Tag Archives: Technology

Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman, Chris Yeh

Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman, Chris Yeh

Summary

  1. Blitzscaling is when you put speed over efficiency, even in the face of uncertainty. This constant and fast feedback will help you adopt, evolve, and move forward faster than your competitors. Getting this feedback early and moving quickly on it is the name of the game – especially if you are a platform and have a two sided model. Blitzscaling is a risky decision but, if your competitor has taken this path, it is less risky than doing nothing. This book will walk you through how to do it, when to do it, why to do it, and what it looks like. The cost and inefficiencies are worth it because the downside of not doing it when new technology enables is far greater – irrelevance.

Key Takeaways

  • Blitzscaling Overview
    • Blitzscaling will help you make better decisions where speed is the ultimate super power
    • Blitzscaling works as both offense and defense – you can catch people off guard and as if you don’t, you might not survive. You can leverage your initial competitive advantage into a long-term one before the market and competitors can respond. You can get easier access to capital as investors prefer to back market leaders allowing you to further your advantage of competitors. Blitzscaling allows you to set the playing field to your advantage
  1. McKinsey found the companies that had 60% growth when they reached $100 million in revenues are 8x more likely to reach $1 billion then those who are growing at 20% of the similar size. They have first scaler advantage. At this point, the ecosystem around this massive company recognize them as the market leader and shift their behavior to better suit them which leads to positive feedback loops
  2. Startups, just like certain materials and chemicals, go through phase changes. A dominant global leader is not simply a startup times of thousand it is a fundamentally different machine. Just as ice skates are useless on water, the same tactics used in the startup may be useless once you have achieved product market fit.
  3. The five phases of Blitzscaling: Family, tribe, village, city, nation
  4. The first step is creating a business model that can grow. This sounds elementary but it’s amazing how many startup founders miss this simple piece. You must have a business model that can scale or else it’ll break before you can reach dominance. Business model innovation is more important than most people think as technology today is not the differentiator it used to be. Most great startups are like Tesla which combine existing technologies in a unique and special way rather than like Space-X where they had to invent their own technologies 
  5. Blitzscaling is a strategic innovation and hurls much common wisdom out the window. Founders should only blitzscale when they determine that the most important factor in their company’s survival is speed into the market. It is a big bet but can pay off handsomely.
  6. The revenue model don’t have to be perfect when you do it. Your only goal is scale into a market that is winner take all or winner take most. However, not every company should blitzscale if product-market fit isn’t there or if the business model isn’t there
  7. You should blitzscale when there’s a big new opportunity, when the size of the market and gross margins overlap to create potential huge value. You should also blitzscale when there is no dominant market leader or oligopoly that controls the market 
  8. Another way to think about blitzscaling is by climbing learning curves faster than others
  9. Blitzscaling is not meant to go on forever. You should stop when growth slows, when average revenue per employee slows, when gross margins begin to climb, and other similar leading indicator show that your growth is slowing. You should also slow when you are reaching the upper bounds of a market
  10. In blitzscaling mode, raise more cash (much more cash) than you think you’ll need. Typically you should try to raise enough money for 18 to 24 months of survival. When trying to raise money nothing is more powerful than not needing it. Only spend money on things which are life or death if not solved
  11. As startups blitzscale, they have to balance responsibility with their power
  12. Try to partner with currently blitzscaling companies or companies which have blitzscaled in the past
  13. Managing Growth
    1. The role and skills needed by the CEO and top management are different for every level and size of the startup. It is never static and is always changing
    2. Business model growth factors
      1. Market size – paying customers, great distribution, fixed and expanding margins
      2. Distribution – leveraging existing networks, virality
      3. High gross margins – more revenues lead to more cash on hand which can be put to use, more attractive to investors
      4. Network effects – direct, indirect, two sided, local, compatibility and standards
    3. There are two growth limiters: product market fit and operational scalability
    4. 8 key transitions 
      1. From small teams to large teams. This can be a tough psychological change for founders and early employees as it is now impossible to be part of every decision and have clarity into every department 
      2. From generalists to specialists 
      3. From managers to executives. Executives organize and lead managers and managers execute day to day operations. Hire people who are known to at least one current team member, start them small and let them prove their value and gain other’s trust, then think about promoting them
      4. From dialogue to broadcasting. Establishing formal and consistent communication is extremely important as you grow. Chesky sends out a weekly email on Sunday nights which highlight growth metrics but also give the team updates and clarity on how the company is doing and other important topics so that everyone continues to feel involved and informed
      5. From improvisation and inspiration to data. At the beginning you have no customers to listen to but over time you have to track team metrics and analyze the data so that you can improve and adapt. Track the number of user’s raw engagement and churn to begin with and then customize and go deeper as is necessary for your product or service. No company should have more than 3 to 5 metrics as more tends to lead to confusion. It doesn’t necessarily matter what data you collect but what data gets presented to decision-makers. 
      6. From single threading to multithreading. The author doesn’t know of one start up that didn’t start out as singularly focused. They can branch out from there but it is important to have a deep focus when you’re first getting started
      7. From pirate to navy. From continuous offense to a blend of offense and defense. You must strike a balance between the power of being small and nimble and the benefits of being large and having scale. Much like JBS Haldane stipulates, you are fundamentally different when you scale. You can’t run a city the same way you run a tribe and you can’t run a nation the same way you run a city
      8. From founder to leader. Your role as the founder will change as the company scales and grows and you must adapt to it or you won’t be serving the company as it needs you to. You have to keep your personal learning curve ahead of the businesses’ growth curve. There are three ways to scale yourself: delegation, amplification, and simply getting better.
    5. Doing things which don’t scale when you’re growing quickly. It might be best to find a hack that you’ll have to throw away later than taking your time and running an elegant piece of software
    6. Ignore your customers at least at this stage in your growth. You have to provide whatever customer service you can that doesn’t slow you down – most likely this will be no customer service. However, you cannot ignore culture a strong culture is really important and is defined by consistent values and actions across the company. The executive in charge of the functional area which drives the culture of the company tends to be the natural successor to the CEO
  14. Awesome analysis on Zara the clothing retailer who uses split scaling techniques. Although it is a retailer, they use speed to their advantage and focus less on efficiency
  15. Incumbents have some natural advantages such as scale, the power and resources to continuously innovate, longevity, and mergers and acquisitions but the disadvantages include poorly aligned incentives, managerial overhang, lack of risk appetite, public pressure since they’re publicly traded, etc.
  16. A good way to gauge risk is by thinking through the knowns and the unknowns and systemic risk and non-systemic risk. Therefore, you must act immediately if there’s some big systemic risk, do something short term to solve your problem, note the problem now so that you can solve it later and let it burn (if unknown and non-systemic)
  17. Instability and change are the new norm and the only way to thrive is to know that you have to adapt faster than the change around you.  Be an infinite learner, be a first responder who is willing and able to act, veer towards industries, people, and companies that are biased towards blitzscaling as this is where the fastest and biggest growth lies
  18. Other
    1. Real value is created when innovative technologies allow for innovative products / services, with an innovative business, model to emerge
    2. It’s important to differentiate between first mover advantage and first scaler advantage. First movers often die but successful first scalers tend to achieve a very powerful position
    3. Do everything by hand until it’s too painful. Then automate it
    4. Common patterns of dominant businesses:
      1. Bits versus atoms (software/digital rather than physical)
      2. Platforms
      3. Free or freemium
      4. Marketplaces
      5. Subscriptions
      6. Digital goods
      7. Newsfeeds which drive user engagement and retention
    5. You must focus on adaptation rather than optimization
    6. You should always have a plan a Plan B and plan Z that you can fall back on in case your first option doesn’t work out and then your option in case worst case scenarios come up
    7. In the early days prioritize hiring those who can add value immediately and not the absolute perfect candidate
    8. Tolerate bad management. At the beginning it is more important to move quickly than to have perfect organization and processes in place
    9. Launch a product that embarrasses you. You don’t want to wait so long until it’s perfect want to get out and see what the market thinks of it
    10. You have to listen to your customers. Not only what they say, but you also have to know when to ignore them – must learn to blend data/intuition
    11. You have to know which fires to fight which ones to say no to and which ones you actually have some control over. Only then can you know which problems to tackle and in which order. Distribution, product, customer service, operations are some of the most important

What I got out of it

  • Blitzscaling is the pursuit of growth and speed, even in the face of uncertainty. It is a big gamble but is necessary sometimes if coming to market first, fastest, and biggest gives you a shot at owning a big market. A great playbook for anybody thinking about pursuing this strategy

Increasing Returns and Path Dependence in the Economy by Brian Arthur

Summary

  1. The idea of increasing returns has come up every few decades but Brian Arthur’s precise and fully-modeled papers caused us to clearly understand what kinds of models have what kinds of implications. One outstanding characteristic of Arthur’s viewpoint is emphatically dynamic in nature. Learning by using or doing plays an essential role, as opposed to static examples of returns to scale (those based on volume-area relations). The object of study is a history. Another distinctive feature of most of the work is its stochastic character. This permits emphasis on the importance of random deviations for long-run tendencies. Other tendencies include the multiplicity of possible long-run states, depending on initial conditions and on random fluctuations over time, and the specialization (in terms of process or geographical location) in an outcome achieved. Increasing returns may also serve as a reinforcement for early leading positions and so act in a manner parallel to more standard forms of increasing returns. A similar phenomenon occurs even in individual learning, where again successes reinforce some courses of action and inhibit others, thereby causing the first to be used more intensively, and so forth. There are in all of these models opposing tendencies, some toward achieving an optimum, some toward locking in on inefficient forms of behavior. 

 Key Takeaways

  1. The papers here reflect two convictions I have held since I started work in this area. The first is that increasing returns problems tend to show common properties and raise similar difficulties and issues wherever they occur in economics. The second is that the key obstacle to an increasing returns economics has been the “selection problem” – determining how an equilibrium comes to be selected over time when there are multiple equilibria to choose from. Thus the papers here explore these common properties – common themes – of increasing returns in depth. And several of them develop methods, mostly probabilistic, to solve the crucial problem of equilibrium selection. 
  2. Arthur studied electrical engineering so was vaguely familiar with positive feedback already and became more intrigued when he read about the history of the discovery of the structure of DNA and read whatever he could about molecular biology and enzyme reactions and followed these threads back to the domain of physics. In this work, outcomes were not predictable, problems might have more than one solution, and chance events might determine the future rather than be average away. The key to this work, I realized, lay not in the domain of the science it was dealing with, whether laser theory, or thermodynamics, or enzyme kinetics. It lay in the fact that these were processes driven by some form of self-reinforcement, or positive feedback, or cumulative causation – processes, in economics terms that were driven by nonconvexities. Here was a framework that could handle increasing returns. 
    1. Great discoveries tend to come from outside the field 
  3. Polya Process – path-dependent  process in probability theory 
  4. In looking back on the difficulties in publishing these papers, I realize that I was naive in expecting that they would be welcomed immediately in the journals. The field of economics is notoriously slow to open itself to ideas that are different. The problem, I believe is not that journal editors are hostile to new ideas. The lack of openness stems instead from a belief embedded deep within our profession that economics consists of rigorous deductions based on a fixed set of foundational assumptions about human behavior and economic institutions. If the assumptions that mirror reality are indeed etched in marble somewhere, and apply uniformly to all economics problems, and we know what they are, there is of course no need to explore the consequences of others. But this is not the case. The assumptions economists need to use vary with the context of the problem and cannot be reduced to a standard set. Yet, at any time in the profession, a standard set seems to dominate. I am sure this state of affairs is unhealthy. It deters many economists, especially younger ones, from attempting approaches or problems that are different. It encourages use of the standard assumptions in applications where they are not appropriate. And it leaves us open to the charge that economics is rigorous deduction based upon faulty assumptions. At this stage of its development economics does not need orthodoxy and narrowness; it needs openness and courage. 
  5. I did not set out with an intended direction but if I have had a constant purpose it is to show that transformation, change, and messiness are natural in the economy. The increasing-returns world in economics is a world where dynamics, not statics, are natural; a world of evolution rather than equilibrium; a world or probability and chance events. Above all, it is a world of process and pattern change
  6. Positive Feedbacks in the Economy
    1. Diminishing returns, what conventional economic theory is built around, imply a single economic equilibrium point for the economy, but positive feedback – increasing returns – makes for many possible equilibrium points. There is no guarantee that the particular economic outcome selected from among the many alternatives will be the “best” one. Furthermore, once random economic events select a particular path, the choice may become locked-in regardless of the advantages of the alternatives
    2. Increasing returns do not apply across the board – agriculture and mining (resource-based portions) – are subject to diminishing returns caused by limited amounts of fertile land or high quality deposits. However, areas of the economy which are knowledge-based are largely subject to increasing returns. Even the production of aircraft is subject to increasing returns – it takes a large initial investment but each plane after that is only a fraction of the initial cost. In addition, producing more units means gaining more experience in the manufacturing process and achieving greater understanding of how to produce additional units even more cheaply. Moreover, experience gained with one product or technology can make it easier to produce new products incorporating similar or related technologies. Not only do the costs of producing high-technology products fall as a company makes more of them, but the benefits of using them increase. Many items such as computers or telecommunications equipment work in networks that require compatibility; when one brand gains a significant market share, people have a strong incentive to buy more of the same product so as to be able to exchange information with those using it already. 
    3. Timing is important too in the sense that getting into an industry that is close to being locked in makes little sense. However, early superiority does not correlate with long term fitness 
    4. Like punctuated equilibrium, most of the time the perturbations are averaged away but once in a while they become all important in tilting parts of the economy into new structures and patterns that are then preserved and built on in a fresh layer of development 
  7. Competing technologies, increasing returns, and lock-in by historical events 
    1. There is an indeterminacy of outcome, nonergodicity (path dependence where small events cumulate to cause the systems to gravitate towards that outcome rather than others). There may be potential inefficiency and nonpredictability. Although individual choices are rational, there is no guarantee that the side selected is, from any long term viewpoint, the better of the two. The dynamics thus take on an evolutionary flavor with a “founder effect” mechanism akin to that in genetics 
  8. Path dependent processes and the emergence of macrostructure 
    1. Many situations dominated by increasing returns are most usefully modeled as dynamic processes with random events and natural positive feedbacks or nonlinearities. We call these nonlinear Polya processes and show that they can model a wide variety of increasing returns and positive feedback problems. In the presence of increasing returns or self reinforcement, a nonlinear Polya process typically displays a multiplicity if possible asymptotic outcomes. Early random fluctuations cumulate and are magnified or attenuated by the inherent nonlinearities of the process. By studying how these build up as the dynamics of the process unfold over time, we can observe how an asymptotic outcomes becomes “selected” over time 
    2. Very often individual technologies show increasing returns to adoption – the more they are adopted the more is learned about them; in then the more they are improved, and the more attractive they become. Very often, too, there are several technologies that compete for shares of a “market” of potential adopters 
  9. Industry location patterns and the importance of history 
    1. This study indeed shows that it is possible to put a theoretical basis under the historical-accident-plus-agglomeration argument (mostly arbitrary location for determining where a city is established but then more people flock to it, it receives more investment, more buildings come up, etc. which leads to agglomeration and increasing returns).
  10. Information Contagion
    1. When a prospective buyer is making purchasing decisions among several available technically-based products, choosing among different computer workstations, say, they often augment whatever publicly available information they can find by asking previous purchasers about their experiences – which product they chose, and how it is working for them. This is a natural and reasonable procedure; it adds information that is hard to come by otherwise. But it also introduces an “information feedback” into the process whereby products compete for market share. The products new purchasers learn about depend on which products the previous purchasers “polled” or sampled and decided to buy. They are therefore likely to learn more about a commonly purchased product than one with few previous users. Hence, where buyers are risk-averse and tend to favor products they know more about, products that by chance win market share early on gain an information-feedback advantage. Under certain circumstances a product may come to dominate by this advantage alone. This is the information contagion phenomenon
  11. Self-Reinforcing Mechanisms in Economics
    1. Dynamical systems of the self-reinforcing or autocatalytic type – systems with local positive feedbacks – in physics, chemical kinetics, and theoretical biology tend to possess a multiplicity of asymptotic states or possible “emergent structures”. The initial starting state combined with early random events or fluctuations acts to push the dynamics into the domain of one of these asymptotic states and thus to “select” the structure that the system eventually “locks into”. 
    2. Self-reinforcing mechanisms are variants of or derive from four generic sources:
      1. Large set up or fixed costs (which give the advantage of falling unit costs to increased output)
      2. Learning effects (which act to improve products or lower their cost as their prevalence increases)
      3. Coordination effects (which confer advantages to “going along” with other economic agents taking similar action)
      4. Self-reinforcing expectations (where increased prevalence on the market enhances beliefs of further prevalence)
    3. Besides these 4 properties, we might note other analogies with physical and biological systems. The market starts out even symmetric, yet it ends up asymmetric: there is “symmetry breaking.” An “order” or pattern in market shares “emerges” through initial market “fluctuations.” The two technologies compete to occupy one “niche” and the one that gets ahead exercises “competitive exclusion” on its rival. And if one technology is inherently superior and appeals to a larger proportion of purchasers, it is more likely to persist: it possesses “selectional advantage.”
    4. Some more characteristics: multiple equilibria (multiple “solutions” are possible but the outcome is indeterminate, not unique and predictable); possible inefficiency, lock-in, path dependence
    5. We can say that the particular equilibrium is locked in to a degree measurable by the minimum cost to effect changeover to an alternative equilibrium. In many economic systems, lock-in happens dynamically, as sequential decisions “groove” out an advantage that the system finds it hard to escape from. Exiting lock-in is difficult and depends on the degree to which the advantages accrued by the inferior “equilibrium” are reversible or transferable to an alternative one. It is difficult when learning effects and specialized fixed costs are the source of reinforcement. Where coordination effects are the source of lock-in, often advantages are transferable. As long as each user has certainty that the others also prefer the alternative, each will decide independently to “switch”. Inertia must be overcome though because few individuals dare change in case others do not follow
  12. Path Dependence, Self-Reinforcement, and Human Learning
    1. There is a strong connection between increasing returns mechanisms and learning problems. Learning can be viewed as competition among beliefs or actions, with some reinforced and others weakened as fresh evidence and data are obtained. But as such, the learning process may then lock-in to actions that are not necessarily optimal nor predictable, by the influence of small events
    2. What makes this iterated-choice problem interesting is the tension between exploitation of knowledge gained and exploration of poorly understood actions. At the beginning many actions will be explored or tried out in an attempt to gain information on their consequences. But in the desire to gain payoff, the agent will begin to emphasize or exploit the “better” ones as they come to the fore. This reinforcement of “good” actions is both natural and economically realistic in this iterated-choice context; and any reasonable algorithm will be forced to take account of it. 
  13. Strategic Pricing in Markets and Increasing Returns
    1. Overall, we find that producers’ discount rates are crucial in determining whether the market structure is stable or unstable. High discount rates damp the effect of self-reinforcement and lead to a balanced market, while low discount rates enhance it and destabilize the market. Under high discount rates, firms that achieve a large market share quickly lose it again by pricing high to exploit their position for near-term profit. And so, in this case the market stabilizes. Under low discount rates, firms price aggressively as they struggle to lock in a future dominant position; and when the market is close to balanced shares, each drops its price heavily in the hope of reaping future monopoly rents. The result is a strong effort by each firm to “tilt” the market in its favor, and to hold it in an asymmetric position if successful. And so, in this case strategic pricing destabilizes the market
    2. The simple dynamics and stochastic model of market competition analyzed in this paper reveals striking properties. First, positive feedback or self-reinforcement to market share may result in bistable stationary distributions with higher probabilities assigned to asymmetric market shares. The stronger the positive feedback, the lower the probability of passing from the region of relative prevalence of one product to that of the other. Second, when producers can influence purchase probabilities by prices, in the presence of positive feedback, optimal pricing is highly state-dependent. The producers struggle for market shares by lowering prices, especially near pivot states with balanced shares. 

 What I got out of it

  1. Influential read discussing self-reinforcement, lock-in, increasing returns in knowledge-based economies/industries, path dependence, and more. Extremely applicable for business, investing, economics, learning, and more. A great mental model to have in your toolbox

The Nature of Technology: What it is and How it Evolves by Brian Arthur

Summary

  1. This book is an argument about what technology is and how it evolves. Technologies are put together from pieces – themselves technologies – that already exist. Technologies therefore share ancestry, combine more, and combined again to create further technologies. Technology evolves similar to how a coral reef builds itself from activities of small organisms – it creates itself from itself; all technologies are descended from earlier technologies. Technologies are not “inventions” that come from nowhere so in a sense, technology created itself 

Key Takeaways

  1. Technology, Evolution, Recursion, Phenomena
    1. Technologies have a recursive structure and collectively advance by capturing phenomenon and putting them to use. The economy arises from technologies and therefore issued forth from all these capturings of phenomena and subsequent combinations
    2. We are caught between two huge and unconscious forces: our deepest hope as human’s lies in technology but our deepest trust lies in nature. These forces are like tectonic plates grinding inexorably into each other in one long slow collision. The collision is not new but more than anything else it is defining our era. Technology is steadily creating the dominant issues and upheavals of our time. We are moving from an era where machines enhance the natural to one that brings in technologies that resemble or replace the natural. As we learn to use these technologies we are moving from using nature to intervening directly within nature. And so the story of the century will be about the clash between what technology offers and what we feel comfortable with. 
    3. We have great understanding about individual technologies but very little in the way of the general understanding. Much like in 1800 there was a great understanding about the family relationships among animals but few principles like evolution to hold all this knowledge together. Missing in other words is the theory of technology – an “Ology” of technology
    4. For me how technology evolves is the central question in technology because if we could understand its evolution we could understand that most mysterious of processes: innovation. Combination drives change or at least the innovation of technology. Invention proceeds from the constructive assimilation of pre-existing elements into new syntheses. So the very cumulation of earlier technologies begets further accumulation. The more there is to invent with the greater will be the number of inventions. These two pieces lead to a theory of evolution of technology that novel technologies arise by combination of existing technologies and that existing technologies beget further technologies. 
    5. Why we are seeing change, innovations, disruption at levels never before seen – there are more building blocks than ever before that can be combined and recombined in new ways, leading to new innovations. This trend seems likely only to continue
    6. The change in vision I am proposing is from standalone technologies, each with a fixed purpose, to seeing them as objects that can be formed into endless new combinations. These technologies can be easily combined and they form building blocks which can be used again and again. Technology, once a means of production, is becoming a chemistry
    7. Arthur gives three definitions of technology:
      1. A means to fulfill a human purpose
      2. An assemblage of practices and components
      3. An entire collection of devices and practices available to a culture.
      4. A means to fulfill a purpose: a device, method, or process (combination, recursiveness, reliance on a natural effect(s) 
    8. Technology consists of parts organized into component systems or modules and some of these form the central assembly and others have supporting functions. This is a general rule: what starts as a series of parts loosely strung together, if used heavily enough, congeals into a self-contained unit. The modules of technology over time become standardized units. In this sense technologies have a recursive structure as they consist of technologies within technologies all the way down to the elemental parts. There is no characteristic scale for technology as every technology stands ready, at least potentially, to become a component in further technologies at a higher level 
    9. Combination is inherently a very disciplined process as all these different modules must not only work together but further the primary function 
    10. Just like higher level technologies are composed of a series of assemblies and subassemblies, they’re also composed of a series of natural phenomenon. For example, maybe one or two phenomena such as trucks use the burning of fuel and low friction to roll or several phenomena such as detecting planets that are too far away to see directly. But, in either case, it is combinations of natural effects that we can exploit for greater technology
    11. Phenomena are the source of all technologies. In the essence of technology lies and orchestrating them to fulfill a purpose. Phenomenon or simply natural effects exist independently of humans and of technology. They have no use attached to them. The principal by contrast is the idea of use of a phenomenon for some purpose and it exist very much in the world of humans and of use. In practice, before phenomenon can be used for technology, they must be harnessed and set up to work properly. They can barely be used in raw form and must be coaxed to operate satisfactorily and may only work in a narrow range of conditions. So, the right combination of means to set them up for the purpose intended must first be found. Therefore the practical technology consists of many phenomena working together. Technology can then be thought of as a collection of phenomenon captured and put to use. In its essence a technology consist of certain phenomenon programmed for some purpose. Technology can then be seen as a metabolism where the phenomenon are the genes of technology – they interact in complex ways, converse with each other, similar to how subroutines and computer programs call each other. Biology programs genes into myriad structures and technology programs phenomena to myriad uses 
    12. I like to think of phenomena as hidden underground – not available until discovered in mind into. This is general with phenomena as a family of phenomena is mined into effect. Some covered earlier begin to create methods and understandings that help uncover later. One effect leads to another, then to another, until eventually a whole vein of related phenomenon has been mined into. A family of a facts forms a set of chambers connected by seams and passageways – one leading to another. And that is not all. The chambers in one place, one family, of the facts leads through passageways to chambers elsewhere to different families. Quantum phenomenon could not have been uncovered without the prior uncovering of the electrical phenomena. Phenomenon form a connected system of excavated chambers and passageways. The whole system underground is connected. This build out happens slowly as it earlier forms of instruments and devices help uncover later ones. In this way, the uncovering a phenomenon builds itself out of itself. Phenomena accumulate by bootstrapping their way forward. 
    13. Not every phenomenon of course has an immediate use but when a family of phenomenon is uncovered, a train of technology typically follows. 
    14. Technology is not merely applied science. It is better to say it builds both from science and from its own experience. Science is in no small part the probing of nature via instruments and methods – via technology
    15. Evolution works by new technologies forming from existing ones which act as building blocks. Sometimes these blocks come from radical innovation but novel building block elements also arise from standard day-to-day engineering. 
    16. Novel technologies come from linking, conceptually or physically, the needs of some purpose with an exploitable effect (or set of effects). Invention, we can say, consists in linking a need with some effect to satisfactorily achieve that need
    17. Technologies tend to become more complex – much more complex – as they mature. 
  2. Domains
    1. The greatest innovations are new domainings – a switching to a new cluster of technologies. They allow not only a wholly new and more efficient way to carry out a purpose but allow entirely new possibilities. As when the provision of power switched from being expressed in waterwheel technology to steam. A change in domain is the main way in which technology progresses but a novel domain may appear to have little direct importance early on. Such components and the way they are used do not just reflect the style of the times, they define the style of the times. An era does not just create technology, technology creates the era
    2. Half of the effectiveness of a domain lives in its reach. The possibilities it opens up. The other half lives in using similar combinations again and again for different purposes
    3. The domain’s grammar determines how its elements fit together and the conditions under which they fit together determines what works. Where do such grammars arise from? Well, of course ultimately from nature. Behind the grammar of electronics lies the physics of the electron motions and the laws of electrical phenomena. Big grammar determines how the elements interrelate, interact, and combine to generate structures. Grammars in large part reflect our understanding of how nature works in a particular domain. Mastery in the technology in fact is difficult to achieve because of technology grammar. Unlike a linguistic one, this grammar changes rapidly. 
    4. Domains are worlds in the sense that experts lose themselves in them. They disappear mentally into them just as we disappear into the world of English when we write a letter. They think in terms of purposes and work these backwards into individual operations in their mental world. Much as a composer works a musical theme back into the instrumental parts that will express it. Some domains have deep worlds with a lot of possibilities. What can be accomplished easily in the domain’s world constitutes that domains power. So, understanding this leads to the natural conclusion that an object or business activity to be worked on effectively must be brought into more than one world to make use of what can be accomplished in each. But there is a general lesson here: cost accumulates anywhere and activity leaves one world and enters another. Shipping a freight containers by sea is not expensive but transferring freight from the domain of rail into the shipping container world requires the cumbersome and expensive technologies of railhead, stocks, container handling cranes, and stevedoring. Such bridging technologies are usually the most awkward aspect of a domain. They create delays and bottlenecks and therefore run-up costs but they are necessary because they make the domain available in control what can enter and leave its world. We can think of a domain as containing a small number of central operations that are streamlined and cheap – maritime container transportation say. But, surrounding these on the outer edges of the domain, are the slower and more awkward technologies that allow activities to enter the world and leave it when finished – the docs and gantry cranes of that world. These in general are costly. Domains reflect the power of the worlds they create but they also reflect its limitations. There is nothing static about these worlds. What can be accomplished constantly changes as a domain evolves and as it expands its base of phenomena. One implication is that innovation is not so much a parade of inventions with subsequent adoptions. It is a constant re-expressing or redomaining of old tasks within new worlds of the possible
    5. If we can see technologies as having dynamic insides we can better understand how technology can modify themselves over their lifetime. We can see that technologies interior components are changing all the time. As better parts are substituted, materials improve, methods for construction change, the phenomenon the technology is based on are better understood, and new elements become available, its parent domain develops. So, technology is not a fixed thing that produces a few variations or updates from time to time. It is a fluid thing – dynamic, alive, highly configurable, and highly changeable overtime. The second difference lies in how we see technology’s possibilities in its collective sense. Technology does not just offer a set of limited functions. It provides a vocabulary of elements that can be put together or programmed in endlessly novel ways for endlessly novel purposes. 
  3. Design & Invention
    1. Requirements start from the key purpose and proceed outward, the needs of one assembly determining those of the next. A design is a set of compromises. Intention comes first and the means to fulfill it – the combination of components – fall in behind it. Design is expression 
    2. Many innovations and great designs do not come from genius but from an accumulation of knowledge and expertise slowly gathered over years 
    3. The search is continuous, conceptual, wide, and often obsessive. This continuous thinking allows the subconscious to work, possibly to recall an effect or concept from past experience, and it procures a subconscious alertness so that when a candidate principle or a different way to define the problem suggests itself the whisper at the door is heard. Strangely, for people who report such breakthroughs, the insight arrives whole, as if the subconscious had already put the parts together. And it arrives with a “knowing” that the solution is right – a feeling of its appropriateness, its elegance, its extraordinary simplicity. The insight comes to an individual person, not a team, for it wells always from an individual subconscious. And it arrives not in the midst of activities or in frenzied thought, but in moments of stillness. One must be open to see a purpose for what appears to be a spurious effect 
    4. At the creative heart of invention lies appropriation, some sort of mental borrowing that comes in the form of a half conscious suggestion 
    5. Invention at its core is mental association. Principles often apply across field and at the core of this mechanism – call it principle transfer – is seeing an analogy. 
    6. An emerging technology always emerges from a cumulative of previous components and functionalities already in place. This is the pyramid of causality. Particularly important is knowledge – both scientific and technical – that has cumulated over time 
    7. Origination is at bottom a linking – a linking of the observational givens of a problem with a principle (a conceptual insight) that roughly suggests these, and eventually with a complete set of principles that reproduces these. At heart, all inventions had the same mechanism: all link a purpose with a principle that will fulfill it, and all must translate that principle into working parts 
    8. A technology develops not just by the direct efforts applied to it. Many of a technology’s parts are shared by other technologies, so a great deal of development happens automatically as components improve in other uses “outside” that technology. A technology piggybacks on the external development of its components. This internal replacement is part of what makes technologies more complex as they age but so does structural deepening. Sometimes changing internal components won’t do, so adding assemblies or systems is needed. 
    9. Origination is not just a new way of doing things, but a new way of seeing things. But it threatens. It can cause an emotional mismatch between the potential of the new and security of the old. Old technologies can lock in because of this and causes a phenomenon we will call adaptive stretch. It is easier to reach for the old technology and adapt it by “stretching” it to cover the new circumstances. There is a natural cycle. A new principle arrives, begins development, runs into limitations, and its structure elaborates. The new base principle is simpler, but in due course it becomes elaborated itself. 
    10. Just as pulling on one thread of a spider’s web causes the web to stretch and reshape itself in response, so the arrival of a new technology causes the web of prices and production in the economy to stretch and reshape itself across all industries. Cheaper steel due to the Bessemer process caused railroads, construction, and heavy machinery to changed their costs and what they could offer their consumers 
    11. Innovation emerges when people are faced by problems: particular, well-specified problems. It arises as solutions to these are conceived of by people stating many means or many functionalities that they can combine. It is enhanced by funding that enables this by training and experience in myriad functionalities. By the existence of special projects and labs devoted to the study of particular problems and by local cultures which foster deep craft. But it is not a monopoly of a single region or country or people. It arises anywhere problems are studied and sufficient background exists in the pieces that will form solutions. In fact we can see that innovation has two main themes. One is this constant finding or putting together of new solutions out of existing tool boxes of pieces and practices. The other is industries constantly combining their practices and processes with functionality is drawn from newly arriving toolboxes, new domains. This second theme, like the first, is about the creation of new processes and arrangements, new means to purposes. But it is more important. This is because it is a new domain of significance. Think of the digital one – it is encountered by all industries in an economy. As this happens, the domain combines some of its offerings with arrangements native to many industries. The result is new processes and arrangements, new ways of doing things – not just in one area of application but all across the economy. 
    12. Because all technologies come from some combination of past technologies, the value of the technology lies not only in what can be done with it but also in what further possibilities it will lead to. Inventions beget more inventions as there are more possible combinations, leading to exponential growth. Even if new technologies can potentially be supplied by the combination of existing ones, they will only come into existence if there exist some need, some demand for them. Or, even better yet, opportunities for technology niches they can usefully occupy. 
  4. Other
    1. Ironically we can say that design works by combining and manipulating clichés. But, still, a beautiful design always contain some unexpected combination that shocks us with its appropriateness. 
    2. We must get comfortable with technology with non-physical effects such as organizational or behavioral effects like the monetary system, contracts, symphonies, algorithms, legal codes, and so on
    3. All explanations are constructions from simpler parts
    4. I do not believe there is any such thing as genius. Rather it is the possession of a very large quiver of functionalities and principles. 
    5. New bodies of technology tend to have their leading edge highly concentrated in one country or region as real advanced technology issues not from knowledge but from something we’ll call deep craft. It is more than knowledge. It is a set of knowing. Knowing what is likely to work and not work. Knowing what methods to use, what principles, what parameters. It derives from a shared culture of beliefs, an unspoken culture of common experience. Deep knowings in a technology can be levered into deep knowings in another. Technology proceeds out of deep understandings of phenomena and he’s become embedded as a deep set of shared knowing that reside in people and establishes itself locally and that grows over time. This is why countries that lead in science lead also in technology. And so, if a country wants to lead in advanced technology, it needs to do more than invest in industrial parks for vaguely foster innovation. It needs to build its basic science without any stated purpose of commercial use and it needs to culture that science in a stable setting with funding and encouragement. Let the science sow itself commercially and small startup companies allow these nascent ventures to grow and sprout with minimal interference. Allow the science and its commercial applications to seed new revolutions. Building a capacity for advanced technology is not like planning production in a socialist economy but more like growing a rock garden. Planting, watering, and weeding are more appropriate than five year plans
    6. Human needs are not just created by biological nerds or prosperity but are also created directly by individual technologies. Once we possess rocketry, we experience a need for space exploration. However the vast majority of niches for technology are created not from human needs but from the needs of technologies themselves. The reasons are several. For one thing every technology by its very existence sets up an opportunity for fulfilling its purpose more cheaply or efficiently. And, so, for every technology there exists always an open opportunity. And, for another, every technology requires supporting technologies to manufacture it, organize for its production and distribution, maintain it, and enhance his performance. And these require their own sub supporting technologies. The third reason technology generates needs is because they often cause problems indirectly. In this it generates needs or opportunities for solutions
    7. These technologies and their needs grow fractally. Entertainment used to consist of public speeches or shows but now novels, movies, podcasts, sports and so much more exist too. 
    8. Arthur thinks of the economy as the set of arrangements and activities by which a society satisfies its needs. The economy is an expression of its technologies. The economy in this way emerges from its technologies. It constantly creates itself out of its technologies and decides which new technologies will enter it. Notice the circular causality at work here. Technology creates the structure of the economy and the economy mediates the creation of novel technology and therefore its own creation
    9. Technologies can cause structural change in the economy and this change is fractal – it branches out at lower levels just as an embryonic arterial system branches out as it develops into smaller arteries and capillaries 
    10. The more high-tech and sophisticated technologies become, the more they become biological we are beginning to appreciate the technology is as much metabolism as mechanism. As we come to better understand biology we are steadily seeing it as more mechanistic as we better understand the mechanisms behind it. Conceptually at least, biology is becoming technology and physically technology is becoming a biology. The two are starting to close on each other and, indeed, as we move deeper into genomics, more than this, they are starting to intermingle
    11. As technology becomes more biological and generative, the economy reflects this too. In the generative economy, management derives its competitive advantage not from its stock of resources and its ability to transform these into finished goods but from its ability to translate its stock of deep expertise into ever new strategic combinations. Reflecting this, nations will prosper not so much from the ownership of resources as from the ownership of specialized scientific and technical expertise

What I got out of it

  1. A fascinating and deep read about technology, how it evolves, permeates, and builds off of itself. Some rich language and concepts to apply to many disparate fields

The Dream Machine: JCR Licklider and the Revolution that Made Computing Personal by Mitchell Waldrop

Summary

  1. Licklider was far ahead of his generation in seeing the potential for computers – for making them humane and individual, in democratizing access to information, creating a symbiosis between man and machine. It was his work in the Pentagon along with many other visionaries who made this possible – that allowed for the standalone computer with a mouse and a graphical user interface to come into existence. His desire to understand how the brain worked as a system fueled his curiosity. Lick went on to form the ARPA Information Processing Techniques Office in 1962 and started the research funding for interactive computing and pervasive worldwide networks that has resulted in most of the technology we use today and also fueled the next generations of computing researchers – many of whom became the founders and mainstays of Xerox PARC. When computers were a short step removed from mechanical data processor, Lick’s treatises on human/computer symbiosis shifted our understanding of what computers were and could be.

Key Takeaways

  1. Lick’s goal was to forge ahead with the human/computer symbiosis and create an interconnected, self-perpetuating system into a single computer network. An electronic medium to connect everyone – the ARPA net. Today it is known as the internet and everything we now associate with it
  2. JCR Licklider may be one of the most intuitive geniuses of all time. He simply saw in his head how information flowed, and how people, things, and ideas are interconnected
  3. Lick, while humble and nice, hated sloppy work, glib answers, and never took anything for granted. He was mischievous and a little anarchical. He was never satisfied with the ordinary and always pushed the limits. His grounding in psychology was essential for his later work with computers as he always tried to design the computer and how it functioned to best meet the needs of the humans operating it. Lick approached every problem as a systems problem rather than a detailed or individual problem
  4. The first high-profile project he worked on was related to acoustics for the war and his boss had a simple mantra: hire the best people, buy them the best machines money can buy, inspire them to no end, and work them 14 hours a day. With this formula they achieve nearly everything they set out to
  5. Norbert Wiener was a prodigious character at MIT. He was a genius in multiple ways, especially mathematics where he was able to use his intuition and form physical models in his head of the problem rather than merely manipulating symbols on the page. He had the hologram in the head 
  6. Alan Turing didn’t like seeing what others had accomplished before him. He preferred to reinvent the wheel and figure things out for himself. He wasted a lot of time and reinvented the wheel but he came to understand things deeply.
  7. Johnny Von Neumann’s stored program concept created software and changed computing, opening up the potential that we associate with computers today
  8. Claude Shannon thought of information through a 5 part framework: source, transmitter, communication medium, receiver, destination. This simple framework helped him think through the purpose of information and not get bogged down in details. Information ought to measure how much you learn from a given message. If you knew everything in a given message, the information content is zero. However, information and meaning is separated as it relates to computers. Shannon also proved that it is possible to get a message through with perfect fidelity no matter how much static or distortion or how faint the signal. It’ll eventually get too slow and the codes too long but it is possible to overcome noise. This is the fundamental theorem of information theory. Shannon didn’t like how information and meaning could be too easily confused so he had Von Neumann come up with a new name and he came up with one immediately: entropy. Information is entropy. It has the same formula as the physicists formula for entropy. A mathematical variable related to the flow of heat. Information is everywhere and in everything it is as old as time and ties together the mind-body problem, computation, communication, and more
  9. Lick was interested in every domain and was always pulling in new ideas from different fields. He loved novel ideas and would always push himself and others to think about things differently in order to gain new or deeper insights. While Lick has high expectations for his team, he was extremely devoted and his team knew it – he had built a tribe more than a research group. Lick optimized for creativity and productivity so cared very little for credit. He would give his ideas and insights away for others to work on and publish so that he could get more done 
  10. Understanding how our brain works brought together information theory, logic, communication, cognitive science, behavioral psychology, and much more. Two key breakthroughs were understanding chunking and that it matters tremendously how our neurons fire and are organized – not just the raw number of neurons we have
  11. When Lick was brought on to head up the new ARPA project there was no budget, no mandate, no charter. This was perfect as they could simply talk about and work on the most important questions and topics as they came up, not being pigeonholed or sucked into a specific purpose but able to adjust and adapt to everything new that was happening
  12. A key realization for Lick was that if all his visions where to come true, he had to create a self-reinforcing and self-sustaining community between all the different groups who are contributing to this project. Without this focus and insight, many of these dreams might have been lost, forgotten, or not achieved for some other reason
  13. Corvado created the first open source system which led to the software boom and the PC. Controversial at the time, he followed the dictum that if you create something useful people, will use it. This was significantly different from other utilities of the past because rather than value flowing just one way (like electricity to users), value flows two ways now: from software to user and user back to software. This had tremendous implications
  14. Lick give people plenty of space as long as they’re doing something interesting and living up to his high standards. However, if not, he can be ruthless and shut down programs that weren’t performing
  15. For all of Lick’s strengths, he was terrible administratively. Frustrating his colleagues and friends as they had to badger him for weeks or months to get anything done. And, when everything is funded by ARPA, this was a huge deal 
  16. Lick at ARPA and Bob Taylor at Xerox Parc had to learn how to find a way to get their groups all to move together, to give their groups a sense of cohesion and purpose without crushing their spontaneity and creativity. They had to set things up and create an environment where they would follow their own instincts and self-organize. This is the fundamental to dilemma of management. Bob Taylor spent years traveling and getting to know the cultures of different high performing groups and he took the time to speak to the youngest people there. Not only tp pick up their ideas but to understand what their values were and how he could cater to them.  Taylor’s style of research can be summed up as don’t just invent the future, go live in it. Don’t worry about the cost for now but whatever you invent, make sure to use it and then show others how to use it and why it’s helpful. The only mandatory program was a once weekly discussion from the program leaders about what they were doing and for an hour the other people would have at him. This created a sense of cohesion and purpose and also flushed out ideas before going too far along the wrong path. These meetings often got heated and Taylor would help turn them from “class 1” to “class 2” meetings, meaning they would go from yelling at each other to having to explain the other side‘s position to their satisfaction. This worked amazingly well to flush out ideas and improve communication.
  17. Xerox PARC’s main vision was to create the digital office, an integrated symbiosis between working man and machine. Broadly, it was split into two groups – one focused on hardware and the other on applications. Low cost, high performance and high quality graphics was a thread which ran through everything they were trying to do. Moore’s Law was just beginning to take hold and this who were still sold on time sharing began to be able to see the possibility of an individual, high powered machine for everybody
    1. There was this thread that ran through Vannevar Bush, Licklider, Doug Engelbart, Alan Kay, and others. It was the ascent of man, it was like the Holy Grail. PARC would rationalize it according to what Xerox needed but whenever they could phrase an idea to align with this path everybody’s eyes would light up, hitting a sort of resonance frequency. 
      1. Engelbart’s “Mother of All Demos” – showing off technology which set fire to the vision of the future and what could be
  18. Alan Kay was one of the key members of PARC’s team and was a prodigy from a young age. He learned to read by the age of three and read hundreds of books before going to school. By that young age he knew that a lot of what the teachers were telling him was wrong or at least that there were multiple points of view. The teachers did not like this. He never distinguished art from science and was one of the key pioneers in this field. 
  19. Good names are incredibly important for prototypes – they have to be familiar, easy to spell, easy to use, easy to understand, have a broad theme, and conjure up pleasant feelings. 
  20. Alan Kay mentions that in the history of art, it is not the adults who actually invent the new medium who do amazing things, but the first generation of kids to grow up with it who do
  21. Xerox was growing so quickly in the late 1960s and 1970s that they almost choked on their own growth. In order to survive, they had to bring in management, marketing, and finance types – mostly from IBM and Ford.  While this helped them survive their amazing growth, it also reinforced some bad lessons – that nothing exists or is useful unless it could be shown and captured on the spreadsheet and eventually this led to the demise of Xerox PARC and that era of research and innovation. Jim O’Neil became the numbers guy and shut down much of the spontaneous generation and innovation because if it didn’t meet his numbers he couldn’t “see it” and wouldn’t buy into it. When sales and finance make all the shots, the company is on a downward spiral as they are not able to innovate or think long term
  22. Xerox PARC was an Eden in many ways but what allowed them to flourish was the vision, the people, and an abundance mentality. The fact that they had money to spend and didn’t have to jump through hoops to get it. When there is scarcity you don’t have a community, you just have a bunch of people trying to survive. In 1975 Xerox’s printer and copier business was being threatened and this was their cash cow. The instinct is to keep pouring money into this in order to save it but sometimes that isn’t appropriate. You must know when to cannibalize or disrupt yourself 
  23. You always got the sense that Lick was playing. He was like a kid in a candy store. His exploratory and curious child-like mind never went away. He was not suited to be an administrator or manager but was a visionary and community builder. He encouraged people and showed them what was possible, what they were really working towards 
  24. DEC took advantage of the open architecture and was able to foster creativity and uses for their machines that they never would’ve been able to come up with. Many people loved the ability to tinker, upgrade, or personalize what they bought rather than buying a finish package from an IBM for example. Roberts and his Altera machine would follow DEC‘s lead and make it an open architecture which unleashed a wave on entrepreneurialism and garage start ups by the hundreds – filling all sorts of niches and launching some of the world’s biggest and most successful companies (such as Microsoft)

What I got out of it

  1. An incredibly fun read – detailing not only the people and the history behind the computer revolution, but the atmosphere, thinking, and optimism which fueled it

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