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Arrogance, Risk, and Resources (Or, How to Avoid Unpleasant Surprises)

by Langdon on July 20, 2014

There was recently a small article in The Economist highlighting the growth of Airbnb, the residential room-sharing service, that like Lyft and Uber, is disrupting a traditional industry.  The short piece explores how Airbnb is growing, and discusses how much of a threat this may become to hotel chains.  The signals to date are mixed, naturally – some see strong evidence that Airbnb may become a major disruptor, while others see nothing at all.

The article also mentions a vice president at the Ritz-Carlton group, who claimed that she had never even heard of Airbnb. That’s a bit surprising.

It reminds us of Nokia, which, as you know, was the global king of cell phones as recently as 2007. In those wonderful days Nokia has by far the largest market share, an enormous market cap in the stock market, tremendous confidence in the future, and everything looked sunny, even in the dead of winter in Finland when the sun was only shining for a few hours a day!

But then, disaster. The iPhone was introduced in 2007, and that was the end of Nokia. This is not a prediction of what will happen to Ritz-Carlton, but there are parallels. A friend of ours who worked at Nokia in 2007 mentioned recently that as long as six months after the iPhone came out, there were still senior executives at Nokia who had not even seen or touched one. This was in fact a point of pride among some executives, who felt invulnerable. Alas, events proved them disastrously wrong.

So when an executive of a leading firm like Ritz-Carlton proclaims ignorance of the disruptive competitor that could (but is not guaranteed to) alter the market landscape, the ominous winds of change seem to blow louder throughout the forest. Please don’t be the one who has no interest in the iPhone, nor the one who doesn’t know Airbnb from Air Brussels.

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In other news of note, The Baron Funds, a mutual fund management company based in New York, has taken a very proactive position regarding the information it shares with the public. They publish a quarterly report which we often read with great interest, and the most recent issue, dated March 31, 2014, contains a brilliant and yet quite concise description of “risk,” which we recommend.

Risk is of course one of the most fundamental issues that all innovators must deal with, and as the Baron article cogently points out, risk has many different dimensions, and each dimension must be managed in a different way. We found the explanation quite helpful.

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You are probably aware that Stanford University, which lies at the very heart of Silicon Valley, has been the birth home of a great many significant technology companies of the last century, including Hewlett-Packard, Varian, and then in more recent times Sun Microsystems (now part of Oracle), SGI, Yahoo, Cisco, and Google. It is not a coincidence that Silicon Valley’s venture capital industry is centered just a few minutes from campus.

A recent report suggests that Stanford’s aggregate economic impact has reached a staggering $3 trillion  annually, and has created more than 5 million jobs. Thousands more of today’s Stanford graduates will go on to very successful careers in the high tech industry and just about every other industry. But quite a few of them will not wait until they graduate to become entrepreneurs. In fact, there is an undercurrent of entrepreneurism that runs through the entire university, and a significant percentage of all students, undergraduate and graduate alike, are involved in one or more startups.

Consequently, there is now a cottage industry serving these students. I was on campus recently and someone handed me a small piece of paper which said “Great idea but don’t know how to plan, hire, and manage your tech team?” It went on to invite me to two day training to fill in the gaps in my knowledge.

We take this as an example of the positive spiral that takes success and builds upon it. The good attract more innovation resources, which they use to get better at innovation, which enables them to attract more resources, etc.

It’s a sweet spot to be in, and Stanford is surely sitting square in the middle of it. So, once upon a time, was Nokia. But through bad luck and arrogance their magnificent advantage was squandered. So the three themes of this blog post come together here: Pay attention to potential disruptions, don’t ignore them; understand risk and manage it well; and search for resources to make your innovation process better and better. These are three of the most important lessons for innovators, and aspiring ones as well!

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And the last point we will make here … our newest book, Agile Innovation, is due out in September. Happily, you can pre-order it now! Please click here to get your copy!

Photo:  Stanford’s d school, where students learn how to create market-changing innovations.

 

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