team to pack their desks and go home. Maybe you'll get back to their efforts when the market improves.

And what about those recently laid off developers? The last entry at the top of their collective resume is a product that no one has heard of, never got to market, has no customers and generated no revenue. Lovely.

Conclusion: You've spent a bunch of shareholder money on an expensive "what if" insurance policy that's likely never to be successful. Start polishing your resume. Being a CEO is a bit like being captain on the bridge of a Klingon destroyer. If someone "kills" you (by creating uncertainty in your leadership) they get your old office chair while it's still warm and covered in blood.

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Possibility #2: You see the writing on the wall. Duct taping an existing flagship tool together for more than the next few years isn't viable. And if you wait much longer, your competitor (existing software company Y or Z) might come to market with a compellingly better product. So after numerous (as in months) of internal meetings and hand wringing you decide to take the plunge and signal to the market that your presently available solution is old and busted, and a new solution is being developed that is nice and shiny. Old and busted vs. nice and shiny.

What could possibly go wrong?

Stop reading this and head over to Wikipedia. You need to learn about something called the "Osborne Effect".

Re-read Possibility #1. You're still certain that this time it'll be different?

Start to build a team to build the Next Big Thing (TM). Let's see, who are you going to put on the short list to staff the NBT? You want the best and brightest, right? Except they don't all work on one team. They're a bit spread out and work for different project managers. And those project managers really like having their "hypo" team members on their teams ("hypo" for "high preforming"). So you're going to upset quite a few project managers to build this new team (as well as upset their existing projects). Okay - so why not hire from the outside? Turns out this is really difficult as well:

• This new team will take weeks (if not months) to get up to speed, get over their quirks and become productive.
• If they're already productive, happy hypos - they're already busy. Some of them are working at existing software company Y or Z. But some are living off previous winnings (through acquisitions). Neither hypo have to do anything they're not interested in. So if you're going to hire them away it will come at a premium (at least 30%) to get them to agree to let go of their present good thing to (hopefully) land on their feet at your new NBT. So you give them a way above market offer. And they submit their tell their boss they're going to resign and immediately get an increase in salary above what you're offering them to stay put. So you'll have to offer more.
• When you hire from the outside at a premium, word will get out and it'll build resentment among your existing employees. You know - your existing hypos who've been busting their arses  for years for $X and along comes shiny new guy at $X+.

And then there's sales. Your new product is going to build resentment within your existing sales channels because it's adding friction to their sales efforts. Your NBT is intentionally meant to create obsolescence of a successful, flagship product. Now your efforts to create the NBT is making the difficult and stressful jobs of hundreds of sales people (and channel partners) even more difficult.

One last thing: you've just upset the vast majority of your existing customers. What?! Yup. That right. Because while a small percentage of your existing customers might be really excited about this new/amazing/incredible project being developed - a lot of people (including outside developers that make a living building tools that work with your existing product) have spent a life time mastering your present technology. They've built up status and expertise and careers in the process. And now your new efforts will level the playing field.

Conclusion: Creating obsolescence is practically untenable within an established company. You're disrupting lives across your organization. You're building friction in your sales engine. You're upsetting your customers. And possibly your share holders.

Note: it does rarely happen. Steve Jobs did it with the original Macintosh. He sucked away the best and brightest and lots of resources from other successful products to develop a new personal computer. He flew a pirate flag (literally) and loved it. But had the Macintosh not been successful, the pejorative term "Macintosh" would have ended up a Wikipedia entry along the lines of "Osborne Effect".

But in the back of your mind you also know that if you don't create the NBT your company won't survive in the long term, which will really piss of everybody...especially share holders. If only there were another way!

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Possibility #3: Growth through acquisition. Although incredibly difficult, Developing disruptive technologies (see #1 and #2) is actually the easy part (just not within an established organization like existing software company X/Y/Z). There's no shortage of great ideas. You know what's really tough? Distribution:

• Planning
• Engineering
• Testing
• Support
• Sales
• Consulting
• Marketing
• Education
• Legal
• Human Resources
• And on and on an on.

Startups are lean and mean. They're not big teams. Big teams add friction. But since startups are small and agile, covering that list above is really hard. But we've already established that you're running a successful software company. You've got already got the Distribution part in place! You offer the market stability. You've been around a decade or more - so you've earned the market's respect and seal of approval. You've got what every lean and agile startup envies: and entire sales and marketing engine of resources ready to completely overwhelm the market with the NBT.

So you wait. And you put away a giant nest egg of cash and stock options built up over the years from selling your flagship products. Then you wait a bit more.

Eventually the NBT will come along. A team of scrappy entrepreneurs, eking a living out of a bit of venture capital, working 80+ hours a week will introduce something that is incredibly and overwhelmingly elegant in concept and use (even if a bit rough around the edges). The scrappy developers seldom see their families. They're full of energy, focus and know that if they're not successful - there's no safety net. There's none of, "it's ok...try harder next time now go home and have a nice weekend and I'll see you on Monday morning." It's do or die. For this team, every new customer success story is a cause for celebration because it represents their survival! So when their product - a demonstrably and compellingly better one - comes along, you wait a bit to see how the market responds. And you're careful to watch the mindshare as well as market share:

• Are their customers enthusiastic about this new technology?
• Is the product overwhelmingly compellingly better? Is it unique?
• Are you getting tired of hearing about this product during conference calls?
• Is this new product starting to gain mindshare and create buzz?
• Are you actually starting to lose market share?

If so, position yourself to acquire this new technology. Pull out the checkbook. Done. This solves the hiring process and getting new teams to gel together issue (they've likely been together for years). Yes, it'll piss off some of your existing employees. But an acquisition is fast and quick; what's done is done. As wounds go - it'll heal nicely. Your existing employees will eventually get over it (many have come through acquisitions themselves). And a few will even position themselves to manage the new hires and teams.

And why will Scrappy Startup (TM) allow themselves to be acquired?

Because while they'll have have developed a great new tool, they'll have limited resources in with regard to the distributive aspects of creating a business. They've got an uphill battle. You've got market access and seal of approval.

Conclusion: This is not cynical. This is not conspiratorial. It's math. How much will it cost to develop a new disruptive platform inside an existing organization? Millions of dollars - easily. Just to fly 12 people to a third location for a week long meeting can cost $30k! If you're not careful you'll spend a $1million / year in meetings alone!

The cost of developing a new technology in a cushy, established company? Figure $1million per year for 5 employees working on a new product in an existing company (salary and overhead).

50 people = $10million / year. They ploddingly work on the product for a few years and you bring it to market. And what if it flops? Or underwhelms?  Or get's eclipsed by the agile efforts of a Scrappy Startup? And in the process, you've had years of endless meetings, diverted resources from successful flagship products, disrupted your business and pissed off your existing customers (and shareholders).

Remember that bit about Klingon space captains?

And that's today's lesson: Big things eat little things.

But every once in a while, fast things eat slow things. ;)

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Third? Up Next: Standards? We Don't Need No Stinking Standards