established business vs. innovation

Dave Long
Wed, 09 Jan 2002 10:11:39 -0800

> One more thing:  I will admit to a bit of bias in my argument:
> established businesses are (usually) not innovators;  though I'm
> far from having a convincing, general model of why this is so, it
> seems clear to me that scale-up on other dimensions is inversely
> proportional to ability to innovate.

Bingo.  Much of my argument is based
on the (observed) fact that dominant
players are not innovators.

Paraphrasing GKC, here is the general
model of why this is so:
  I believe what really happens in business is this: the old
  firm is always wrong; and the new firms are always wrong
  about what is wrong with it.  The practical form it takes
  is this: that, while the old firm may stand by some stupid
  business model, the new firm attacks it with some theory
  that turns out to be equally stupid.

Old firms are like bondholders.  They
can usually make a small fortune, but
every now and then discontinuity will
wipe them out.

New firms are like callholders.  They
may usually end up with wallpaper, but
every now and then discontinuity will
give them fantastic returns.

What is important is that scale-up on
other dimensions does not affect the
ability to innovate as much as it does
the desire.  Basically:
> the guys *with* the [existing business] are often considered to
> "not be hungry enough" to make interesting things happen.

The hungry guys try interesting things.
The fat guys laugh at them.  (and do
profitable things instead)

Most of the time, the interesting
thing fails, and LAUGH succeeds.
Some of the time, the hungry guys
LAUGH last.

If this model is not consistent with
both history and common sense, I will
drop the entire argument, otherwise
we can continue...



quick summary
established players are not innovators
- establisheds play stable strategies
- innovators play risky strategies
so even in a transparent world, they
will choose different niches

current objection
500 lb. gorillas will occupy both
their own and innovators' niches.