Technology is constantly improving. We all know can see the progress that companies such as Samsung, apple and intel are making. It seems like only a few years ago that we thought that it would be impossible to fit 100 songs onto an iPod. Now most Americans hold the internet and unlimited potential in their hands. There is a simple theory out there that explains this exponential growth in the potential of our processors. Moore’s law states that states that the speed and capability of computers can be expected to double every two years, as a result of increasing efficiency in microchips. Despite this increase in potential the consumer will not see a drastic increase in the price. Essentially, we are looking at a situation where technology is rapidly approaching a point where it is smarter than the average consumer that tries to use it.

               It is because of this that Christensen believes that many of these tech companies are inadvertently overshooting their market. A customer is overshot when the product or service provided to them offers more features than they can utilize. My favorite example of this is the Samsung vs Apple phone competition. Samsung phones have better processors and can be personalized to a greater degree by consumers with the proper knowledge. On the other side apple is focusing on features that the average consumer can use. As a result, their brand has even managed to reach some older generations that previously were non consumers within the smart phone market. Another example of overshooting in competition is the Sony PlayStation. The PlayStation again has the higher processing speed and potential for higher definition., Xbox on the other hand offers a more personalized console that average first time users would have no problem figuring out.

               If we acknowledge the trend of these companies to over shoot consumers with their technology and that the tech is only going to improve over the next two years, it would stand to reason that low end companies may have the opportunity to enter these markets and disrupt it. If these companies don’t protect their brands and market shares effectively, we could see a consumer shift into lower priced markets that satisfy the needs of the consumers. Of course, there will always be consumers that prefer the high end or premium market features, but this will become a smaller segment rather than the majority that we see today.

What is the future of the airline industry?

Henry Ford had the goal to put a car in every driveway in America. As he grew older and continued to improve his factories efficiency, he switched his aim to putting small planes in every driveway. Unfortunately, he never managed to make aviation widespread. In modern times companies are beginning to revisit this idea of common aviation. In this section of seeing what’s next Christensen offers two possible future shifts in the airline market.

            The first of these shifts is the idea of the Air taxi company. In the current aviation industry, you have two types of publicly available flights. The first is the hub-spoke model, which flies individuals from regional airports to more centralized ones before connecting with their main plane. The other type is the direct or point to point flight. As the name suggests, these flights would go directly from one airport to another. In this air taxi system, all short flights would become direct. The idea is to connect areas that are far enough apart to justify an expediated traveling system, but not far enough apart to have airports. This would be huge for travel within states and could potentially replace the need for regional airlines all together.  For this idea to work a series of smaller runways would need to be created. The target market of this project starting out would be smaller businesses that cannot afford their own corporate plane. This would allow them to check on multiple locations or manufacturing more often.

            The other option proposed is the creation of a smaller plane. This option would seek to follow in fords footsteps by making a plane into a common household means of transportation. The leading company in this space is Eclipse. They are working on a 6-person micro plane that would improve on fuel efficiency and be cheap enough for small businesses to buy outright. This could put them in a previously unoccupied segment of the market as airbus and Boeing are fighting for premium and high-end shares of the airplane manufacturing industry. The biggest issue with the progression of these plans is the lack of a comprehensive government evaluation and protocol for operation of an airplane recreationally. One can only imagine the chaos that would ensue if a fleet of recreational planes began to fly over places such as New York City or Washington DC. An interesting point brought up in the comments of one of the articles I read concerning this was the increase in America’s air force potential with residential planes in every driveway. It will be interesting to see how lower ends of the airline industry develop as technology improves in the years to come.

Interestingly a company often reacts much like a person would when threatened by an unknown force entering the market. The fight or flight dynamic that arises in humans also exists in their decisions when viewing new entrants and possible industry changing innovations. The most common of these reactions is the flight or avoidance method that we see in the history of most displaced previous industry leaders. Companies such as Sears, that couldn’t adjust to lower priced retail entrants are struggling to keep afloat in a dynamic marketplace.

               These changes in industries are by no means instantaneous or unpredictable, but they do require that managers and investors to follow the logical steps that can predict what will give disruptors the advantage in the industry. Christensen suggests that we can look at a company’s values and processes to predict if and how they might react to any given situation.

               One might logically conclude that the firm must create the disruptor itself if it wishes to remain at the top of an industry. According to Christensen however, this approach normally leads to a doubling down by the firm on its most lucrative market segment and a branching or creation of a disruptor, led by previous employees of the incumbent market leader. This is because the mainstream channels that the firm may use to push this new disruptive innovation are by their very nature already satisfied by the existing offering. This means that it would take a new approach and market breakdown to reach the customers that would have the interest or need for the innovation.

               Another interesting segment of the chapter revolved around the idea of processes. These problem-solving methods speed a firm’s response time to previously encountered rising predicaments but also indicate where a firm might be venerable. Christensen suggests that new problems that arise can become or highlight a firm’s weak points to competitors. I disagree with the notion that these encounters with the unknown are inherently problematic, as the very nature of the unknown is how a firm expands its understanding of the market in the first place. This would be evident in the firm’s creation of processes and changing of asset distribution. If a firm faces a new challenge that highlights weaknesses or shortcomings it can be an opportunity for the firm to reallocate resources to reach a segment of the market that it previously has neglected. Of course, the problem with this reallocation could be a parting from the firm’s core values so it must be done with precision.

               This breakdown of the processes does seem a little over simplistic in nature. Of course, a firm will attempt to follow the most lucrative paths based on its revenue channels. The fight or flight analogy is also perplexing as it simplifies the firm’s decisions down to a binary choice. It would seem to me that the firm that is already situated in each market has an almost insurmountable resource advantage in today’s context. This means that new entrants are often bought up before they can reach a disruptive level. It is almost as if the new entrant is running experimental trials on behalf of the incumbent rather than working to displace them within the larger market. On the other hand, this may be an indication that modern firms are using previous shortcomings by industry leaders to remain dominant in their market space.

“The historian in all of us cares about the past, while the decision maker in all of us cares about the future.” Clayton Christensen

In chapter 1 Christensen begins to talk about the three types of customers with which entrepreneurs looking to innovate and existing firms should be concerned with. The first is the customer that is not consuming the product or only consuming in inconvenient settings. This person would be known as a non-customer and is the key group to focus on when building a disruptive innovation. These people are those that would be using the product or service if they were able but are excluded due to complexity of use, price or inconvenience. For that reason, Christensen suggests creating new market disruptive innovations to reach them. The easiest way to think about this is to find an area where the customer must be creative in order to take part and replace it with your innovation. In other words, you should innovate so that the customer doesn’t have to. The example given in the book is the telegraph dominance and the introduction of the telephone. The telephone was the first invention that allowed a regular person to contact others within an area without the need for a telegraph operator or large amounts of travel. This took the complexity out of the situation and allowed the customer to conveniently enjoy communication.  The drawback of disruptive innovations that one should consider is that they lack the functionality of existing and tested products. Therefore, the entrepreneur should emphasize the new benefits, convenience, customization and lower prices that they may offer. It is also important to consider that not all people are open to change, and some might even be intimidated by a new and confusing product or service. For this reason, you should make the product as standardized and simple for the consumer as possible in the beginning. An example of this would be the introduction of the first cell phones with the same style dial pad as existing land lines. This allowed consumers to use their existing experience to operate the new product.

            The second type of customer to consider is those that are undershot by existing products or services. Undershot customers are those that are not satisfied by the performance of the current solutions and would pay a premium for a better solution. In this case a new innovator would look to launch upmarket sustaining innovations. This simply means providing more expensive products with superior features that appeal to affluent customers. An example of this might be customers that pay for premium music services that are ad free rather than listening to the radio. The third type of customer are those that are overshot by current products within the market. This means that they are more than satisfied by current solutions and cannot use all the features offered by the given product or service. Offering a low-end disruptive innovation will allow entrepreneurs to satisfy these customers.

            By understanding markets and adapting strategies accordingly, an entrepreneur can see opportunities within niche markets. Similarly, investors within existing industries or venture capitalists can seek out companies that are entering niches and respond accordingly. It is important to understand the shortcomings of each method and plan to combat them with the assumption that competitors also recognize opportunities.

Seeing what’s next has been one of the most interesting and informative books I have read in a while. Right away Clayton M Christensen begins to explain his underlying drivers in market forces. He explains what market forces and conditions lead to innovations that change industries. He suggests that using theory we can predict which innovations will grow into new opportunities and which will be short lived.

In the introduction Christensen suggests that there are three types of innovation that the reader should be aware of. The first is the disruptive innovation theory. This states that firms are in constant competition depending on their life cycle and niche in the market. Incoming businesses can use simple and cheap methods to beat out existing and complacent firms. Existing firms in contrast have the advantage of sustainability as they will have already generated enough capital to win prolonged competition with new entries. The key to beating an existing firm therefore is to enter with a disruptive innovation that is simple, cheap and revolutionary. There are two types of disruptive innovations given by Christensen. These include low end and new market innovations. Low end innovations are when product quality is too good and is being sold at a price that the customer cannot pay. This leaves the existing firm open to disruptors that can provide the same products at a lower price. New market disruption is when characteristic of a product limits the number of potential customers or forced consumption to take place in inconvenient centralized settings. The key then is to create new growth by allowing people to access things that historically required high expertise or wealth.

The next theory was the resource, process and values theory. As the name indicates this theory is based around what the firm has, how the firm works and what the firm wants to do. These factors will collectively describe the firm’s strengths, weaknesses and blind spots. This theory also places a clear emphasis on growth margins as a major indicator of a new entrant’s potential in each market. From the information provided it seems that the firm’s values can be the most restricting in terms of its ability to adapt. Firms set on sticking to competitive advantages or solely on lucrative options may miss new opportunities or key shifts in the industry.

            The third theory provided by Christensen was the value chain evolution theory. This theory states that firms have 2 choices when building their product chain. The first option is to integrate the process into their company’s business model. This would mean that the company personally oversees the creation of the element but can also be costly if done incorrectly. The second option the firm has is to specialize in a specific aspect of the product creation and outsource the remaining parts of the process to other companies. This can drastically reduce operation costs but gives some expertise and quality control away. Christensen states that generally companies should control all aspects along the factors that matter most to customers. This integration allows companies to run experiments and continue to innovate overtime. They should then outsource any aspect or factor that is more than good enough on the product.

            With these three theories we can begin to view industries in a different light. The goal is to use the past trends and missteps to develop a reliable way to tell the difference between signals and noise within an industry. Companies must be willing to let go of strategies that may be effective in the short term and be willing to shift emphasis to adaption rather than remaining on existing advantages. New entrepreneurs in contrast must be able to identify opportunities and attack existing firms. I look forward to using these theories and other information provided to navigate the variety of industries provided within the book.

If entrepreneurs are the backbone of the economy than investors are like doctors. They act on a daily basis to help seeds grow into successful businesses. For one facing the business world alone the idea of asking for money might be foreign and awkward. It’s important that an entrepreneur looks past comfort and chooses the right financing for their specific situation.

            Wasserman lays out 3 major types of capital that are mandatory in the running of a business. The first is human capital which includes all the knowledge and labor at the firm’s command as they face competition in a market. The second is social capital which includes all the networks that the business must reach out to for advice e or financing. Financial capital is the final and most relevant in the minds of most entrepreneurs when considering who they want to receive aid from while growing their business. Most founders are unaware however that the location that they receive their financing from an have long term benefits or consequences. Like anything else in the early going of a business short term gains may come back to hurt the firm in the ed.

            The most common places that entrepreneurs raise money from are friends and family. These are often like gifts with little to no terms laid out regarding there payback. In addition, these investments tend to come from individuals that have little or no experience in the area the business wishes to enter. It’s extremely important that the entrepreneur considers the possibility of failure and speaks openly with friends and family before taking their money. If the business turns in a negative direction these investments can sometimes force the entrepreneur into an “all or nothing” mentality or ruin key social relationships all together. AN entrepreneur should only accept money from those close to them if they are absolutely sure that they can execute their business plan and have exhausted all their personal financial options.

            The second option for founders is the angel investor. These investors often have little to no experience in the field in question but may have larger social networks that the firm can access. In addition, these investments often lack the formality and longevity of venture capitalist investments and can therefore may not provide the proper amount of feedback and check on the entrepreneur. One of the major benefits of angel investors is that there are a large variety of angels that span all industries. This variety means that even someone launching a venture outside of the high risk, high reward markets can still find someone to share their venture. Finally, it is important to recognize that these investors often wish to take on a mentor role with those they invest in. This is a way to give back to the next generation or help guide a new business to success.

            The final option outside of debt financing is venture capitalists. These investors manage highly diversified portfolios and seek out high potential startups to maximize the gains for their constituents. Normally these investors are much more involved in the business process, often establishing boards of directors in which they personally wish to sit. These investments are also long term and tend to have the potential to provide consistent funding to firms that are showing positive results. The social networks that these firms vary as well with the larger firms offering less money for more equity due to their knowledge of business and extensive connections. These investments should not be taken on early in a firm’s life because they will often require massive portions of the equity to minimize their risk.

            Throughout the options the founder must decide whether their priorities and motivations lie with control or financial gains. IF the entrepreneur recognizes that there are others that can either run the business more effectively or offer more to the initial growth then it may be smarter to bring on larger investors to expedite initial growth. If the owner wishes to maintain their control and equity stake than it may be wiser to max out personal expenses and seek a smaller angel investor or family member with resources and experience. In the end it depends on the business in question and the motivation of the entrepreneur.

References

Herrenkohl, E. (2010). How to hire A-players finding the top people for your team – even if you don’t have a recruiting department. Hoboken, NJ: Wiley.

Wasserman, N. (2012). The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls that Can Sink A Startup. Princeton, NJ: Princeton University Press. 

Behind every business or organization there are hardworking and dedicated individuals serving the day to day functions that make it all possible. These people are the backbone of success and yet lack a blueprint or set of desirable skills that blanketly cover every firms present and future needs. How then do we find the best possible employees and insure that we navigate the waters effectively to avoid the pitfalls and long-term drawbacks of incompatible hires?

            Among the ways to find and recruit the best possible people for your firm is the idea of networking and reaching these great employees. Like the actual act of entrepreneurship these crucial actions often require creative and unique strategies in order to be implemented effectively. It is the job of the entrepreneur or recruiting manager to act as the enticer to those seeking employment. Making the firm easily accessible to potential A-players and scheduling as many interviews as possible are among the ways that the HR department can bring high quality talent into the management team. In addition, the use of innovative and captivating ads in newspapers or online forums can offer perks to job seekers that may draw them from competition in the labor market. It is important for the owner to act as a “hook” similarly to an author writing a story. If the firm is a living and growing entity, then its story must be written in a way that allows ambitious individuals to follow and see their potential role in its journey.

Another important thing to consider is the problems associated with a bad hire. Individuals that have redundant or duplicate skills to other employees already existing within the firm can have negative overall impacts on the bottom line of the firm. These additional cash drains can cause investors to view the firm as wasteful and cause internal interpersonal issues. Therefore, it is important that the founder or HR team focus their efforts on finding employees with unique skill sets rather than ones that fit into an already homogenous team.

The final factor to consider when hiring is the ability to keep A- Players once they are acquired by the firm. These employees have high potential and thus have many opportunities to choose from. The higher the opportunity cost an employee faces, the higher the price the firm must forgo to gain and maintain their relationship. This idea isn’t limited to those within the firm either. In fact, according to Eric Herrenkohl, some of the best hires that we can make come from long-term nurtured relationships with external key players. The constant maintenance of a relationship can be a key factor in bringing on or bringing back employees from other sectors within an industry.

            Overall the best way to acquire and keep employees is by allowing as many people as possible to see the growth and development potential of the firm. By sharing a common centralized mission, a firm becomes more uniform in its motivation. This unity allows for employees to see themselves establishing and maintaining long term relationships with the firm at multiple levels in the organizational chart. Cherishing and acknowledging the contributions and maintaining relationships are the key to acquiring and keeping the best possible employees for a management team. Just as one most seek a competitive advantage in a market, the firm must also establish a competitive advantage in the labor market.

References

Wasserman, N. (2012). The Founder’s Dilemmas: Anticipating And Avoiding The Pitfalls That Can Sink A Startup. Princeton, NJ: Princeton University Press. 

Herrenkohl, E. (2010). How to hire A-players finding the top people for your team – even if you don’t have a recruiting department. Hoboken, NJ: Wiley.

The process of hiring is a complex and potentially dangerous step that all businesses must partake in. Like all decisions in the early stages of the business cycle, short term gains might eventually be offset by long term consequences. In the case of employees entering a firm, a verdict must be reached as to whether an employer can accurately determine the job requirements and future responsibilities that the job will entail.

According to Wasserman there are two types of employees that a potential venture seeks to employ. These employees are broken down into two categories based on experience and potential initial value to the firm. A specialist in a given field is an employee that can step into specific roles and excel immediately without training or oversight. These employees operate with independence and bring with them skills they have gained throughout their career or educational training.  The other option when considering employees is the generalist or jack of all trades. This employee has high potential but lacks the specialization that may be required in certain positions. There are numerous benefits and drawbacks to each of these types of employees that can both expedite and hinder the firm’s resources and growth potential.

It is important to note that specialists have worked at other firms in the past and therefore may have baggage coming along with them when entering the firm. One example of this is their proclivity towards expectations that the firm must reach. This can clash with a company culture and cause interpersonal conflicts among the founding team and specialist hire. Another thing to consider is the uncertainty and risk associated with the early stages of a startup. Specialists that have worked for years in a given role may be unable to adapt to a changing environment and fit new expectations set upon them by the startup. Generalists on the other hand may take too much time initially to get “up to speed” with the industry standards. This time wasted can be a crucial misstep on the part of the firm in its early financing or launching stages. Being new in the workforce comes with potential benefits as well. With no previous experience these new employees won’t have any preconceived inclinations on business culture and processes and therefore will see the culture of the firm as a learning opportunity. These people will also be more willing to grow into roles that might differ from the initial inquiry. The final thing to consider between these two types of employees is the pay differential. With experience comes the expectation of higher pay. It is also important to note that established individuals in any industry will have a much higher opportunity cost when leaving a career for another job.

When considering specialists and generalists it is important to deliberate what skills a firm can foster in employees. Limitations on the teaching of these skills can be financial, cognitive or even time restraints but not recognizing these limitations can cost the firm in the long run. Among the most important of traits that cannot be taught is proactiveness and loyalty.  If a firm doesn’t have go getters that are willing to work hard for the chance of advancing both their careers and the firm’s success than they won’t be able to learn the firm’s responsibilities quick enough to play their part.

The final thing to consider is like last week’s blog post. In teams that are comprised of similar skills and experiences, a founder may find that as the venture grows the variety of jobs they initially prospected may shrink into a few roles that share responsibilities. During early stages of the business, role dilemmas may become a dire situation as shared attributes may cause employees to compete where coercion is necessary. If these employees have already been working for the firm for a given period, they may be difficult to lay off or fire. This additional high cost on the firm will cause a drain on resources that must be used effectively in this critical stage of the business cycle.

In conclusion I would suggest that a firm hire a specialist to run a team of generalists to maximize the potential of the startup. This would minimize the risk of role dilemmas by having the group managed and observed by a professional that can evaluate their skills and abilities and foster their growth into positions that best match the firms needs. This approach would also offer an incentive for high caliber A-player employees to enter the firm at a lower pay in exchange for the chance to work on a team where they can hone their skills. Finally, these specialist team leaders will free the founder and C- list employees up to manage the behind the scenes matters of the firm.

Should I seek opportunities or comfort?

This question is the foundation and starting line for any person seeking to learn about themselves and the world. In an era of globalized connections, we find ourselves more divided. This may be due to the surplus of information flowing through the average person’s mind daily or the inclination as humans to dismiss new information that contradicts our existing viewpoints. Whatever the cause, we frequently see people surrounding themselves with others that are similar to them. This phenomenon can be beneficial in situations, while subsequently harming the progression and creativity of individuals in others. Does this prerequisite thwart the possibility of surrounding ourselves with the best possible team for our venture?

The common phrase that “friends are the family you choose” is even more true in the case of cofounders in a business. If the business is your baby, then it is important to consider who your “co-parent” is going to be. In the case of most businesses, the comfortable thing to do is control the principal influences through the recruitment of individuals that share similar ideals and values. Entrepreneurs constantly fall victim to comfort and align themselves with friends and family to minimize conflicts. This decision can be important in the early goings of a firm because it allows the founding team to bypass the stage where personalities collide. According to Bruce Tuckman’s stages of group formation, a team made of members sharing similar minded members can bypass the forming and storming stages and move directly into norming. This means that the team can move directly into delegation of roles and begin implementing the founder’s business plan. These likeminded individuals will encounter reduced interpersonal confrontations in their pursuit of mutual goals.

In contrast, a diverse team comprised of assorted skills and experiences will have trouble in the early stages. Conflicting motivations and values can interfere with the startups initial entrance into the market. The benefits of a diverse team come into play later in the venture, enriching and enhancing the company’s ability to grow and adapt to market forces. In addition, with diversity comes a large range of skills, more innovation and key access to extensive networks. These networks make it easier to establish relationships with investors, other corporate players in the industry and to expand the firms access to “A- player” employees.

            As discussed in my previous blog post, social and financial capital are both imperative resources to any startup. The diverse team offers both additional intangible resources and a supplementary extensive network to facilitate future company growth. In a Guide to Managing Growth: Turning success into even bigger successes, Rupter Merson references a study carried out on entrepreneurs in the 1980’s. In the study only 12% of entrepreneurs attribute the success of their ventures to an extraordinary idea. The other 88% said that success was due to “exceptional execution of ordinary ideas”. With the pressure of the venture falling on a team of likeminded individuals, a firm may lack the ability to change and adapt. This can cause the team to miss opportunities and damage its ability to execute the business plan diligently.

            This begs the next question as to whether diversity should be emphasized in the founding team or preliminary employees. In Erik Herrenkohl’s book, How to Hire A-Players, he proposes that bringing in seasoned veterans after the launching of the venture can alleviate the workload and offer industry knowledge that may be unavailable among prospective cofounders. He subsequently proposes that successful firms must be the best at “recruiting” these “A-Players”. This would suggest that the ideal team, whether brought on originally or post launching, recedes outside of the founder’s inner circle. Wasserman seems to agree, when he points out the astronomical probability that two or more of the key players, necessary to best facilitate a firm’s growth, come from the same family or social circle.

Thus, I conclude that this same mentality should be applied to the creation of a founding team. If a firm was made up entirely of individuals that share the same experience, then the founder presumably hasn’t expanded their horizons to embrace those able to offer imperative perspectives to headlong the firm’s development. Therefore, the best course for any novice entrepreneur is to encourage diversity to encounter critical conflicting or complimenting opportunities.

Always remember, “True self-discovery begins where your comfort zone ends.”

Seek the discomfort and embrace diversity!!!

References

Wasserman, N. (2012). The Founder’s Dilemmas: Anticipating And Avoiding The Pitfalls That Can Sink A Startup. Princeton, NJ: Princeton University Press. 

Herrenkohl, E. (2010). How to hire A-players finding the top people for your team – even if you don’t have a recruiting department. Hoboken, NJ: Wiley.

Lahm, R. (2005). Starting Your Business: Avoid the “Me Incorporated” Syndrome. Retrieved from. https://ezinearticles.com/?Starting-Your-Business:-Avoiding-the-Me-Incorporated-Syndrome&id=84345

Rupert Merson- Guide to Managing Growth: Turning successes into even bigger successes