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Geoffrey Moore

Inside the Tornado

Summary

For those within the high tech sector, or who manage investments in these companies, this imperative translates into a series of deceptively simple questions: what can we do during a tornado to best capitalize on our opportunity? How can we tell when one is coming, and what we can do to prepare? How can we sense when it is ending, and what should we do then? Finally, going forward, how can we reframe our strategic management concepts to better accommodate tornado market dynamics in general?

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Key Takeaways

  1. The winning strategy does not just change as we move from stage to stage, it actually reverses the prior strategy. This is why this is so difficult and counterintuitive - what made you successful at an earlier stage causes failure at later stages. Early stages you must not segment, in the chasm and bowling alley you must segment, in the tornado you must not segment, on main street you must segment
  2. Truly discontinuous innovations - paradigm shifts - are new products or services that require the end user and the marketplace to dramatically change their past behavior, with the promise of gaining equally dramatic new benefits. 
  3. The only way to cross the chasm is to put all your eggs in one basket. That is, key to a winning strategy is to identify a single beachhead of pragmatist customers in a mainstream market segment and to accelerate the formation of 100% of their whole product. The goal is to win a niche foothold in the mainstream as quickly as possible - that is what is meant by crossing the chasm. Then, once in the tornado, you need to quickly switch strategies and gain mass market share at any cost, positioning your products horizontally as global infrastructure
    1. Many leaders are not cut out to lead the company through each of these phases. That's fine and to be expected, but know what stage you're in, what type of CEO you have, and when they might need to be replaced 
  4. Once any infrastructure is substantially deployed, power shifts from teh builders - the professional services firms - to the operators, or what we have come to call the transaction services firms. The key to the transaction services model is that the requisite infrastructure has already been assimilated (keeping support costs down) and amortized (minimizing ongoing investment
  5. For every stage of the technology adoption life cycle, there is an optimal business model
    1. early market - professional services. 
    2. bowling alley - application products
    3. tornado - infrastructure products - a period of mass-market adoption when the general marketplace switches over to the new infrastructure paradigm
    4. main street - transaction services
  6. This sequence of events unleashes a vortex of market demand. Infrastructure, to be useful, must be standard and global, so once the market moves to switch out the old for the new, it wants to complete this transition as rapidly as possible. All the pent-up interest in the product is thus converted into a massive purchasing binge, causing demand to vastly outstrip supply. Companies grow at hypergrowth rates, with billions of dollars of revenue seeming to appear from out of nowhere.
  7. Overview of the tech adoption lifecyle
    1. The forces that operate in the bowling alley argue for a niche-based strategy that is highly customer-centric
    2. Those in the tornado push in the opposite direction toward a mass-market strategy for deploying a common standard infrastructure
    3. Then on Main St., market forces push back again toward a customer-centric approach, focusing on specific adaptations of this infrastructure for added value through mass customization
    4. Given these dramatic reversals in strategy, it is imperative that organizations be able to agree on where their markets are in the life cycle
    5. In the meantime, the economic cataclysm of the tornado deconstructs and reconstructs the power structure in the market so rapidly that simply understanding who is friend and who is foe becomes a challenge
    6. Within the newly emerging market structure, companies must compete for advantage based on their status within it
    7. Positioning in this context consists of a company taking its rightful place in the hierarchy of power and defending it against challengers
    8. And finally, moving fluidly from strategy to strategy is the ultimate challenge of any organization, demanding an extraordinarily flexible response from its management team
  8. Safe path is to overinvest when invading any new segment, seeking to accelerate market leadership, and then divert resources as soon as the position is achieved
  9. Post tornado market share by revenue tends to be 50% for the gorilla, 15% for chimp 1, 15% for chimp 2, and 30% for the monkeys 
  10. The lessons that Oracle taught - attack the competition ruthlessly, expand your distribution channel as fast as possible, ignore the customer
  11. The lessons that HP taught - just ship, extend distribution channels, drive to the next lower price point
  12. The lessons that Wintel taught - recruit partners to create a powerful whole product, instituitionalize this whole product as the market leader, commoditize the whole product by designing out your partners
  13. +1 opportunities - what do we have to offer at little or no incremental cost to ourselves that the market would pay us more money for? Compelling fantasy like Nike and Mont Blanc do this better than anyone
  14. Recap
    1. Bowling alley:  product leadership, customer intimacy
    2. Tornado: product leadership, operational excellency 
    3. Main St: operational excellent, customer intimacy 
  15. Trust, it turns out, is a complicated and challenging relationship, as much so in business as in parenting or marriage. Like everything else we have been discussing in recent chapters, it is ultimately about power. The paradox of trust is that by intelligently relinquishing power, one gains it back many times over. Once you reach your persona limits, this is the only economy of scale that can help. And because hypergrowth markets will push you to your personal limits faster than most other challenges in business, this is a fitting thought on which to close this book

What I got out of it

  1. Fascinating insights into the paradoxical path that it takes to be successful with technologically disruptive companies

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