Tag Archives: Technology

Crossing the Chasm by Geoffrey Moore

Summary
  1. Navigating in such the uncharted waters of the chasm requires beacons that can be seen above the waves, and that is what models in general, and the chasm models in particular, are for. Models are like constellations—they are not intended to change in themselves, but their value is in giving perspective on a highly changing world. The chasm model represents a pattern in market development that is based on the tendency of pragmatic people to adopt new technology when they see other people like them doing the same. This causes them to hang together as a group, and the group’s initial reaction, like teenagers at a junior high dance, is to hesitate and watch. This is the chasm effect. The tendency is very deep-rooted, and so the pattern is very persistent. As a result, marketers can predict its appearance and build strategies to cope with it, and it is the purpose of this book to help in that process. To be specific, the point of greatest peril in the development of a high-tech market lies in making the transition from an early market dominated by a few visionary customers to a mainstream market dominated by a large block of customers who are predominantly pragmatists in orientation. The gap between these two markets, heretofore ignored, is in fact so significant as to warrant being called a chasm, and crossing this chasm must be the primary focus of any long-term high-tech marketing plan. A successful crossing is how high-tech fortunes are made; failure in the attempt is how they are lost.
Key Takeaways
  1. Background & Fundamentals of Crossing the Chasm
    1. It is only natural to cling to the past when the past represents so much of what we have strived to achieve. This is the key to Crossing the Chasm. The chasm represents the gulf between two distinct marketplaces for technology products—the first, an early market dominated by early adopters and insiders who are quick to appreciate the nature and benefits of the new development, and the second a mainstream market representing “the rest of us,” people who want the benefits of new technology but who do not want to “experience” it in all its gory details. The transition between these two markets is anything but smooth. Indeed, what Geoff Moore has brought into focus is that, at the time when one has just achieved great initial success in launching a new technology product, creating what he calls early market wins, one must undertake an immense effort and radical transformation to make the transition into serving the mainstream market. This transition involves sloughing off familiar entrepreneurial marketing habits and taking up new ones that at first feel strangely counterintuitive.
    2. The basic forces don’t change, but the tactics have become more complicated. Moreover, we are seeing a new effect which was just barely visible in the prior decade, the piggybacking of one company’s offer on another to skip the chasm entirely and jump straight into hypergrowth. In the 1980s Lotus piggybacked on VisiCalc to accomplish this feat in the spreadsheet category. In the 1990s Microsoft has done the same thing to Netscape in browsers. The key insight here is that we should always be tracking the evolution of a technology rather than a given company’s product line—it’s the Technology Adoption Life Cycle, after all. Thus it is spreadsheets, not VisiCalc, Lotus, or Excel, that is the adoption category, just as it is browsers, not Navigator or Explorer. In the early days products and categories were synonymous because technologies were on their first cycles. But today we have multiple decades of invention to build on, and a new offer is no longer quite as new or unprecedented as it used to be.
    3. If we step back from this chasm problem, we can see it as an instance of the larger problem of how the marketplace can cope with change in general. For both the customer and the vendor, continually changing products and services challenge their institution’s ability to absorb and make use of the new elements. What can marketing do to buffer these shocks? Fundamentally, marketing must refocus away from selling product and toward creating relationships. Relationship buffers the shock of change. Marketing’s first deliverable is that partnership. This is what we mean when we talk about “owning a market.” Customers do not like to be “owned,” if that implies lack of choice or freedom. The open systems movement in high tech is a clear example of that. But they do like to be “owned” if what that means is a vendor taking ongoing responsibility for the success of their joint ventures. Ownership in this sense means abiding commitment and a strong sense of mutuality in the development of the marketplace. When customers encounter this kind of ownership, they tend to become fanatically loyal to their supplier, which in turn builds a stable economic base for profitability and growth.
    4. The fundamental requirement for the ongoing, interoperability needed to sustain high tech is accurate and honest exchange of information. Your partners need it, your distribution channel needs it and must support it, and your customers demand it.
    5. The fundamental basis of market relations is to build and manage relationships with all the members that make up a high-tech marketplace, not just the most visible ones. In particular, it means setting up formal and informal communications not only with customers, press, and analysts but also with hardware and software partners, distributors, dealers, VARs, systems and integrators, user groups, vertically oriented industry organizations, universities, standards bodies, and international partners. It means improving not only your external communications but also your internal exchange of information among the sales force, the product managers, strategic planners, customer service and support, engineering, manufacturing, and finance.
      1. Must see through every stakeholder’s eyes and create win-win relationships. This becomes even more complicated with public, high-tech companies given the number of constituents
    6. The problem, since these techniques are antithetical to each other, is that you need to decide which one – fad or trend – you are dealing with before you start. It would be much better if you could start with a fad, exploit it for all it was worth, and then turn it into a trend. That may seem like a miracle, but that is in essence what high-tech marketing is all about. Every truly innovative high-tech product starts out as a fad—something with no known market value or purpose but with “great properties” that generate a lot of enthusiasm within an “in crowd.” That’s the early market. Then comes a period during which the rest of the world watches to see if anything can be made of this; that is the chasm. If in fact something does come out of it—if a value proposition is discovered that can predictably be delivered to a targetable set of customers at a reasonable price-then a new mainstream market forms, typically with a rapidity that allows its initial leaders to become very, very successful. The key in all this is crossing the chasm—making that mainstream market emerge. This is a do-or-die proposition for high-tech enterprises; hence, it is logical that they be the crucible in which “chasm theory” is formed.
    7. The rule of thumb in crossing the chasm is simple: Pick on somebody your own size.
    8. These are the two “natural” marketing rhythms in high tech— developing the early market and developing the mainstream market. You develop an early market by demonstrating a strong technology advantage and converting it to product credibility, and you develop a mainstream market by demonstrating a market leadership advantage and converting it to company credibility. By contrast, the “chasm transition” represents an unnatural rhythm. Crossing the chasm requires moving from an environment of support among the visionaries back into one of skepticism among the pragmatists. It means moving from the familiar ground of product-oriented issues to the unfamiliar ground of market-oriented ones, and from the familiar audience of like-minded specialists to the unfamiliar audience of essentially uninterested generalists.
    9. Market Development Strategy Checklist. This list consists of a set of issues around which go-to-market plans are built, each of which incorporates a chasm-crossing factor, as follows:
      1. Target customer
      2. Compelling reason to buy
      3. Whole product
      4. Partners and allies
      5. Distribution
      6. Pricing
      7. Competition
      8. Positioning
      9. Next target customer
  2. Technology Adoption Life Cycle – The Cause for the Chasm
    1. To recap the logic of the Technology Adoption Life Cycle, its underlying thesis is that technology is absorbed into any given community in stages corresponding to the psychological and social profiles of various segments within that community. This profile, is in turn, the very foundation of the High-Tech Marketing Model. That model says that the way to develop a high-tech market is to work the curve left to right, focusing first on the innovators, growing that market, then moving on to the early adopters, growing that market, and so on, to the early majority, late majority, and even to the laggards. In this effort, companies must use each “captured” group as a reference base for going on to market to the next group. Thus, the endorsement of innovators becomes an important tool for developing a credible pitch to the early adopters, that of the early adopters to the early majority, and so on. The idea is to keep this process moving smoothly, proceeding something like passing the baton in a relay race or imitating Tarzan swinging from vine to well-placed vine. It is important to maintain momentum in order to create a bandwagon effect that makes it natural for the next group to want to buy in. Too much of a delay and the effect would be something like hanging from a motionless vine—nowhere to go but down. As you can see, the components of the life cycle are unchanged, but between any two psychographic groups has been introduced a gap. This symbolizes the dissociation between the two groups—that is, the difficulty any group will have in accepting a new product if it is presented in the same way as it was to the group to its immediate left. Each of these gaps represents an opportunity for marketing to lose momentum, to miss the transition to the next segment, thereby never to gain the promised land of profit-margin leadership in the middle of the bell curve. The key to winning over this segment is to show that the new technology enables some strategic leap forward, something never before possible, which has an intrinsic value and appeal to the nontechnologist. This benefit is typically symbolized by a single, compelling application, the one thing that best captures the power and value of the new product. If the marketing effort is unable to find that compelling application, then market development stalls with the innovators, and the future of the product falls through the crack.
    2. It turns out our attitude toward technology adoption becomes significant—at least in a marketing sense—any time we are introduced to products that require us to change our current mode of behavior or to modify other products and services we rely on. In academic terms, such change-sensitive products are called discontinuous innovations. The contrasting term, continuous innovations, refers to the normal upgrading of products that does not require us to change behavior.
    3. Of course, talking this way about marketing merely throws the burden of definition onto market, which we will define, for the purposes of high tech, as:
      1. A set of actual or potential customers
      2. For a given set of products or services
      3. Who have a common set of needs or wants
      4. Who reference each other when making a buying decision.
    4. The goal should be to package each of the phases such that each phase
      1. Is accomplishable by mere mortals working in earth time
      2. Provides the vendor with a marketable product
      3. Provides the customer with a concrete return on investment that can be celebrated as a major step forward.                                                                                                                                                    
    1. Innovators
      1. Visionaries are not looking for an improvement; they are looking for a fundamental breakthrough.
      2. In sum, visionaries represent an opportunity early in a product’s life cycle to generate a burst of revenue and gain exceptional visibility.
    2. Early Adopters
      1. What the early adopter is buying is some kind of change agent. By being the first to implement this change in their industry, the early adopters expect to get a jump on the competition, whether from lower product costs, faster time to market, more complete customer service, or some other comparable business advantage. They expect a radical discontinuity between the old ways and the new, and they are prepared to champion this cause against entrenched resistance. Being the first, they also are prepared to bear with the inevitable bugs and glitches that accompany any innovation just coming to market.
    3. Early Majority (Pragmatists)
      1. The real news, however, is not the two cracks in the bell curve, the one between the innovators and the early adopters, the other between the early and late majority. No, the real news is the deep and dividing chasm that separates the early adopters from the early majority. This is by far the most formidable and unforgiving transition in the Technology Adoption Life Cycle, and it is all the more dangerous because it typically goes unrecognized. The reason the transition can go unnoticed is that with both groups the customer list and the size of the order can look the same.
      2. The early majority want to buy a productivity improvement for existing operations. They are looking to minimize the discontinuity with the old ways. They want evolution, not revolution. They want technology to enhance, not overthrow, the established ways of doing business. And above all, they do not want to debug somebody else’s product. By the time they adopt it, they want it to work properly and to integrate appropriately with their existing technology base. This contrast just scratches the surface relative to the differences and incompatibilities among early adopters and the early majority. Let me just make two key points for now: Because of these incompatibilities, early adopters do not make good references for the early majority. And because of the early majority’s concern not to disrupt their organizations, good references are critical to their buying decisions. So what we have here is a catch-22. The only suitable reference for an early majority customer, it turns out, is another member of the early majority, but no upstanding member of the early majority will buy without first having consulted with several suitable references.
      3. Of course, to market successfully to pragmatists, one does not have to be one—just understand their values and work to serve them. To look more closely into these values, if the goal of visionaries is to take a quantum leap forward, the goal of pragmatists is to make a percentage improvement—incremental, measurable, predictable progress. If they are installing a new product, they want to know how other people have fared with it. The word risk is a negative word in their vocabulary—it does not connote opportunity or excitement but rather the chance to waste money and time.
      4. If pragmatists are hard to win over, they are loyal once won, often enforcing a company standard that requires the purchase of your product, and only your product, for a given requirement. This focus on standardization is, well, pragmatic, in that it simplifies internal service demands. But the secondary effects of this standardization—increasing sales volumes and lowering the cost of sales—is dramatic. Hence the importance of pragmatists as a market segment.
      5. When pragmatists buy, they care about the company they are buying from, the quality of the product they are buying, the infrastructure of supporting products and system interfaces, and the reliability of the service they are going to get. In other words, they are planning on living with this decision personally for a long time to come.
      6. Pragmatists won’t buy from you until you are established, yet you can’t get established until they buy from you. Obviously, this works to the disadvantage of start-ups and, conversely, to the great advantage of companies with established track records. On the other hand, once a start-up has earned its spurs with the pragmatist buyers within a given vertical market, they tend to be very loyal to it, and even go out of their way to help it succeed. When this happens, the cost of sales goes way down, and the leverage on incremental R&D to support any given customer goes way up. That’s one of the reasons pragmatists make such a great market.
      7. Overall, to market to pragmatists, you must be patient. You need to be conversant with the issues that dominate their particular business. You need to show up at the industry-specific conferences and trade shows they attend. You need to be mentioned in articles that run in the magazines they read. You need to be installed in other companies in their industry. You need to have developed applications for your product that are specific to the industry. You need to have partnerships and alliances with the other vendors who serve their industry. You need to have earned a reputation for quality and service. In short, you need to make yourself over into the obvious supplier of choice. This is a long-term agenda, requiring careful pacing, recurrent investment, and a mature management team
      8. Conservatives like to buy preassembled packages, with everything bundled, at a heavily discounted price. The last thing they want to hear is that the software they just bought doesn’t support the printer they have installed. They want high-tech products to be like refrigerators—you open the door, the light comes on automatically, your food stays cold, and you don’t have to think about it. The products they understand best are those dedicated to a single function—word processors, calculators, copiers, and fax machines. The notion that a single computer could do all four of these functions does not excite them—instead, it is something they find vaguely nauseating. The conservative marketplace provides a great opportunity, in this regard, to take low-cost, trailing-edge technology components and repackage them into single-function systems for specific business needs. The quality of the package should be quite high because there is nothing in it that has not already been thoroughly debugged. The price should be quite low because all the R&D has long since been amortized, and every bit of the manufacturing learning curve has been taken advantage of. It is, in short, not just a pure marketing ploy but a true solution for a new class of customer. There are two keys to success here. The first is to have thoroughly thought through the “whole solution” to a particular target end user market’s needs, and to have provided for every element of that solution within the package. This is critical because there is no profit margin to support an afterpurchase support system. The other key is to have lined up a low-overhead distribution channel that can get this package to the target market effectively.
      9. Just as the visionaries drive the development of the early market, so do the pragmatists drive the development of the mainstream market. Winning their support is not only the point of entry but the key to long-term dominance. But having done so, you cannot take the market for granted. To maintain leadership in a mainstream market, you must at least keep pace with the competition. It is no longer necessary to be the technology leader, nor is it necessary to have the very best product. But the product must be good enough, and should a competitor make a major breakthrough, you have to make at least a catch-up response.
      10. The key to making a smooth transition from the pragmatist to the conservative market segments is to maintain a strong relationship with the former, always giving them an open door to go to the new paradigm, while still keeping the latter happy by adding value to the old infrastructure. It is a balancing act to say the least, but properly managed the earnings potential in loyal mature market segments is very high indeed.
      11. So the corollary lesson is, we must use our experience with the pragmatist customer segment to identify all the issues that require service and then design solutions to these problems directly into the product.
      12. In sum, the pragmatists are loath to buy until they can compare. Competition, therefore, becomes a fundamental condition for purchase. So, coming from the early market, where there are typically no perceived competing products, with the goal of penetrating the mainstream, you often have to go out and create your competition. Creating the competition is the single most important marketing decision made in the battle to enter the mainstream. It begins with locating your product within a buying category that already has some established credibility with the pragmatist buyers. That category should be populated with other reasonable buying choices, ideally ones with which the pragmatists are already familiar. Within this universe, your goal is to position your product as the indisputably correct buying choice.
      13. In sum, to the pragmatist buyer, the most powerful evidence of leadership and likelihood of competitive victory is market share. In the absence of definitive numbers here, pragmatists will look to the quality and number of partners and allies you have assembled in your camp, and their degree of demonstrable commitment to your cause.
    4. Late Majority
      1. Simply put, the early majority is willing and able to become technologically competent, where necessary; the late majority, much less so. When a product reaches this point in the market development, it must be made increasingly easier to adopt in order to continue being successful. If this does not occur, the transition to the late majority may well stall or never happen.
    5. Laggards
      1. Skeptics—the group that makes up the last one-sixth of the Technology Adoption Life Cycle—do not participate in the high-tech marketplace, except to block purchases. Thus, the primary function of high-tech marketing in relation to skeptics is to neutralize their influence. In a sense, this is a pity because skeptics can teach us a lot about what we are doing wrong
  3. The D-Day Strategy – Choose a Target Niche
    1. Entering the mainstream market is an act of aggression. The companies who have already established relationships with your target customer will resent your intrusion and do everything they can to shut you out. The customers themselves will be suspicious of you as a new and untried player in their marketplace. No one wants your presence. You are an invader. This is not a time to focus on being nice. As we have already said, the perils of the chasm make this a life-or-death situation for you. You must win entry to the mainstream, despite whatever resistance is posed. That’s it. That’s the strategy. Replicate D Day, and win entry to the mainstream. Cross the chasm by targeting a very specific niche market where you can dominate from the outset, force your competitors out of that market niche, and then use it as a base for broader operations. Concentrate an overwhelmingly superior force on a highly focused target. It worked in 1944 for the Allies, and it has worked since for any number of high-tech companies.
    2. The D-Day strategy prevents this mistake. It has the ability to galvanize an entire enterprise by focusing it on a highly specific goal that is (1) readily achievable and (2) capable of being directly leveraged into long-term success. Most companies fail to cross the chasm because, confronted with the immensity of opportunity represented by a mainstream market, they lose their focus, chasing every opportunity that presents itself, but finding themselves unable to deliver a salable proposition to any true pragmatist buyer. The D-Day strategy keeps everyone on point—if we don’t take Normandy, we don’t have to worry about how we’re going to take Paris. And by focusing our entire might on such a small territory, we greatly increase our odds of immediate success.
      1. This isn’t rocket science, but it does represent a kind of discipline. And it is here that high-tech management shows itself most lacking. Most high-tech leaders, when it comes down to making marketing choices, will continue to shy away from making niche commitments, regardless. Like marriage-averse bachelors, they may nod in all the right places and say all the right things, but they will not show up when the wedding bells chime.
      2. “Never attack a fortified hill.” Same with beachheads. If some other company got there before you, all the market dynamics that you are seeking to make work in your favor are already working in its favor. Don’t go there.
    3. One of the most important lessons about crossing the chasm is that the task ultimately requires achieving an unusual degree of company unity during the crossing period. This is a time when one should forgo the quest for eccentric marketing genius, in favor of achieving an informed consensus among mere mortals. It is a time not for dashing and expensive gestures but rather for careful plans and cautiously rationed resources—a time not to gamble all on some brilliant coup but rather to focus everyone on making as few mistakes as possible. One of the functions of this book, therefore-and perhaps its most important one-is to open up the logic of marketing decision making during this period so that everyone on the management team can participate in the marketing process. If prudence rather than brilliance is to be our guiding principle, then many heads are better than one. If marketing is going to be the driving force-and most organizations insist this is their goal—then its principles must be accessible to all the players, and not, as is sometimes the case, be reserved to an elect few who have managed to penetrate its mysteries.
    4. The consequences of being sales-driven during the chasm period are, to put it simply, fatal.
    5. Segment. Segment. Segment. One of the other benefits of this approach is that it leads directly to you “owning” a market. That is, you get installed by the pragmatists as the leader, and from then on, they conspire to help keep you there. This means that there are significant barriers to entry for any competitors, regardless of their size or the added features they have in their product. Mainstream customers will, to be sure, complain about your lack of features and insist you upgrade to meet the competition. But, in truth, mainstream customers like to be “owned”—it simplifies their buying decisions, improves the quality and lowers the cost of whole product ownership, and provides security that the vendor is here to stay. They demand attention, but they are on your side. As a result, an owned market can take on some of the characteristics of an annuity—a building block in good times, and a place of refuge in bad—with far more predictable revenues and far lower cost of sales than can otherwise be achieved.
    6. For all these reasons—for whole product leverage, for word-of-mouth effectiveness, and for perceived market leadership—it is critical that, when crossing the chasm, you focus exclusively on achieving a dominant position in one or two narrowly bounded market segments. If you do not commit fully to this goal, the odds are overwhelmingly against your ever arriving in the mainstream market.
    7. The key to moving beyond one’s initial target niche is to select strategic target market segments to begin with. That is, target a segment that, by virtue of its other connections, creates an entry point into a larger segment. For example, when the Macintosh crossed the chasm, the target niche was the graphics arts department in Fortune 500 companies. This was not a particularly large target market, but it was one that was responsible for a broken, mission-critical process—providing presentations for executives and marketing professionals.
    8. The niche wins—presuming the beachhead strategy is conducted correctly—by getting a fix for its specialized problem. And the vendor wins because it gets certified by at least one group of pragmatists that its offering is mainstream. So, because of the dynamics of technology adoption, and not because of any niche properties in the product itself, platforms must take a vertical market approach to crossing the chasm even though it seems unnatural.
    9. The answer is that when you are picking a chasm-crossing target it is not about the number of people involved, it is about the amount of pain they are causing. In the case of the pharmaeutical industry’s regulatory affairs function, the pain was excruciating.
    10. This is a standard pattern in crossing the chasm. It is normally the departmental function who leads (they have the problem), the executive function who prioritizes (the problem is causing enterprise-wide grief), and the technical function that follows (they have to make the new stuff work while still maintaining all the old stuff).
    11. The more serious the problem, the faster the target niche will pull you out of the chasm. Once out, your opportunities to expand into other niches are immensely increased because now, having one set of customers solidly behind you, you are much less risky to back as a new vendor.
  4. Next Target Segment
    1. The second key is to have lined up other market segments into which you can leverage your initial niche solution. This allows you to reinterpret the financial gain in crossing the chasm. It is not about the money you make from the first niche: It is the sum of that money plus the gains from all subsequent niches. It is a bowling alley estimate, not just a head pin estimate, that should drive the calculation of gain.
    2. First you divide up the universe of possible customers into market segments. Then you evaluate each segment for its attractiveness. After the targets get narrowed down to a very small number, the “finalists,” then you develop estimates of such factors as the market niches’ size, their accessibility to distribution, and the degree to which they are well defended by competitors.
    3. Now, the biggest mistake one can make in this state is to turn to numeric information as a source of refuge or reassurance. You need to understand that informed intuition, rather than analytical reason, is the most trustworthy decision-making tool to use. The key is to understand how intuition—specifically, informed intuition—actually works. Unlike numerical analysis, it does not rely on processing a statistically significant sample of data in order to achieve a given level of confidence. Rather, it involves conclusions based on isolating a few high-quality images—really, data fragments—that it takes to be archetypes of a broader and more complex reality. These images simply stand out from the swarm of mental material that rattles around in our heads. They are the ones that are memorable. So the first rule of working with an image is: If you can’t remember it, don’t try, because it’s not worth it. Or, to put this in the positive form: Only work with memorable images.
    4. Target-customer characterization is a formal process for making up these images, getting them out of individual heads and in front of a marketing decision-making group. The idea is to create as many characterizations as possible, one for each different type of customer and application for the product. (It turns out that, as these start to accumulate, they begin to resemble one another so that, somewhere between 20 and 50, you realize you are just repeating the same formulas with minor tweaks, and that in fact you have outlined 8 to 10 distinct alternatives.)
    5. It is extremely difficult to cross the chasm in consumer market. Almost all successful crossings happen in business markets, where the economic and technical resources can absorb the challenges of an immature product and service offering.
    6. The elements you need to capture are five:
      1. Scene or situation: Focus on the moment of frustration. What is going on? What is the user about to attempt?
      2. Desired outcome: What is the user trying to accomplish? Why is this important?
      3. Attempted approach: Without the new product, how does the user go about the task?
      4. Interfering factors: What goes wrong? How and why does it go wrong?
      5. Economic consequences: So what? What is the impact of the user failing to accomplish the task productively?
  5. Whole Product Package
    1. Systems integrators could just as easily be called whole product providers—that is their commitment to the customer.
    2. The whole product model provides a key insight into the chasm phenomenon. The single most important difference between early markets and mainstream markets is that the former are willing to take responsibility for piecing together the whole product (in return for getting a jump on their competition), whereas the latter are not.
    3. Tactical alliances have one and only one purpose: to accelerate the formation of whole product infrastructure within a specific target market segment. The basic commitment is to codevelop a whole product and market it jointly. This benefits the product manager by ensuring customer satisfaction. It benefits the partner by providing expanded distribution into a hitherto untapped source of sales opportunities.
    4. To sum up, whole product definition followed by a strong program of tactical alliances to speed the development of the whole product infrastructure is the essence of assembling an invasion force for crossing the chasm. The force itself is a function of actually delivering on the customer’s compelling reason to buy in its entirety. That force is still rare in the high-tech marketplace, so rare that, despite the overall high-risk nature of the chasm period, any company that executes a whole product strategy competently has a high probability of mainstream market success.
    5. Review the whole product from each participant’s point of view. Make sure each vendor wins, and that no vendor gets an unfair share of the pie. Inequities here, particularly when they favor you, will instantly defeat the whole product effort—companies are naturally suspicious of each other anyway, and given any encouragement, will interpret your entire scheme as a rip-off.
    6. The fundamental rule of engagement is that any force can defeat any other force—if it can define the battle. If we get to set the turf, if we get to set the competitive criteria for winning, why would we ever lose? The answer, depressingly enough, is because we don’t do it right. Sometimes it is because we misunderstand either our own strengths and weaknesses, or those of our competitors. More often, however, it is because we misinterpret what our target customers really want, or we are afraid to step up to the responsibility of making sure they get it.
  6. Distribution
    1. The number-one corporate objective, when crossing the chasm, is to secure a channel into the mainstream market with which the pragmatist customer will be comfortable.
    2. In other words, during the chasm period, the number-one concern of pricing is not to satisfy the customer or to satisfy the investors, but to motivate the channel.
    3. To sum up, when crossing the chasm, we are looking to attract customer-oriented distribution, and one of our primary lures will be distribution-oriented pricing.
    4. When functioning at its best, within the limits just laid out, direct sales is the optimal channel for high tech. It is also the best channel for crossing the chasm.
    5. All other things being equal, however, direct sales is the preferred alternative because it gives us maximum control over our own destiny.
    6. First and foremost, the retail system works optimally when its job is to fulfill demand rather than to create it.
  7. Positioning
    1. To sum up, your market alternative helps people identify your target customer (what you have in common) and your compelling reason to buy (where you differentiate). Similarly, your product alternative helps people appreciate your technology leverage (what you have in common) and your niche commitment (where you differentiate). Thus you create the two beacons that triangulate to teach the market your positioning.
    2. You can keep yourself from making most positioning gaffes if you will simply remember the following principles:
      1. Positioning, first and foremost, is a noun, not a verb. That is, it is best understood as an attribute associated with a company or a product, and not as the marketing contortions that people go through to set up that association.
      2. Positioning is the single largest influence on the buying decision. It serves as a kind of buyers’ shorthand, shaping not only their final choice but even the way they evaluate alternatives leading up to that choice. In other words, evaluations are often simply rationalizations of preestablished positioning.
      3. Positioning exists in people’s heads, not in your words. If you want to talk intelligently about positioning, you must frame a position in words that are likely to actually exist in other people’s heads, and not in words that come straight out of hot advertising copy.
      4. People are highly conservative about entertaining changes in positioning. This is just another way of saying that people do not like you messing with the stuff that is inside their heads. In general, the most effective positioning strategies are the ones that demand the least amount of change.
    3. Given all of the above, it is then possible to talk about positioning as a verb—a set of activities designed to bring about positioning as a noun. Here there is one fundamental key to success: When most people think of positioning in this way, they are thinking about how to make their products easier to sell. But the correct goal is to make them easier to buy. Think about it, most people resist selling but enjoy buying. By focusing on making a product easy to buy, you are focusing on what the customers really want. In turn, they will sense this and reward you with their purchases. Thus, easy to buy becomes easy to sell. The goal of positioning, therefore, is to create a space inside the target customer’s head called “best buy for this type of situation” and to attain sole, undisputed occupancy of that space. Only then, when the green light is on, and there is no remaining competing alternative, is a product easy to buy.
  8. Pricing
    1. Set pricing at the market leader price point, thereby reinforcing your claims to market leadership (or at least not undercutting them), and build a disproportionately high reward for the channel into the price margin, a reward that will be phased out as the product becomes truly established in the mainstream, and competition for the right to distribute it increases.
  9. Other
    1. So how can we guarantee passing the elevator pitch test? The key is to define your position based on the target segment you intend to dominate and the value proposition you intend to dominate it with. Within this context, you then set forth your competition and the unique differentiation that belongs to you and that you expect to drive the buying decision your way. Here is a proven formula for getting all this down into two short sentences. Try it out on your own company and one of its key products. Just fill in the blanks:
      1. For (target customers—beachhead segment only) who are dissatisfied with (the current market alternative), our product is a (new product category) that provides (key problem-solving capability). unlike (the product alternative), we have assembled (key whole product features for your specific application).
    2. So building relationships with business press editors, initially around a whole product story, is a key tactic in crossing the chasm.
    3. The purpose of the postchasm enterprise is to make money. This is a much more radical statement than it appears. To begin with, we need to recognize that this is not the purpose of the prechasm organization. In the case of building an early market, the fundamental return on investment is the conversion of an amalgam of technology, services, and ideas into a replicable, manufacturable product and the proving out that there is some customer demand for this product. Early market revenues are the first measure of this demand, but they are typically not—nor are they expected to be-a source of profit.
    4. How wide is the chasm? Or, to put this in investment terms, how long will it take before I can achieve a reasonably predictable ROI from an acceptably large mainstream market? The simple answer to this question is, as long as it takes to create and install a sustainable whole product. The chasm model asserts that no mainstream market can occur until the whole product is in place.
    5. The key is to initiate the transition by introducing two new roles during the crossing-the-chasm effort. The first of these might be called the target market segment manager, and the second, the whole product manager. Both are temporary, transitional positions, with each being a stepping stone to a more traditional role. Specifically, the former leads to being an industry marketing manager, and the latter to a product marketing manager. These are their “real titles,” the ones under which they are hired, the ones that are most appropriate for their business cards. But during the chasm transition they should be assigned unique, one-time-only responsibilities, and while they are in that mode, we will use their “interim” titles. The target market segment manager has one goal in his or her short job life—to transform a visionary customer relationship into a potential beachhead for entry into the mainstream vertical market that particular customer participates
What I got out of it
  1. Awesome playbook for building out a high-tech company and framework for how to invest in them (see The Gorilla Game for further notes on the investing portion). The innovators gladly take on new technology but it is the pragmatists or the early majority who need proof of concept, who need evidence that you will be around for a while and that other respected players are using your product or service before they buy in, and they are where the real profits lie. The chasm is formed between these innovators and pragmatists and your strategy, focus, and mindset has to shift when attempting to tap into the mainstream.

Zero to One: Notes on Startups or How to Build the Future by Peter Thiel and Blake Masters

Summary
  1. If you’re purely copying someone, you haven’t truly learned from them. Of course, it’s easier to copy a model than to make something new. Doing what we already know how to do takes the world from 1 to n, adding more of something familiar. But every time we create something new, we go from 0 to 1. The act of creation is singular, as is the moment of creation, and the result is something fresh and strange.
Key Takeaways
  1. Today’s “best practices” lead to dead ends; the best paths are new and untried
  2. The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative. Indeed, the single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas
  3. Peter Thiel made the following question famous: What important truth do few people agree with you on?
    1. A good answer takes the following form: “Most people believe in x, but the truth is the opposite of x”
    2. Most answers to the contrarian question are different ways of seeing the present; good answers are as close as we can come to looking into the future
    3. His own answer to the contrarian question is that most people think the future of the world will be defined by globalization (horizontal), but the truth is that technology matters more
    4. If you can identify a delusional popular belief, you can find what lies hidden behind it: the contrarian truth
    5. Conventional beliefs only ever come to appear arbitrary and wrong in retrospect; whenever one collapses, we call the old belief a bubble. The first step to thinking clearly is to question what we think we know about the past
  4. When we think about the future, we hope for a future of progress. That progress can take one of two forms. Horizontal or extensive progress means copying things that work – going from 1 to n. Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things – going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done. The single word for vertical, 0 to 1 progress is technology
  5. Brilliant thinking is rare, but courage is in even shorter supply than genius
    1. All virtue stems from courage
  6. Startups understand you need to work with others to achieve great things but also need to stay small enough so that you actually can. A startup is the largest group of people you can convince of a plan to build a different future. A new company’s most important strength is new thinking: even more important than nimbleness, small size affords space to think. This is essential as this is what startups have to do, question received ideas and rethink businesses from scratch
  7. 4 lessons learned from the dot-com crash which still guide business thinking today
    1. Make incremental advances – grand visions inflated the bubble, so they should not be indulged. Anyone who claims to be able to do something great is suspect, and anyone who wants to change the world should be more humble. Small, incremental steps are the only safe path forward
    2. Stay lean and flexible – all companies must be “lean,” which is code for “unplanned.” You should not know what your business will do; planning is arrogant and inflexible. Instead you should try things out, “iterate,” and treat entrepreneurship as agnostic experimentation
    3. Improve on the competition – don’t try to create a new market prematurely. The only way to know you have a real business is to start with an already existing customer, so you should build your company by improving on recognizable products already offered by successful competitors
    4. Focus on product, not sales – if your product requires advertising or salespeople to sell it, it’s not good enough: technology is primarily about product development, not distribution. Bubble-era advertising was obviously wasteful, so the only sustainable growth is viral growth
    5. These lessons have become dogma in the startup world and yet the opposite principles are probably more correct: it is better to risk boldness than triviality, a bad plan is better than no plan, competitive markets destroy profits, sales matters just as much as product. The most contrarian thing of all is not to oppose the crowd but to think for yourself
  8. What valuable company is nobody building? Must create and capture value
  9. Capitalism and competition are in fact opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business
  10. Monopolists and perfect competitors both incented to lie – monopolists exaggerate the power of their competitors or reframe the situation to appear less powerful and perfect competitors under-exaggerate competition
  11. Only monopolies can transcend the brutal daily struggle for survival and put their focus where it really matters, pleasing the customer
  12. If you lose sight of the competitive reality and focus on trivial differentiating factors, you are unlikely to survive
  13. Monopolies are only bad in a static world but we have a dynamic one where companies are always innovating, competing and disrupting
  14. Competition is not healthy but it is the ideology that pervades society and distorts thinking
    1. Marx and Shakespeare provide two models for understanding almost every kind of conflict. People fight because they are different vs. fight but everyone is more or less alike. People lose sight of what really matters and become obsessed with their rivals. Rivalry causes us to overemphasize old opportunities and slavishly copy what worked in the past
  15. If you can’t beat a rival, it may be better to merge. When you have to fight though, don’t hold anything back
  16. For a company to be valuable it must grow and endure, but entrepreneurs tend to only focus on short-term growth. If you focus on the near-term above all else, you miss the most important question you should be asking: will this business still be around a decade from now? Numbers alone won’t tell you the answer; instead you must think critically about the qualitative characteristics of your business.
  17. Monopolistic characteristics – proprietary technology (must be at least 10x better than its closest substitute), network effects (standalone value from the very beginning), economies of scale, branding
  18. Building a monopoly – start small and monopolize (small group of particular people concentrated together and served by few or no competitors), scaling up (once you create and dominate a niche market, then you should gradually expand into related and slightly broader markets; sequencing markets correctly is underrated and it takes discipline to gradually expand), don’t disrupt (avoid competition as much as possible), the last will be first (moving first is a tactic, not a goal; aim to be the last mover)
  19. Indefinite/Definite and Optimism/Pessimism Quadrant
    1. Indefinite pessimists look out onto a bleak future, but he has no idea what to do about it
    2. A definite pessimist believes the future can be known, but since it will be bleak, he must prepare for it
    3. To a definite optimist, the future will be better than the present if he has plans and works to make it better
      1. Pretty much every successful person falls into this camp
    4. To an indefinite optimist, the future will be better but he doesn’t know how exactly, so he won’t make any specific plans
      1. This seems inherently unsustainable: how can the future get better if no one plans for it?
  20. Most people struggle to understand that we don’t live in a normal world, we live under a power law
    1. The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined. This implies two very strange rules for VCs. First, only invest in companies that have the potential to return the value of the entire fund. This is a scary rule, because it eliminates the vast majority of possible investments. Even quite successful companies usually succeed on a more humble scale. This leads to rule number two: because rule number one is so restrictive, there can’t be any other rules
    2. The power law means that differences between companies will dwarf differences in roles inside companies.
  21. It matters what you do and you should focus relentlessly on something you’re good at doing, but before that you must think hard about whether it will be valuable in the future
  22. Every correct answer is necessarily a secret: something important and unknown, something hard to do but doable. There are two kinds of secrets: secrets about nature and secrets about people. Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world. Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know. So when thinking about what kind of company to build, there are two distinct questions to ask: what secrets is nature not telling you? What secrets are people not telling you
  23. The more people believe in efficiency, the bigger the bubbles get
  24. A founder’s first job is to get the foundation right. You can’t build a great company on a flawed foundation
    1. Find the right co-founders and early hires, figure out ownership, possession, control, have a small board, right salary structure and bonuses, all people full-time rather than part time
    2. Success of startups correlates with lower CEO pay – build value for the long-term rather than relying on paycheck
  25. Must want to spend time with the people you work with outside the office or else the culture in this type of environment will deteriorate
  26. Recruit by selling the mission and team (not prestige, equity stake, etc.)
  27. Everyone on the team should be different in the same way
  28. Just One Thing – on the inside, every individual should be sharply distinguished by her work. Make every person in the company responsible for doing just one thing. Every employee’s one thing was unique, and everyone knew I [Thiel] would evaluate him only on that one thing. I had started doing this just to simplify the task of managing people. But then I noticed a deeper result: defining roles reduced conflicts. Most fights inside a company happen when colleagues compete for the same responsibilities. Startups face an especially high risk of this since job roles are fluid at the early stages. Eliminating competition makes it easier for everyone to build the kinds of long-term relationships that transcend mere professionalism. More than that, internal peace is what enables startups to survive at all. When a startup fails, we often imagine it succumbing to predatory rivals in a competitive ecosystem. But every company is also its own ecosystem, and factional strife makes it vulnerable to outside threats. Internal conflict is like an autoimmune disease: the technical cause of death may be pneumonia, but the real cause remains hidden from plain view.
  29. Sales and distribution tend to be undervalued by entrepreneurs who believe good product sells itself. It is best when one’s sales skill or the persuasion to buy is hidden as nobody likes being reminded they are being sold
    1. Two metrics set the limits for effective distribution. The total net profit that you earn on average over the course of your relationship with a customer (Customer Lifetime Value) must exceed the amount you spend on average to acquire a new customer (Customer Acquisition Cost). In general, the higher the price of your product, the more you have to spend to make a sale – and the more it makes sense to spend it
    2. Poor sales rather than bad product is the most common cause of failure
  30. Most valuable businesses of the future will be those which empower people rather than those trying to replace them
  31. Thiel believes that the worries about technology today are overblown. Computers are tools, not rivals and working with them will allow people to do things never before possible
  32. 7 Questions every business must answer
    1. The Engineering Question – Can you create breakthrough technology instead of incremental improvements?
    2. The Timing Question – is now the right time to start your particular business?
    3. The Monopoly Question – are you starting with a big share of a small market?
    4. The People Question – do you have the right team?
    5. The Distribution Question – do you have a way to not just create but deliver your product?
    6. The Durability Question – will your market position be defensible 10 and 20 years into the future?
    7. The Secret Question – have you identified a unique opportunity that others don’t see?
  33. Great companies have secrets – reasons for success that other people don’t see
  34. Doing something different is what’s truly good for society – and it’s also what allows a business to profit by monopolizing a new market. The best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones nobody else even tries to solve
  35. An entrepreneur can’t benefit from macro-scale insights unless his own plans begin at the micro-scale
  36. The world needs founders to push the boundaries and the trade-off is that those who tend to push the boundaries are eccentric, unusual and extreme in their views and/or behaviors
What I got out of it
  1.  Really good in-depth view on what it takes to build startups and why they’re important to the world

Modern Monopolies by Alex Moazed and Nicholas Johnson

Summary
  1. Platform companies generate value by using technology to facilitate exchanges between groups which benefits all sides and helps create new markets and expand old ones. Moazed and Johnson walk through how to build, spot and optimize platform companies in this new exciting technological era
Key Takeaways
  1. Platforms are a business model – a holistic description of the way a company creates, delivers, and captures value rather than simply a piece of technology. Platform business models often use modular modification and this leads to incorrectly use of “platform” – computing platform, product platforms, industry platforms and platform as a services are all examples
    1. They don’t own the means of production but rather create the means of connection
    2. Reduce transaction costs – search and information, bargaining, enforcement costs
    3. Encourage both sides to innovate into complementary services and consumers can also be producers
      1. Exchange vs. Maker platforms – eBay vs YouTube
    4. The complexity of the core transaction should be extremely low
    5. Commoditized industries have consistent and transparent pricing and a focus on increasing transactions
    6. Platforms do not equal technology; they have been around for thousands of years (bazaars)
    7. Platforms don’t even try to guess what customers want, they simply facilitate interactions
    8. Platforms allow groups to exchange value amongst themselves and therefore what a company owns is less important than the resources it can connect to. They create communities and markets that allow users to interact and transact. These characteristics allow platforms to expand at a pace unprecedented in human history, able to grow exponentially rather than linearly
    9. Platforms are partly so powerful because they bring hidden demand and supply into the market, therefore expanding the overall pie. Many more people use Uber than ever used taxis because it has become cheaper, more convenient and faster
    10. Most important aspect to get right is the core transaction – the set of actions producers and consumers must complete in order to exchange value. Facilitating the core transaction is the way that platforms create value
      1. At a high level, the core transaction has the same basic set of four actions
        1. Create – a producer creates value or makes it available to be consumed through the platform
        2. Connect – in every transaction, one user takes an action that sparks the exchange by connecting with the other party
        3. Consume – once consumers find the right match, they can consume the value created by the producer
        4. Compensate – consumers create value for the producer in exchange for what they consumed
          1. There is more than money to compensate – likes, reviews, ratings, shares, comments, follows, etc.
    11. 4 Core Functions – like the core transaction, the four functions evolve as a platform expands
      1. Audience building – build a liquid marketplace by attracting a critical mass of consumers and producers
      2. Matchmaking – connect the right consumers with the right producers in order to facilitate transactions and interactions. As the network grows, the task becomes exponentially more complex
      3. Providing core tools and services – build tools and services that support the core transaction by lowering transaction costs, removing barriers to entry and making the platform more valuable over time through data
      4. Creating rules and standards – set guidelines that govern which behaviors are allowed and encouraged and which are forbidden or discourage
  2. Risks
    1. It is incredibly hard to overcome the chicken and the egg network problem to reach critical mass. Until critical mass is reached, it is very hard to convince consumers to join and therefore producers in a negative cycle.
    2. Platforms don’t control the inventory
    3. Platforms don’t own their most valuable asset – their users
  3. Network Effect – present when the behavior of one user has a direct impact on the value that other users will get out of the same service. Networks are much harder to duplicate than features and many believe are the strongest economic moat of all
  4. Linear business – value flows linearly through the supply chain to the customer
  5. Battle of devices has become a war of ecosystems – generally winner take all
  6. When information processing and storage costs decline, the size of firms can increase as they can now manage much more information and make better decisions and further reduce transaction costs
  7. Connected Revolution – Four key changes flipped the world of business strategy in the late 2000s – the democratization of processing power, the declining cost of communication, the rise of ubiquitous connectivity and sensors and growing returns to scale on data analysis
  8. Loosely organized individuals can substitute entire organizations (i.e., Wikipedia)
  9. Today, often the most important resources are external to the organization, the ecosystem. Value has moved from creating products and services to facilitating connections between external producers and consumers, becoming the center of exchange. Key value add is the curation and management of the network. The firm no longer invests in production but rather in building the infrastructure and tools to support and grow a networked marketplace or community
  10. In essence, platforms are correcting market failures by more efficiently allocating resources
    1. Local knowledge is local no more and this leads to the improved possibility and efficiency of central planning
  11. Software alone is a commodity but the moat comes from a network of users, transactions or data
  12. Platforms tend to be more richly valued as they have faster growth, higher margins and higher returns on capital
  13. Platforms remove high fixed costs and bring zero marginal cost to the supply side. They become exponentially more efficient the larger they become as expenses don’t grow as fast as revenue does
  14. Finding the right market is even more important for platforms than for linear businesses because they need large markets to dominate
  15. Mostly winner-take-all but if users can switch easily the network effects weaken and the market can therefore support more than one platform
  16. Monopolistic because of usage and participation, not ownership like in the past. Platforms are natural monopolies as many platforms would lead to higher costs (of some sort) to users
  17. Regulation – it is important for government regulation to not limit the market power of these platform businesses – a move that would likely diminish overall consumer welfare – but rather to address the behavior of these businesses in specific areas of concern
  18. Biggest mistake for new platforms is trying to build multiple core transactions at once
  19. The importance of user-led innovation for platform businesses means that the traditional software company approach of building a complex, fully featured product before going to market doesn’t make much sense. Platforms should start with the simplest possible system and build from there
  20. Dynamic pricing can help create balanced, manageable growth
  21. Focus more on producers as they are more limited than consumers in a large market
  22. Find established networks to tap into
  23. Twitter is not a social platform like Facebook but a content platform
    1. Will have to solve for spam and harassment with better rules and policies in order to thrive
    2. All platforms must solve for the tendency for diminished quality as the network grows through ratings, rules, policies
  24. Important to replace individual trust with trust in the platform
  25. Tools and Services
    1. The distinction between tools and services has to do with what a platform chooses to centralize. Tools are self-service and decentralized. Anyone can use them and they don’t require ongoing involvement or assistance from the platform. Tools typically include much of the technology and software products that will help users create value connect with each other
    2. Services are centralized, and require continued involvement from the platform. Customer support is the most common example and it’s a service most platforms have to offer
    3. Tools or services that don’t line up with one of the four steps in the core transaction are often unnecessary and platform entrepreneurs often make the common mistake of trying from the start to add every tool that they think users might want
  26. Designing a platform is mostly about sociological insight and continuous behavior design
  27. Adding secondary transactions is a key way platforms scale
  28. Law of Chatroulette – when left unchecked, a network of sufficient size will naturally deteriorate in its quality of users and usage
  29. Facebook surround strategy – if a competitor had established a foothold in a certain school, Facebook would open not only at that school but on as many nearby campuses as possible
  30. A big mistake is to think that any new user is as good as any other but this is not true and means that not all growth is equally valuable and at times each new user can have a negative effect on other users. Not every potential connection in a network is relevant and some users are more valuable than you think. In other words, most network effects are local, not global
  31. A large network isn’t a moat if it is polluted with bad actors and largely removes first-mover advantages. While important, growth is not an end in itself and while incumbents have advantages over newer, smaller entrants, it only matters if it is sustainable
  32. Platforms are path dependent, the types of users your network will attract in the future depends on the composition and behavior of your network’s existing users. This path-dependent nature of networks makes platform design especially crucial early on. Who uses a platform at the start can have a big effect on its growth trajectory. You have the most leverage to shape your community and its culture when your network is still forming. A common way for new platforms to accomplish this is to limit participation to a high-value subset of users at the start. Quality begets quality
  33. Network effects ladder – the five steps on the ladder dictate the quality of a platform’s network: connection, communication, collaboration, curation and community
  34. Coordination problem – it is impossible to get everyone on each side of the network to all agree to join the network at the same time to benefit everyone. This problem is solved by incentivizing users to join via monetary subsidies, product feature subsidies and/or user sequencing (prioritizing the acquisition of certain user groups that others will want to interact with)
  35. 7 ways to solve the chicken and the egg problem
    1. Monetary Subsidies
      1. Provide security through a large, up-front investment
      2. Cooperate with industry incumbents
    2. Product Features
      1. Act as a producer – early on, platform produces own content
      2. Tap into an existing network – digital or otherwise (sororities, clubs, etc.)
    3. Monetary Subsidies and Product Features
      1. Attract high-value or celebrity users
      2. Target a user group to fill both sides
      3. Provide single-user utility – attractive enough for one side to join even if other side never does
  36. Trying to emulate the success of these types of businesses today without understanding the competitive landscape is a recipe for failure
  37. How to spot platform opportunities
    1. Look for technology that reduces transaction costs and removes gatekeepers
    2. Look for implicit or underserved networks – build on top of existing networks and behaviors; untapped sources of supply
    3. Look for large, fragmented sources of supply
  38. Potential industries where platforms will move next – healthcare (wearables especially), finance, Internet of Things
What I got out of it
  1. Great overview of what the platform business model is, how to solve the inherent chicken and egg problem and why platforms are so powerful and world-changing

What Technology Wants by Kevin Kelly

Summary
  1. Kelly takes the unusual view of describing technology as a natural system, much like biology. Technology, like living organisms, has “wants” and can transform and evolve in ways to help it achieve its goals.
Key Takeaways
  1. Kevin Kelly has long lived a very minimal and simplistic lifestyle, choosing to have very few possessions and as little technology as possible but has become known as one of the biggest proponents of certain technology. He has no cell phone, laptop and mostly bikes rather than drives. He is the founder of Wired magazine and has spent a lot of time living with the Amish
  2. As technology advances, it begins mimicking organism systems and goes through a process of disembodiment and these two are only speeding up as technology is getting more advanced. This leads Kelly to believe that technology is an extension of life and perhaps even culture. However, culture may even be limiting as the inventions of tools spurs new tools, creating a self perpetuating system.
  3. Kelly has invented a new word which is not as limiting – the technium. Technium includes art, social institutions, culture and intellectual creations of all types as well as the self perpetuating and advancing nature of technology. Kelly believes that after thousands of years, technology may be getting to the point of becoming like an autonomous organism that we don’t fully control. Like any deeply interconnected and complex system, it will self organize and self perpetuate, following many of the same rules our minds do
  4. Argues that human evolution was sped up by tools. The better the tools, the more food we could get which made us stronger, healthier, live longer and better self perpetuate. Our genes co-evolve with our inventions and in many ways we have domesticated ourselves. Shelter and technology should be thought of as extensions of the organism. We shape our environment and then our environment shapes us
  5. Technology differs from biology in that it rarely if ever truly goes extinct. Innovations and breakthroughs tend to live on and evolve into new technology. Technology can be thought of as the 7th kingdom of life
  6. Coined “exatropy” to be negative entropy or an increase in order. It resembles information and self organization. Information is a signal which makes a difference to how we think, act or behave
  7. Science and progress require a certain minimal threshold of leisure and a growing population. As more people buy the new technology it provides the funds to push even further
  8. Convergence causes technological innovations to happen simultaneously or at least nearly so. The same is found in biology with animals who have evolved similar functions but have done so independently (echolocation, bipedalism, eyes)
  9. The technium faces many of the same constraints as biological evolution, such as limited matter and energy
  10. Argues against the traditionally believed random path of evolution and for the convergent, directional nature of evolution. The universe seems to be geared towards life and complicated constructs like our minds are “improbable inevitabilities.” Homo sapiens is a tendency, not an entity. Humanity is a process, always was and always will be. Similarly, the technium is a tendency, not an entity and in continuous flux and evolution. Much like biology, the technium converges towards certain innovations and over time becomes self-organizing and gains a certain level of autonomy and even some wants
  11. Technological inevitability is seen in the seemingly endless parallel timing of inventions
  12. Entire new economy is built on technologies which require little energy and scale down well – photons, bits, frequencies. As the technology keeps getting smaller, they get increasingly closer to immaterial. Like Moore’s Law, many of these improve at around 50% per year
  13. The technium is shaped by what technology wants, by historical inventions and by people’s choices and free will
  14. When we reject technology, we reject a part of ourselves. We trust nature but hope in technology. By following what technology wants, we can better anticipate and capture its full potential
  15. Technological choices which begin as optional can slowly over time become mandatory as our reliance on the technology increases
  16. The Amish tend to be about 50 years behind technologically. They don’t want to stop progress, simply slow it down and do so by being very selective when deciding what to adopt. This time lag gives them the ability to carefully weigh the pros and cons of the new tech
  17. Selective poverty, minimalism and as little electricity as possible is an experiment everyone should undertake at least once in their life. It simplifies so much and leaves more time for leisure, building relationships and pursuing endeavors you enjoy
  18. Very few great technologies start out great or have a clear path to greatness. Technology does not know what it wants to be once it has “grown up”
  19. All technology wants to be ubiquitous but total saturation is not healthy or wanted as it leads to excessive traffic, too much pollution, etc
  20. The power of the technium lies in creating new objects which give us new choices and ultimately more freedom
  21. Some estimate that nearly 50% of the world’s organisms are parasitic and Kelly argues that this type of mutualistic relationship is increasingly the case between humans and technology. However, technology doesn’t want to simply be utilitarian, it wants to be beautiful, to become art
  22. Technology’s job is to create billions of “minds” to compute anything and everything we might need from it. Information is the fastest growing portion of the technium
  23. The technium will continue being selfish in its desire for self perpetuation but it also desires to help people understand, compute and compile information to make life easier. There are some games you play to win and some where you play to keep on playing, an infinite game. The best tactic here is to make choices which open up more choices in the future
  24. Technium’s wants are that of life and it helps amplify the thoughts of union and connection and to see reality- an infinite game worth playing. That is what technology wants
What I got out of it
  1. Better understanding what Kelly means by “technium” and how technology is coming to resemble biological, natural systems. The parallel timing of inventions across history and geographies was fascinating to learn more about – perhaps indicating the inevitability of certain technological innovations

The Gorilla Game: Picking Winners in High Technology by Geoffrey Moore, Paul Johnson and Tom Kippola

Summary
  1. Moore, Johnson and Kippola outline what the gorilla game entails and how to go about being a successful investor in the high-tech space
Key Takeaways
  1. The basic framework of the gorilla game includes
    1. Find a hypergrowth market (~100% revenue growth year over year). Hypergrowth begins after the ‘herd’ (general consumers) adopt the tech
    2. Buy a basket of potential gorillas (2-4)
    3. Consolidate these holdings into one stock once it is likely it will become the gorilla
    4. Hold for the long-term
    5. Sell only when a new category, based on an alternative technology, threatens to eradicate the gorilla’s power
  2. High tech markets develop in unique ways and this leads to more gorillas (companies with almost impenetrable moats, think Microsoft, Cisco, Intel)
    1. Chasm – time between early adopters and mass adoption
    2. Bowling alley – earliest signs of potential gorilla game, niche customers adopting tech
    3. Tornado – chaotic period where mass market begins adopting. A handful of companies are battling to become the gorilla. Goal is to identify recognizable milestones in the development of a high-tech market that the private investor can use as signals for buying and selling
    4. Main St. – after 3-5 years of tornado, main st. begins recognizing the power of the gorilla and gorilla gains even more power through variation and assimilation. Gains market share, margin share. Often loses over half its value first time its earnings miss but if a true gorilla, prudent investors use this fall to accumulate more
  3. Criteria for the gorilla game are very strict and limits potential holdings to a small universe. Must have proprietary architecture and high switching costs
  4. Discontinuous innovation is what makes the gorilla game different. These new innovations are not compatible with existing systems and therefore creates a whole new environment around it
    1. Boom because of technology adoptoin life cycle and punctuated equilibrium – change does not happen linearly which leads to hypergrowth
    2. “Hypergrowth markets, in order to scale up quickly, will often spontaneously standardize on the products from a single vendor. This simplifies the issue of creating new standards, building compatible systems, and getting a whole new set of product and service providers up to speed quickly on the new solution set. In short, it makes it much easier for the new value chain to form. The vendor on the receiving end of this spontaneous standardization enjoys an extraordinary burst in demand. Everyone wants its products because they are setting the new standard. Its competitors by contrast, must fight an uphill battle just to get considered. It makes for a huge competitive advantage.
  5. What makes the gorillas so potent and valuable is that they also increase their competitive advantage over time – law of increasing returns
  6. Important to differentiate between the early market, tornado and chasm. Before you invest, the companies have to cross the chasm and be in the tornado phase
  7. Market share tends to get set during the tornado as switching costs become too high after standards have been set
  8. Competitive Advantage Period (CAP) = power = higher returns (get more customers, keep more customers, push prices down while increasing profits)
    1. Gorillas are the ultimate value chain leaders
    2. Gorillas have the influence to outsource low-value, high cost parts of the value chain
  9. Architecture of software very important – proprietary (gorillas) vs. open
  10. Monkeys vs. Chimps – Monkeys are clones of the gorilla and chimps are gorillas without the market share or CAP but can occupy small niches
  11. Kings, princes and serfs – Kings are leaders, princes are challengers and serfs followers of the gorilla but don’t have proprietary architecture
  12. Power of gorilla corresponds to number of purchases it influences, power in own market and industry
    1. Enabling technology (capability to drive radical change in the capabilities of a user or culture) crucial in gorilla game and much more powerful than application technology
  13. Potential gorilla collisions are important to follow
  14. Barriers to entry help short term and scalability helps long-term advantage
  15. Any disruptive tech shifts leads to potential vacuums where new gorillas can emerge
  16. Gorilla stock almost always appears extremely expensive but in fact the market is almost always undervaluing a true gorilla. Therefore, this gorilla game framework is vital to know when a stock is just hot and expensive vs. when you’re dealing with an up and coming gorilla
  17. Investing is all about understanding a company’s competitive advantage
  18. Great execution which doesn’t raise competitive advantage is relatively useless
  19. P/S is a better metric than P/E for hypergrowth stocks as tracking revenues is a better indicator
  20. Market undervalues true gorillas for two reasons – true returns and the CAP are under appreciated
  21. End of tornado correction – market will over penalize gorilla if it misses earnings expectations because expectations run too high and/or the company didn’t communicate effectively
    1. Use this opportunity to add to position
    2. Protect and lower risk by selling chimps before the end of the tornado
  22. 4 mega sectors in high tech – semiconductors, services, computer systems, vertical market system. Gorilla game focuses on computer systems
  23. Can outperform market by outthinking and out reacting but out thinking is much safer, more consistent and profitable over the long-term
    1. Consistent business model and research practices to spot tornadoes
  24. Tornadoes only form when a new value chain comes into existence
  25. Questions to ask regarding value chain
    1. Can this value chain develop into a tornado mass market?
    2. If so, what conditions are currently holding it back?
    3. Are these constraining conditions likely to be removed, and by whom?
    4. If so, when is the last remaining constraint likely to be removed, and by whom?
  26. Deal with obstacles first and then enablers
  27. Adoption complexity and implementation (producer) complexity are two barriers. Must be able to produce mass quantities to meet demand and help supply hypergrowth
  28. Need killer app to provide consumers continuity and value but discontinuity in supply chain (producer’s end)
  29. 10 Rules
    1. If the category is application software, begin buying in the bowling alley
    2. If the category is enabling hardware or software, begin buying after the tornado has formed
    3. Buy a basket comprising all the gorilla candidates – usually at least two, sometimes three and normally no more than four
    4. Hold gorilla stocks for the long term. Sell only on proven substitution threat
    5. Hold application software chimp stocks as long as they exhibit potential for further market expansion. Do not hold enabling technology chimps
    6. Hold kings and princes lightly, selling individual stocks on a marketplace stumble and the category upon deceleration of hypergrowth
    7. Once it becomes clear to you that a company will never become a gorilla, sell it
    8. Money taken out of non-gorilla stocks should immediately be reinvested in the remaining gorilla candidates
    9. In a gorilla collision, hold your gorilla candidates until there has been a definitive outcome
    10. Most news has nothing to do with the gorilla game. Learn to ignore it
  30. Filters
    1. If it is not about a tornado, you don’t want to know
    2. If it is about a tornado, you want either bad news or facts (see questions above)
    3. New value chain, niche market, killer app, third party partners doing, proprietary architecture, switching costs, new tech to shorten gorilla CAP?
  31. Selling worries – focus on process and whether it was good or bad and the decision if it was good or bad, not the outcome
  32. A lot of press a great sign of gorilla status
  33. Gorilla can leverage high stock price for accretive M&A
  34. Gorilla process = SHARES
    1. Scan for trends, new categories, confirmations, exceptions, irrelevancies
    2. Hypothesize through tech magazines, website
    3. Analyze to gain sense of CAP
      1. “The focus of all these interactions should be on refining the model of the market place, drawing the maps of power, understanding the sources of competitive advantage, and anticipating how competitive dynamics might change, occasionally within categories, but more commonly because of categories colliding.”
    4. Respond – no paralysis by analysis
    5. Evaluate – invest only 4x per year
      1. Spreadsheet – revenue and earnings history going back at least 6 quarters (if available), stock price chart, current market cap, P/S, P/E, estimated market share in category
    6. Strengthen by putting additional funds into potential gorillas
  35. Don’t predict, respond
What I got out of it
  1. Awesome investing framework for investing in “gorillas” in the high-tech space. Argues that by following this framework, you can remove a lot of uncertainty and produce incredible returns by investing in companies that will have the fattest competitive advantage period

Humans are Underrated by Geoff Colvin

Summary

  1. As technology advances, people shouldn’t focus on beating computers at what they do but rather develop our most essential human abilities and interpersonal experience. The people who can emphasize and foster these skills, especially empathy, will be the most valuable members of our workforce.
Key Takeaways
  1. Many people will lose their jobs due to advancing technology and automation but that frees people up to pursue more “human” jobs and interactions
  2. The changing nature of the economy will shift the valuable sills to those which are more deeply “human” – sensing the thoughts and feelings of others, working productively in groups, building relationships, solving problems together, expressing ourselves with greater power than logic can ever achieve
  3. Computers are getting ever better at certain human abilities such as reading emotions, being creative, and even physical work like driving cars. However, this should not worry people as what we truly desire is a deep interaction with someone. A computer cannot reciprocate emotions, body language, etc. even if it “understands” what you are feeling. Human interaction is an inherent need we have and this holds the key to our value in this changing world
  4. There are certain universal human traits and understanding these will help us figure out how to best serve each other – empathy; people admire generosity and disapprove of stinginess; we all cry and make jokes; we all make music and dance; we all have a concept of fairness and reciprocity; we all have pride; we all tell stories; every society has leaders
  5. People want and need to interact with other people, to look into people’s eyes and read their body language. Interaction jobs are the fastest growing in our economy and having this skill is vital to success in any industry
  6. Rather than ask what computers can’t do, it’s much more useful to ask what people are compelled to do (and they aren’t always rational)
  7. Social networking has shown to make us less happy and satisfied with our lives. The further we get from in-person interactions, the less satisfying and productive it is
  8. Working face-to-face makes people and groups smarter, more productive, efficient and collaborative.
  9. Era of Empathy – Empathy is the foundation of all other abilities that increasingly make people valuable as technology advances. It means discerning what some other person is thinking and feeling and responding in some appropriate way. Computers, even if they “understand” our emotions through facial recognition, cannot reciprocate and empathize with us. Increased use of social media has shown to decrease empathy. Always make building relationships your top priority in any interaction. This mindset will never steer your wrong on any business or social setting
  10. Building relationships can be broken down into three parts – relationship establishment, development and engagement
  11. To build empathy in kids, read aloud to them, let them play on their own and do as much role playing as possible
  12. When somebody comes to talk to you about something difficult, never say “I understand.”
  13. In order to improve performance in any realm, you must measure everything, make the practice as real as possible and immediately review the results. You must often be brutally honest with feedback in order for people to learn as quickly and effectively as possible. The more information we get, the better decisions we can make, we can better understand and remember why something worked well or didn’t work and leads to higher motivation since they are more engaged
    1. The army, navy, air force example is amazing. The After-Action Review (AAR) literally changed the way these people train their soldiers. The margin of improvement was 5x! in an era where 5% improvement was good
  14. Technology is much less influential than the people using it (Navy, Air Force example where their way superior planes weren’t beating the Russians and Vietnamese)
  15. The good news for many people is that interpersonal skills can be learned and empathy is like any other muscle which must be “exercised” to grow
  16. After Action Review
    1. It happens immediately after the event or sometimes even during the event
    2. Everyone is involved
    3. The discussion stays focused on the issue of how well the exercise achieved its objective. What was supposed to happen and did we do it?
    4. Assess performance of everyone involved – soldiers, leaders and the group as a whole
    5. Not to assign a grade but to identify specific strengths and weaknesses that will guide future training
    6. The discussion must be brutally honest – absolute candor
  17. How you deliver a message is just as important as the message itself
  18. Paul Azinger was charged with putting together an American team for the Ryder Cup without Tiger Woods. He took a different approach and decided to group similar personality types together. Social people with social people, aggressive players with aggressive players, etc. Also, he broke the 16 man team into 4 groups which allowed the players to get to know one another more intimately. This had great success as the players were closer-knit and they ended up beating the Europeans even without Tiger
  19. The effectiveness of a group correlates highly with the social sensitivity of that group and also the number of women on it. Women are inherently more empathetic and socially sensitive than men and this will be very valuable moving forward. The number one factor in making a group effective is skill at deep human interaction. Great groups iterate a lot of ideas, interact about equally and offered both their own ideas and responding to others. Two other very important traits for a productive group is cooperativeness and generosity
  20. Generally judge and assess people’s trustworthiness in less than 1/10th of 1 second
  21. Storytelling is incredibly human and will become ever more important. The storyteller and listener’s brains align and they become connected in a very deep way
  22. Seeing stories in random events is much easier for us than not seeing stories
  23. People absolutely love happy endings and the “classic” hero structure – normal guy, issue, defeats issue and goes back to normal but is somehow changed for the better
  24. While computers are getting ever better at being creative (cooking, music, etc.) people need and love having somebody to connect with that creativity
  25. The most creative and productive groups split their time between exploring and engaging. Also, more trust lead to more creative and higher quality ideas. Groups of 2 can trust others the way larger groups often can’t and is why we often see such productivity from two people. more ideas and better judgment is what makes groups better
  26. Proximity of groups is also extremely important. Proximity leads to better communication which leads to more creativity
  27. Intrinsic motivation stimulates creativity much better than does extrinsic motivation
  28. Women are better at Reading the Mind in the Eye (RME) test. Women are empathizing whereas men are systemizing and in this world the women have a big advantage
  29. Eliminate competing for status in any group if you want them to be successful
  30. Speaks about how infotech can be utilized to built empathy and understanding others feelings through virtual reality training and other software programs
What I got out of it
  1. Really interesting read. Although technology will eliminate many jobs, what people innately desire, deep human interaction, will never disappear and will make people with empathy and are good socially ever more valuable