Urlocker On Disruption

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Guest post by Zack Urlocker

As you may have noticed, my onDisruption blog posts have become less frequent lately as I'm busy with other projects.  I will continue to post the occasional article and provide updates to past stories, but these will be less frequent than before.  For newcomers to the site, here's a list of some of the most popular postings on the site. 

If you're new to disruption this is a good way to start thinking about your own disruptive strategy.  And note that while some of these are classic technology disruptions, many leverage other forms of disruption, whether in distribution, packaging etc. 

So don't fall into the classic Silicon Valley view that disruption is only about new, faster, more complex technology.  Sometimes it's just the opposite. And while disruption is a good model, it's not the only strategy for success.  Apple's iPhone is only marginally disruptive, but its still a huge hit for the comapny.  But when disruption works, the gains can be impressive.  And the benefits accrue not only to the company, but to the careers of the individuals who make it happen and to investors who spot the trend early.

• Dealing with Information Overload
• iPhone a Hit, But Not Disruptive
• Disruption Investing: Picking the Next Apple, Not Vonage
• Who Killed the Record Industry?
• Microsoft Dismisses Google Apps as Inferior
• Are You A Sitting Duck?
• Management Lessons From Rock Guitar Wars
• XBox Guitar Hero Melts Face Off Old School Rockers
• Nintendo Wii Smacks Microsoft, Sony
• Heinken Disrupting the Beer Industry

As you formulate your own disruption strategy focus on the basics:

• What problem are you solving?
• How can you do it better than existing solutions?
• Who is underserved by the incumbents and what are the unmet needs?
• How can you deliver a "good enough" solution to a narrow but growing audience?

Let me know your thoughts on these and other articles.  I hope they will inspire to you let a thousand disruptive flowers bloom.

Zack Urlocker is a software executive and regular blogger on open source technology at TheOpenForce and InfoWorld and about music at GuitarVibe.

Careers: Should You Pack Your Parachute?

Following his recent article "Are You A Sitting Duck?" guest columnist Zack Urlocker shows the steps you should take to improve your own position if your company is being disrupted.

Just because it's time to pack your parachute doesn't mean you should jump immediately.  But you may need to at some point.  Let's face it, it's a heckuva lot more fun to be a disruptor than to get disrupted. 

Five years ago, back when I was in the enterprise software business, I saw a repeated pattern whereby customers would go for the least complex solution using open source technology.  Customers would readily admit that the open source solutions weren't as good as the commercial products we were trying to sell.  But they still made their choice.  I realized that there were several key trends in the software industry that were likely to wreak havoc on the old model of selling expensive perpetual licenses.  (And let's be clear, it was a good model for 20 years!)  The new trends were:

• Open source software
• Hosted software as a service
• Distributed and offshore development

And even back then it was clear that the force of these trends would be unstoppable.  Some companies would succeed and some would fail, but it seemed obvious that it was better to be competing with the force of change on my side. 

While it's clear that jumping to a new disruptive company has its risk, there's also risk in staying with an old line business model.  You don't want to be the last person selling IBM Selectric typewriters, no matter how good you are at the job.  At some point, if you stay too long in the old world, you fail on the basic IQ test and are considered damaged goods.  Many times I've seen hiring managers pass over the resumes of candidates that were in companies that were considered to be "the walking dead."  You may think that 15 years loyalty to a company will impress a new employer, but not if its because you were asleep at the wheel. 

And even if you don't leave your current position, you can be more valuable if you've got an awareness and understanding of what the disruptors are doing and how you can apply some of those techniques in your existing company. 

Here's a set of steps you can take to improve your situation:

• Make sure you're up-to-date with your skills. In many cases, disruption is based on a significant shift in the market place.  That could be a technology shift or a change in market dynamics or distribution.  The most important thing you need to do is make sure you have a real understanding of the underlying changes.  You can't just be an buzzword compliant either.  You need to have hands-on experience with the new way of doing business, even if it's on a limited basis outside of your main duties.  In new industries no one expects you to be an expert, but they won't necessarily pay senior level salaries for someone with old school experience either.  If there are courses or workshops available to help you learn the new skills, sign up.  Even if your company doesn't foot the bill.  After all, it's your career, not theirs.
• Get involved in the disruptive projects in your current company.  Many incumbents will experiment with disruption.  They may kickoff a skunk works project or some kind of business partnership, licensing or reseller deal to get them in the game.  Make sure you're a part of these efforts so you can get some exposure. By being open to trying new things, you may be able to help your company maintain its revenues by starting a new disruptive business inside the organization.  Don't expect a lot of others outside the new group to go out of their way to help you.  You may even view you as unwelcome competition.  The likelihood of a disruptive business coming out of a large incumbent is not thigh, but you'll at least get some exposure that can be helpful.  But make sure it's real action, not just a task force to study what disruptive firms are doing.
• Start disrupting -- even if you aren't getting paid for it. If there's no sign of disruption going on in your company, it may be time to suggest to your boss that you kick something off.  Don't expect that you'll get a cushy budget to make things happen.  In fact, be prepared to do this on top of your current assignments and within your existing budget.  And if you still can't get the approval to do it on company time, all the more reason to start doing it on your own.  If you're in publishing get involved with new media.  If you're in software, start experimenting with open source software like the LAMP stack (Linux / Apache / MySQL / PHP).  Don't try to boil the ocean and change everything in your company.  Rather, figure out how to take small, incremental steps that can help build momentum and experience in new areas. 
• Build a new network. Most likely your old contacts are going to be in the same situation you're in: trying to come up to speed in a new skills while putting on a brave face.  While you don't need to abandon your old contacts, you will need to develop new ones.  Get out to the conferences and seminars and start building bridges.  Meet people from the disruptive firms.  Understand what's going well and why.  Don't be critical or defensive.  And don't tell them why they've got it wrong or why they will fail.  Ask lots of questions and you'll likely learn some ideas that will help make your current company more successful or may be useful down the road.  If there are panel sessions on conferences that mix the old and the new, get involved.
• Learn it, teach it, write about it.  Even if you don't have the opportunity to take part in new disruptive efforts in your current position, you will need to demonstrate to others that you grok the new model.  One way to do this is to explain the new model to others.  You could become "the disruptive guy" inside your organization by helping explain to others.  You don't want to be a zealot or naysayer about how your current model is broken, but if you can give input to others in the organization, that's a great way to build experience and credibility. 
• Do your homework before you jump. If you've developed an in-depth understanding of the changes that are taking place in your industry and you've got some visibility outside your organization, sooner or later you'll be in a position where you can cross over to the disruptive side. But don't just jump to the first opportunity.  Make sure you evaluate carefully the risk in any new venture.  You'll want to have a good understanding of their finances, existing customer base, as well as actual and projected growth.  Talk to their customers, the management. These elements will help you get a feel for what stage the industry is in and whether the apparently disruptive play is really taking hold in the market.  Most candidates will spend a lot of time negotiating compensation and trying to hold out for their "old school" salaries and bonuses.  In my view, much of that is misguided.  The biggest determinant in your overall compensation will be based on performance incentives (options, bonuses) that depend on whether the new business is successful.  So you are better off spending time to assess the risk level of the firm rather than worrying exclusively about your compensation.   

Zack Urlocker is a software executive and regular blogger on open source technology at TheOpenForce and InfoWorld and about music at GuitarVibe. 

Careers: Are You A Sitting Duck? 13 Unlucky Questions to Ponder

Most of the articles and resources at The Disruption Group focus on corporate strategy and ways to use competitive disruption to grow your company. But what about your own career strategy?  What should you do if your company appears to be a target of disruption?  Guest columnist Zack Urlocker shows how to know if your company is being disrupted and what you should do about it to save your career.

Whenever I think about companies being disrupted I can't help but recall Michael Bedard's iconic poster from the early '80s "Sitting Duck." It says it all. 

There you are, a hard working employee, doing your job and next thing you know someone's taking shots at you.  The sad thing is most employees never really take notice or what's going on until it's too late. 

Of course, from the outside, it's a whole lot easier to be objective.  Most people outside of the music industry would not now consider a career in the record industry.  And the magazine publishing and newspaper industries have been in trouble for years.  Enterprise software?  Outside of hosted on-demand offerings, it's not exactly a barn-burner.  All of these sectors have seen seismic changes due in large part to the disruptive effect of the Internet.  But would you recognize such changes in your own industry? 

Here's a checklist of 13 unlucky questions to consider:

1. Is your company consistently unprofitable?  A failure to generate profits is the first and most significant sign that a company is in trouble.  While there are times when companies will run unprofitably as they invest enter new markets, in most other cases, lack of profitability indicates a more fundamental problem in strategy or execution.
2. Has revenue growth stalled or even declined?  To most investors, if you're growing at more than 20% a year, you're considered a growth company. In tech stocks, it's not uncommon to see growth that is 40 - 100% per year.  If your company used to be growing and is now flat, watch out. This was the biggest warning sign I saw when I was at software maker Borland in the late-90s and it caused me to write up a checklist similar to this one to benchmark our turnaround. Guess what? We failed the checklist and I was saw similar troubles across the sector.
3. Is everyone in your market having trouble?  If your company is the only one suffering, that's one issue. And it may be fixable with changes in leadership, product strategy or better execution.  But if all or most of your competitors are also suffering, then it's an indicator that the entire market is in trouble and likely being disrupted. 
4. Do people routinely say "Are they still around?" when you tell them where you work? This sounds tongue in cheek, but its a sign that your company may have become irrelevant.  Similarly, if industry analysts and editors frequently write about the demise of your industry, they may be closer to the truth than you realize.  When Marc Benioff, CEO of Salesforce.com declared the "End of Software" few people took him seriously.  But if you worked at Siebel or PeopleSoft or dozens of other traditional enterprise software companies, you probably should have.  Similarly if the "death pools" predicting the demise of magazines have been scarily accurate.  These social indicators draw on the wisdom of crowds and can be more accurate than you might think. 
5. Is there high turnover in the executive ranks?  While some turnover at the executive level is normal, if you've had three CEOs in as many years, or if your exec staff have all left "to spend time wiht family" those are red flags.  When Ed Zander retired from Sun it was along side several other high-profile departures. While bad execs get fired, good execs leave if they don't see a financial upside.  Since most executives have stock that vests over a 4 year period, it's not just about short term prospects either. If your company has a problem retaining executive talent, it may mean they believe the situation is unfixable for several years. 
6. Is your company strategy zig-zagging every six months to catch some new wave? That could be a sign that the core business is in freefall and management is distracted looking for the next big thing. Consider the tenure of Carly Fiorina when she was CEO at HP. She was out promoting a strategy based on multi-media convergence, big screen TVs and iPods.  Naturally she was out at CES and Davos hobnobbing with the likes of Gwen Stefani, Sherly Crow and Matt Damon.  So who was minding the store?  Oh yeah, no one.  But when she got sacked, she took a severance package with her worth a minimum of $21 million.  If your job gets cut, you'll be lucky to get a couple of extra weeks paid.  Good CEOs focus on operational excellence and strategy; not gimicks. 
7. Are you losing deals to competitors that are a fraction of your size?  Often new entrants to the market are much smaller and their products have far less functionality, but they do enough to get the job done.  If your company is losing deals to companies that weren't even on the radar a couple of years ago, that could be a sign that the market is changing rapidly. 
8. Do customers complain that your products are too complex? That may indicate that your product has become overkill.  The next step is if customers sideline your products only for existing implementations and start using simpler solutions for new projects.
9. Is your company half pregnant? Sometimes companies that are disrupted will try to show that they too can play the disruption game.  They may launch a high-falutin' project or acquire a small startup to show that they too can be nimble and responsive.  Media companies were among the first to create web sites, but they never figure out how to make money with them.  And lots of enterprise companies introduced on-demand offerings, but none had the kind of focus Salesforce.com brought to the table.  If the CEO refers to your company as being "like the largest startup ever" with hundreds of millions of dollars in the bank, he's omitting a few key points.  Like the fact that your company is proabably too bloated to compete with hungry startups and that the corporate culture kills innovation. 
10. Is your company a bottom-feeder? Larry Ellison joked about CA years back by saying "Every healthy ecosystem needs a bottom-feeder."  While that's true, you don't necessarily want to work for a company that keeps acquiring companies and stripping out the costs.  You can prop up a share price for quite a while with revenue through acquisitions, but unless there are significant prospects for growth, it's not much of a strategy for the long haul. 
11. Is your company obsessed with cost cutting?  You can't cost-cut your way to growth. So when companies are focused only on reducing expenses it may indicate a lack of attention on growing revenues.  Pay particular attention to short-term cost-cutting measures that hurt long-term prospects.  Elimination of employee benefits and training programs are particularly bad signs. 
12. Have layoffs become a regular occurance?  While regular performance appraisals and even dismissals to cut "dead wood" are healthy, you should be wary of companies that are routinely engaged in layoffs.  And again, if the same is happening at other companies in your space, it's double wammy. It means that if you are laid off, your prospects at finding a new job are going to be slim.
13. Are you hoping for an acquisition to be your savior? Sometimes employees will think that if things really go poorly the worst case scenario is that the company will be acquired. This is like waiting for a knight in shining armor.  While acquisitions can be good for shareholders, they are no picnic. If you're in Finance, Sales, Marketing, HR or other "non core" areas, your position is a good candidate for elimination if there is an acquisition. 

While you should not panic if one or two of the items above conditions are true, these may be symptomatic of bigger issues.  These are warning signs.

Consider using these questions as a score card that you check a few times a year.  And if more than half are true, it may be time to pack your parachute.

Whatever you do, don't jump without a plan.  I'll cover that topic in the next post.

Zack Urlocker is a software executive and regular blogger on open source technology at TheOpenForce and InfoWorld and about music at GuitarVibe. 

** Other Sources **

Podcasts: Career Coach Alan Kearns, author of Get The Right Job Right Now, has a series of career-oriented podcasts. 

Podcast 2: The Cranky Middle Manager (website, mp3 download 31 min) looks at how middle managers can execute disruptive innovation without damaging their careers.

Fortune magazine writes about how the Washington Post is responding to disruption.  The bottom line: If CEO Donald Graham can't figure this out, no one can.  The good news for the Post is they've hedged their strategy. While  competitors were doubling down by buying money-losing newspapers in order to gain share, the Post investing in and acquired companies with far greater growth prospects.  I'm amazed that more companies that are disrupted don't do what the Post has done to reinvent themselves and get out of dying businesses.

More of Michael Bedard's art is is featured in his book Sitting Ducks.  Examples of his work are also available on line at his blog.

*Update* More Than You Know: Book Reviews, Podcasts

Our interview with author Michael Mauboussin last October proved popular. To introduce readers to Mauboussin's new book, More Than You Know: Finding Financial Wisdom in Unconventional Places  (NEW: Expanded and Updated 2007 Edition) Here are several resources:

**New Update: Podcast interview with Author Michael Mauboussin on NPR's Science Friday show Aug. 17, 2007, 16:49 min. (Download mp3, Science Friday website.)

**Best Business Books of the Year, BusinessWeek: "Finally, a fun read that draws insights from a wide range of scholarly disciplines."

Book Excerpt: Chapter 1: Be The House

Not Book Excerpts, But Close:
On Streaks: Perception, Probability, and Skill, from the Consilient Observer, Mauboussin's newsletter at CSFB, Vol. 2, Issue 8, April 2003.
The Janitor's Dream: Why Listening to Individuals Can Be Hazardous to Your Wealth, from the Consilient Observer, Vol.1, Issue 18, June 2002.

Podcasts and broadcast interviews:

• Good: NPR's Money Matters show (4:37): A quick hit.
• Better: WrittenVoices.com in either WMA or MP3 format (16:39)
• Best: The Invisible Hand Podcast Episode 21 (41:00): A thoughtful and thorough interview by Chris Gondek, who brings an investment and management point of view to draw out a good discussion with the author.

Book Reviews:
BusinessWeek: **** "The Good: Draws investing wisdom from many disciplines, from cognitive science to fractal math. The Bad: Brief essay chapters at times allow for too little discussion of complex matters.The Bottom Line: Its insights sparkle--and it's even a fun read.

Bloomberg News: "Mauboussin is at his best when exploring investment psychology. Humans, like zebras dodging lions, have innate physiological responses to threats: Our blood pressure rises; our short-term memory improves... As an adjunct professor at Columbia Business School, Mauboussin maintains an academic aloofness throughout. Nowhere do we learn how Legg Mason might have applied these highbrow concepts to the gritty business of buying and selling."

Other info:

• Author interview by Columbia University press
  
• Author interview by The Motley Fool
  
• Book description and table of contents by the Global Investor Bookshop
• Expectations Investing Mauboussin's first book, with Alfred Rappaport. A related website includes excerpts.

Ignore the Dot-Coms, Disruption is Hard Work

Guy Kawasaki has an interesting posting by the CEO of Redfin, a company that is disrupting the real estate business by cutting out traditional real estate agents in a handful of U.S. cities.

If ever there is a sector ripe for disruption by the internet, it is real estate sales:

• High fees - 6% in U.S. markets
• Proprietary access to MLS database of non-proprietary information
• Little price competition
• Little differentiation of suppliers or services

In contrast to one or two dot-com entrepreneurs -- the guys who make millions working from home in their spare time -- Glenn Kelman, who joined Redfin in 2005, says hard work is the true driving force behind successful entrepreneurs:

"Lately I've been thinking how hard, not how easy, it is to build a new company. Hard has gone out of fashion. Like college students bragging about how they barely studied, start-ups today take care to project a sense of ease. Wherever I’ve worked, we’ve secretly felt just the opposite. We’re assailed by doubts, mortified by our own shortcomings, surrounded by freaks, testy over silly details."

Kelman lists the top 10 ways a startup can feel deeply flawed without really being flawed at all. A few from the list:

• True believers go nuts at small provocations
• Startups are freak-catchers
• Good code takes time
• Everybody has to rebuild
• Fearless leaders are often terrified
• Competition starts at $100M in revenue

**Other Information**
60 Minutes segment on Redfin looks at the high efficiency of Redfin sales agents and some of the hardball tactics established suppliers used to squash new entrants like eRealty and Redfin.

Podcast with Glenn Kelman on the "feaky addictive" nature of real estate web sites.

The Anti-Marketer's Summer Reading List

My anti-marketing colleague Paul Paetz compiled this list of books worth reading on disruption and marketing, including:

• The Innovator's Dilemma: The original work on disruptive innovation by Clayton Christensen
• The Innovator's Solution: Clayton Christensen's follow-up and the one book every manager should consistently refer back to for insight into their business and their customers
• Positioning: The classic marketing opus by Al Ries and Jack Trout
• Pour Your Heart Into It: The story of Starbucks CEO Howard Schultz
• Hidden in Plain Sight: Strategy thinking by Erich Joachimsthaler... on my 'to-do' list.

Here's a list compiled last summer by the Montreal Business Book Club... which has no July meetings... and here is Mitch Joel's new list for 2007.

The Work Research Foundation (WRF) has a very thoughtful list of business books recommended for students, with the strong endorsement of master investor Warren Buffet, who says: " I have known no wise person over a broad subject matter area who didn't read all the time—none, zero."

Last summer I compiled a reading list that ranged from Drucker to Dilbert...

VIDEO: Should We Cannibalize Our Business?

The question of cannibalizing your own business is one of the most critical decisions any executive can make -- but most avoid the issue or dismiss it out of hand. 

Don't make the mistake Sony made.

In this video excerpt (8:10 min) from a presentation to the Conference Board's change management conference, I discuss two tools to manage competitive disruption. I look at a case study of why Sony Records, the company in the best position to create and dominate the downloadable music business, couldn't capitalize on the emerging trend towards downloading because of conflicting values.

This is the second of three excerpts from the conference. Part 1.

Cinema Disrupted: Opening Night Movies at Home

TV smart guy Shelly Palmer says it's about time to put an end to the hassles of going to the movies, just to see a film on the day it is released.  Palmer, author of Television Disrupted, lists the catalog of cinema woes:

• Commercials
• Previews
• Expensive concessions
• Noisy audience members
  

So when I will be able to watch a movie at home on opening day? How would I prefer to watch it (pay-per-view at a set time, on-demand or download-to-own)? And, what technology will be involved (set-top box, my computer, a combination)?

My friends at Comcast tell me "day & date" release, as it is known in the trade, is coming soon. There are no technical problems at all, just business rule issues. Comcast can distribute movies via standard definition pay per view today, they just need permission to do so.

Palmer points out that business issues between studios and cable cos are the biggest obstacle to giving consumers what they want. Of course, when you think you have a monopoly on an event or a type of media content, it's very hard to give it away or even rent it. Think about how this could change with the launch of Apple TV.

Hint: Don't ask the record companies for advice on this one. (Apple, which has no historic base in the music business, has 82% share of the download music market. Likewise, Apple has no historic base in TV or movies... yet.)

News, TV Execs: License Everything and Now, Says Kessler

Author Andy Kessler has some advice for newspaper publishers, in today's Wall Street Journal.  The end may be coming, but newspapers still have time to create a valuable new role for themselves:

"Last I checked, the Star Trek Holodeck is still fiction... I really believe that the copy protection mechanism for newspapers is their consumer interface, in the form of ink spurted on newsprint.

"In the meantime, rather than just charge for content, I'd be licensing every type of newfangled software and Web service until I could come up with a tight community of interest around my newspaper, local or national. Don't just start the discussion, keep it."

Television is next in the doomsday machine, says Kessler, with cable-TV the first service to "get flushed": "Technology is making things even more difficult for television and video as well. As technology advances, broadcast pipes leak like a sieve."

Kessler is a far-sighted guy with an ability to see trends as they are. But what's the solution? Experimenting with new content and licensing is a step. But I am not convinced that traditional media has the luxury of time on its side if you consider that traditional advertisers like Johnston & Johnston are pulling away.

My take is that if media executives focus on some of the following ideas, they can create new value:

• Make current content more accessible and more convenient for consumers. Here's an example that shows this does not have to be about technology.
• Blast through the cost structures that restrict access or  make niche audiences non-economic. Here's a micro-niche and perhaps a more bizarre example.
• Help consumers solve their information problems. Here's an example and another.
• Create new forms of entertainment. Here's an example.
• Create new levels of interaction with consumers using technology like this or this.

**Other Information**
The Wall Street Journal also looks at how traditional advertising mechanisms are being disrupted by new media such as email and paid search. We've looked at this trend as it hits TV.

Doc Searls lists ways to save newspapers.

Newsome.org says it's already too late.

We did a Q&A with Andy Kessler last year when he published his latest book, The End of Medicine (Book excerpts.)

Cuban Asks: Are There Any New Ideas for TV?

Entrepreneur Mark Cuban is on the hunt for new ideas again... He wants to create new programming for his High Definition television network, HDNet.

Cuban, who also owns the Dallas Mavericks and a small chain of movie theatres, had a similar call for ideas in the movie business last year.  Now he wants original programming, which admittedly seems difficult for the broadcast industry, where so much is derivative:

"99pct of the time the idea is a derivative of something that is already being done, or something so obvious its an insult that they are pitching it. I dont need to be pitched another cooking, poker, pimp my whatever, American Idol knockoff, nor do I want to hear another "compete for a Mavs roster spot" or "business plan competition idea".

But can television be original? Is it possible to create new disruptive content for TV?

My sense is yes, if the idea actually helps solve viewers' or advertisers problems in new ways.  The key is to identify and solve new information problems that are: important problems, frequent problems and problems that people are already trying to solve but can't.

This is not how most programmers or media content producers think.  Instead what you tend to get is what consultants call "best practices" but would more accurately be called either Xerography or shovelware, a hodgepodge of ideas stolen elsewhere, with no real commitment to understanding what viewers value. 

And that's why Cuban will immediately reject anything that is incremental or just a copy of a current offering. He wants the real deal and he is asking the right questions.

**Other Information**
The New York Times had it wrong this week when it looked at the decline of CBS's evening news with Katie Couric. 

The right question would be: "Is it Katie Couric or is it TV?"  The chart at left shows a trend that should worry all broadcasters: No matter what repackaging and redesign effort they make, all three networks remain in decline.

Chris Anderson highlighted the decline of the mainstream media in this roundup post two years ago with loads of statistics on the decline of television networks, newspapers, radio and music.  These are not new trends... But new ideas are still needed.

Here's a hint: Media mergers won't solve the problem. Look at XM Satellite Radio and Sirius, as an example of a market segment that has been disrupted by the iPod. No merger will cure that fatal syndrome.