“Ain’t Never Caught One of Them Before”

Guest Muser:  Tom Garland, Area VP, concludes his four-part series on Customer Market Validation.

After the last three Musings on market validation, my friend Bob Cousins, a serial entrepreneur in his own right, chuckles and says, “Congratulations Tom, if some of the great entrepreneurs of our time read your Musings there would be no PC, no laser printer, no Ethernet or other countless discrete breakthrough innovations.”  The final topic of the validation Musings series is about Validation for Disruptive Technology. How do you validate a market or product concept when your target customer does not understand the practical applications of your technology or perhaps they may fear its implications?

I recently had the pleasure of attending the US premiere of “BRILLIANT! The Blinding Enlightenment of Nikola Tesla.” The production has haunted me these last few weeks. Born in 1856 and emigrated to the US in 1884, Nikola Tesla was one of the most significant inventors of our time with dozens of inventions including x-ray technology, AC power, RF oscillators and robotics, just to name a few. For the non-Tesla aware reader, here’s the short version of his story: a brilliant young penniless immigrant inventor came to America; worked for the monopolistic incumbent vendor with too much at stake to jeopardize their cash cow (GE/Thomas Edison/DC Power); got screwed over by his employer; quit; formed new company to compete against former employer; developed superior product with no legacy technology (Westinghouse/AC Power); made fortune; serially invested in new research; lost fortune; went mad; died in relative obscurity; intellectual property confiscated by FBI upon death. 

 If Nikola were alive today, what would he have thought of my past three Musings on Market Validation? Probably not much, I suspect.

Smarter men than I have written countless business tomes on the topic of disruptive innovation, such as Clayton Christensen’s Innovators Dilemma and Andy Grove’s Only the Paranoid Survive.  The basic premise is that enormous wealth generation opportunities get created when large successful incumbent vendors fail to capitalize on a new technology or business model, resulting in catastrophic consequences to their market share and possibly their viability. Large companies like AT&T ignore to their period or can't get the organization to move fast enough to take advantage of a disruption like VoIP.

The Age of Incrementalism

Frankly, we have not seen much disruptive technology in the past five years.  Customers just don’t seem to have much of an appetite for it as they recover from the hangover of technology over-indulgence in the era prior to this.  Also, the funding climate and resulting capital structures for start-ups have not encouraged a “Think Different” mentality. With the IPO door locked shut, a good outcome was a base hit M&A transaction filling some missing feature that an established vendor lacked.  As a result, the vast majority of ideas buzzing around Silicon Valley and other hot spots of Information Technology have been incremental and are easily validated or invalidated via the customer acid tests described in previous Musings.

Disruptive Signals

But, to a small degree at least, we seem to be coming out of the purely incremental innovation mode.  That means that in some cases we need to apply techniques for validating potentially disruptive ideas that are quite different from the techniques for validating incremental ideas.  Therefore, the first question you must ask yourself is “Am I disruptive or incremental?” in order to determine which playbook to operate from. 

It is “cool” to be disruptive, and therefore, there is a strong pre-disposition to filter facts and observations to convince yourself of that fact.  But if you have an incremental concept and you manage it as a disruptive one, you will almost certainly make a series of strategic and tactical errors that will be fatal.  Putting it in Geoff Moore terms, if you are entering a Tornado and are spending your time looking for Beachheads over Chasms, you are dead meat.  

My definition of truly disruptive technology is when usage behavior is permanently altered forever.... for example, after a customer experiences a new solution and exclaims, “I will never do XYZ again.”  Disruptions can permanently alter vendor landscapes and shake the customer’s status quo. 

There are some indicators and questions to ask yourself that help determine whether your idea is disruptive or not.

       Is there a fundamental economic incentive present to adopt the disruption?  (We mean 10x-100x better than today.)

       Do you believe that today’s market leaders have too much at stake and are inherently incapable or unwilling to “eat their children” to participate in the disruption?

       Are customers ready, willing and capable of changing their entrenched usage scenarios?

       Is there a shift in empowerment that gives new users unprecedented access to the disruption?

       If you are successful, will your mother or grandmother eventually hear about it and perhaps be impacted by it? 

The goal of this Musing is not to conjecture on current technologies that fit the disruptive label, although I suspect that some forms of nanotechnology, grid computing, fuel cells, and wireless mesh networks may fit the label.   I recently caught up with Paul Koontz, GP at Foundation Capital.  Paul updated me on a company called DUST Networks*, one of his portfolio companies.  DUST’s SmartMesh Networks uses very low power wireless sensors coupled with their wireless mesh networking platform for sensing and control applications. For example, imagine during an Iraqi fire-fight, an army helicopter sprinkles tiny nodes over a battlefield in a remote area to help track troop movements, update weather conditions and build portable communications infrastructure; imagine nodes measuring the sugar content of pinot noir grapes before a cold front hits; or imagine building automation, industrial monitoring and even remote security using the same platform.  That all seems pretty damn disruptive to me. 

WARNING: Don’t force fit the disruptive label.  Yes, it’s “cool” to be disruptive.  But not all disruptive ideas are valuable and certainly many incremental ideas are.  The key isn’t to try and be in one category or another but to determine which you are in and then use the proper techniques for validating and developing the concept.

Disruption Validation

There is no science to validating disruptive technology.  Frankly, sometimes it is a leap of faith and no methodology pontificated by a consultant like me is a sure thing.  The problem is that often it is very difficult to validate in advance a truly disruptive technology because the customer has to experience the technology impact first hand and then have their behavior changed.  The rules are all different since there are no known large incumbent vendors or other start-up competitors to emulate or critique.  Much of validation is spent on education, anticipating behavioral or usage mode changes, probing and floating trial concepts to see what comes back.  Zero time is spent on the length of the feature list and the list price.  It is important to recognize that in certain cases a technology may be disruptive, but the customer may not be ready for it because they are unable or unwilling to be on the bleeding edge of the transition.

This often leads to “circular logic” where an entrepreneur who wants to be disruptive uses poor customer feedback as the evidence of the disruptive nature of his idea!  The problem is that often this is also a symptom of a bad incremental idea.  Again, this is why it is important to be objective about the disruptive/incremental label.

TIPS ON VALIDATING DISRUPTIVE TECHNOLOGIES

There Need to be Early Signs of a Market Somewhere

Let’s not forget in the validation process, you are using other people’s money which by definition is finite.  The VC model just simply doesn’t work unless there is some available market within a 24 to 36 month window.

Paul mentioned that the DUST board spends a lot of time developing a disciplined approach to validating potential market opportunities, so they don’t get too far down the path ahead of the market and revenue. The initial market TAM (Total Available Market) does not have to be huge, but it does need to be an indicator. Technology often spills over from some other unrelated market and creates new and existing opportunities in unexpected places.  Who would have thought that a DARPA grant to explore alternative communication systems in the event of a nuclear attack would have ultimately resulted in Amazon.com?  In DUST’s case, the founding team had been around the military and DOD applications from an academia perspective and recognized the commercial applicability of the technology before others had a chance to exploit.

The challenge for DUST is to filter the most relevant applications that will yield early revenue traction to grow or bridge to other markets that will drive sustainable revenue. In the beginning, validation will be both push driven (i.e. here is what we think is a good application let’s go find someone to validate) and pull driven (i.e. sifting through the unsolicited inquiries from the outside).

Target the “Visionaries”

An important validation tip: have the wisdom to know whose opinions matter.  In the case of a disruptive idea, the last people you want to talk to are operations people or others for whom the cost-of-change is a primary non-motivator.  You need to talk to the visionaries.

Who are they?  Where can I find them?  A visionary is someone inside of a company who often has a high IQ, is strongly opinionated, possesses an innate ability to piece seemingly unrelated business and technical building blocks into a passionate vision, and, oh yeah, are often exasperated that others can’t see how obvious their vision is. Visionaries are critically needed inside of big companies, but they can be troublemakers. They constantly question the status quo, much to the chagrin of senior management who are often focused on the next 90 days in the quarter.  Perhaps the poster child for a visionary is Jim Clark, founder of SGI, Netscape, Healtheon/WebMD, Neoteris, Shutterfly,etc. Jim saw the technical computing market as a niche and recent advancements in integrating graphics algorithms into commodity silicon were going to rob SGI of their stranglehold on the high end 3D graphics market.  He single handedly dragged SGI kicking and screaming into the consumer and interactive TV markets with deals with Nintendo and Time Warner.  Unfortunately, SGI could never see beyond their core markets which were evaporating.   One memorable moment at SGI for me was getting Jim’s idea on a project I had been working on for six months around developing a single board computer for kiosks and arcade machines. Jim, silent during most of my presentation, uttered seven classic words I will never forget, “This is a pimple on my ass.”   Given his next few jobs, I guess he was right.

Don’t Ever Use PowerPoint

Virtually 100% of the time, Visionaries will be completely bored and will be writing on the white board anyway.  I am not quite sure why this happens. It could be that Visionaries grasp the idea more quickly than most mortals; maybe it is a control thing; or maybe they subliminally think if you had time to make nice charts that you can’t creatively think on your feet, hence making your idea, by definition, non-disruptive.  At the end of most of these meetings, my head usually hurts because the meetings have a complete non-linear progression, and topics are fairly random.  It is only until we meet again or we have time to reflect on what was said that the light bulb goes on.

The key validation trick with Visionaries is to internalize their world view and assimilate other data points.  If they are consistent, figure out a way to become aligned with them for your mutual benefit.  This is a classic example of run as fast as you can to get out in front of the parade before it passes you by.

Lunatic Fringe or Early Adopters?

In my career, I have found Visionaries in government, military and university research labs working on applications ranging from GRID computing, scientific visualization and HPC.  Often Visionaries migrate here because there is often access to funds, general avoidance of people in suits and fewer short term time constraints to produce results.  The validation trick here is not finding these people. They are fairly accessible and often speak at conferences.  The key is making sure they are a proxy for a real market in the future.  An example of this tension is work being done on the massively geographically distributed cluster project called the TeraGrid project. This project is a joint effort between Caltech, Argonne National Labs, San Diego Supercomputing Center and the NCSA.  Hopefully, this work will advance the commercial industries’ understanding of how to scale low cost clusters and geographically distribute storage for applications like disaster recovery and pharmaceutical drug discovery.

Occasionally you do find large commercial companies with individuals whose job it is to think “out of the box” and have a longer term strategic view.  Whether they are “Imagineers” or VPs of Next Generation Infrastructures, Directors of Vision, etc. treat them like gold. 

One of Acuitive’s favorites is Robert Keahey who is responsible for EDS’ Technology Strategy and Architecture.  Robert is a regular visitor to the Silicon Valley in order to keep his finger on the pulse of start-up activity.  One of Robert’s responsibilities is to make sure EDS does not miss a disruptive technology cycle and lose ground to IBM Global Services or some other large service provider to the Fortune 1000.  Robert has helped champion Data Center Markup Language (DCML), which is a vendor independent XML based spec to increase data center automation, system wide management and utility computing.  Robert’s evangelism of DCML is a part of EDS’ Agile Enterprise Framework and could have huge margin implications while offering unprecedented flexibility as a competitive weapon and avoid vendor-lock in. Another Validation tip: try and create disruptive technologies that make grand initiatives like utility computing real vs. “Market-tectures.”  I like to think a part of my job is to help keep Bob’s pipeline busy so Acuitive portfolio companies can fill some of the holes in the EDS vision.

If you can’t find visionaries that share your vision, your idea may be in trouble or it may just be a bad idea or too far ahead of it’s time. But even if you do find visionaries who share your view of the future, you are not out of the woods.  It will be up to you to think through the market opportunity associated with a shared vision, because usually the Visionaries you find who share your vision don’t care.  Sometimes these people often only build exactly one of whatever they are working on.

Form a Federation of Disrupters

Many Visionaries are keenly aware of the work of their peers...sort of like how superheroes like Spiderman keep tabs on Superman and The Hulk’s latest capers.  A neat tactic is to get these Visionaries in a room together on a regular basis.  This could be a formal Technical Advisory Board, an invitation only “Birds-of-a-Feather” at a conference (i.e. in the graphics industry every year at SIGGRAPH pow-wow) or even a focus group if you can find a geographically central location.  Why this is important is that with a room full of respected peers there is a much greater chance of consolidation of ideas and collaborative constructive feedback which could be lost in 1-1 meetings.