Why did Microsoft miss search? Why did Sony miss portable digital music and lose out to a revolutionary entrepreneur (with the resources of a big company)? Why did Intuit not beat Mint? Why has EA had to buy its way into social gaming?
Theories abound about why entrepreneurs are able to capitalize on opportunities that incumbents miss. Here are a few of the better ones:
- Success breeds arrogance and arrogance breeds self satisfaction and a sense of invulnerability
- Incumbents don’t want to cannibalize an existing profit center with a new product that is disruptive. They bet on one in the hand vs two in the bush. The entrepreneur has none in the hand to lose.
- Incumbents tend to be larger companies and the incentive models and management structure of big companies tend to reward small incremental improvements to the status quo and place a high cost on taking large risks that have a small chance of being successful (but massive upside if they are).
To these excellent reasons I’ll add free time as one of the main competitive advantages that entrepreneurs have. Would be entrepreneurs – whether unemployed or working for someone else – have something that the CEO of an incumbent company does not have: a lot of free time with which to think very deeply while the incumbent is trying to beat last years numbers and keep the existing – potentially large – train on the tracks as their full time job.
Think of Bill Gates vs the Google founders. Gates was already running a massive – and very complicated business when the Google founders were crashing the Stanford network with the early versions of Google. Did Bill Gates lack for intellectual horsepower? financial resources? experience with the history of disruptive technology in business? competitive drive? Clearly not – rather, what he lacked was free time. His days were full of emails and meetings and the occasional offsite strategy session. How often did he get to step away from it all and clear his plate for weeks on end to let his mind roam and see new opportunities including those staring him in the face? He famously took a week or so off each year to seclude himself and read. Meanwhile, Larry and Sergei had the thoughtful – and relatively unhurried – life of grad students. With nothing else to distract them, they were able to focus all of their – rather significant – creative energies on just one thing: search. Not a couple of days or a week or even a quarter but rather years. Gates? He was busy with databases, email servers, MSN, multiple OSes etc. more than a full time job even for him. What is a wonder is not that Microsoft missed search but rather that with so many distractions they were so successful in so many businesses. (albeit, typically as a fast follower rather than innovator)
I’ve had a few such missed opportunities in my career – this one stands out: By the spring of 2003, I knew an awful lot about voice over IP (VoIP) – meaning transmitting phone calls on the Internet. Skype is pervasive today but in 2002 and 2003, making phone calls on the Internet was far from mainstream. Time flies in the world of technology so it’s easy to lose track but in 2002, even carrying a Blackberry was unusual. By early 2004 – using bleeding edge soft switches from Sonus Networks – I was running one of the larger VoIP phone switch installations in the US. During that same time, I was also buying early iPods – for myself and as gifts – and filling them with music, some of it downloaded off of the peer to peer networks that were not yet shut down. I had a Blackberry, a Friendster account and bought lots of things on Amazon, had been using a GUI since my dad bought a Mac in 1984 and the internet since 1993 (before that BBS). In short, I was, and had been for a while, a classic early adopter in addition to being an active entrepreneur.
And at that very same time, I also missed starting Skype – one of the biggest business successes of the past decade. While it’s unlikely I would have founded Skype even if I had not been preoccupied, it was not even a possibility. There was a point in time when founding Skype was possible and at that point in time, despite having the requisite skills with which to build the service, I had something more pressing to spend my time on – a full time job just keeping our existing business going and keeping the servers and switches up and running. So while I had everything that was needed to start Skype – I understood the Internet – both technically and as a long time consumer of it, I had a very clear sense of where broadband penetration was trending, and understood VoIP – the one thing I did not have was time to step back from a full time job and look for other opportunities. I almost wish we had considered building something like Skype and had rejected it. Truth is, we never even had a week to think about the emerging consumer applications for VoIP. We continued to work very hard and built a nice business but we missed one of the biggest opportunities of the past ten years.
Of course, like all hindsight, it’s all clear in retrospect. And while it’s likely that even had we been looking, we still would have missed it, it’s also the case that like most already preoccupied people, we did not even have a moment to look.
I try to remember this now and find that vacations help tap into some of that entrepreneurial perspective. With the Blackberry mostly off (by choice), fresh air, friends, family and some time to decompress, it becomes a bit easier to see more broadly. But entrepreneurial perspective is unique and should be cherished. What’s perhaps counter intuitive to first time entrepreneurs is that as the business progresses you’ll actually become busier and busier. You’ll have customers to attend to, engineering problems to react to, emails to respond to, meetings to attend, conferences to speak at, potential employees to interview. When you are just getting started, those trappings of success sound utterly fantastic – and there is a lot that is great about them – but remember that the luxury of quiet will become ever more fleeting and with it one of the unique competitive advantages of entrepreneurs.
BTW, check out Mark Suster’s excellent blog about entrepreneurship and venture capital. He’s clearly very wise and he’s giving his advice away for free.