Platt Perspective on Business and Technology

Building a startup for what you want it to become 10: adding in disruptively innovative products and product portfolios 5

Posted in startups by Timothy Platt on December 10, 2015

This is my tenth installment to a series on building a business that can become an effective and even a leading participant in its industry and its business sector, and for its targeted marketplaces (see Startups and Early Stage Businesses and its continuation Page 2, postings 186 and loosely following for Parts 1-9.)

But over the course of the last several installments to this, I have focused on innovative product decisions as carried out by more mature businesses, with wider ranging resources to fall back upon if a decision made does not work out. And as a part of that, in Part 9, I focused on what has come to be known as the videotape format war, with that primarily pitting Sony with its Betamax format against RCA with its VHS format.

The videotape format war, in game theory terms was essentially a pure zero-sum game in which one side won all, for backing what turned out to be the right format, and the other lost all for backing the one that failed and then disappeared from the marketplace. Zero-sum is inherently risky and particularly in a situation like this, where there are no objective technical or business process reasons that would have made VHS intrinsically better than Betamax, or vice versa. This means that the major manufacturers and their partner business collaborators from throughout their supply chain systems, were not in a position to be able to make meaningful due diligence decisions prior to their making a technology choice and business commitment there, to improve their odds of success when doing so.

I stated at the end of Part 9 that I would turn next to address two sets of issues, in continuation of this basic narrative. I said that I would:

• Continue my historical narrative-based discussion of video recording formats and the technology offered for playing them. And in that I stated that I would look into the transition from DVD to Blu-ray formats, and from them to streaming media as a part of that discussion.
• And I also stated that I would widen this discussion from primarily focusing on what might be seen as more individual products, or at least single product-type bottlenecks, to consider larger and more comprehensive product portfolios and particularly in a startup and early stage context. And my goal in all of this, is to tie the types of decision making processes involved here, back to the startup and early stage business context.

But my goal for this posting is to at least begin discussing the first of those two bullet points. And then after completing that phase of this overall series’ narrative I will turn to address the more general issues of product portfolios per se. And connecting the two together here in anticipation of all of this, I begin by noting that due diligence and risk management considerations are and have to be core business strategy defining considerations: considerations of the highest importance throughout for any business and at any stage of its development. That, in large part is the glue that binds all of this together.

• Putting that in Part 9 terms, effective strategy and its operational execution means actively planning and executing with a goal of avoiding becoming a negative “Sony with its Betamax” case study example, for other businesses to learn from in the years to come.

And I continue my discussion here, framing it more in terms of individual products, or at least in terms of single roll of the dice product types and with a crucial detail that I repeat from my Part 9 discussion. VHS format tape cassettes and Betamax format tape cassettes were designed and built to be incompatible for what they could be played on, forcing purchasing consumers to make an either/or decision. Unless they wanted to take on the expense of purchasing two complete and completely incompatible home entertainment systems, if they bought a player that played one of these formats they cut themselves off from being able to use the other, and from the home entertainment recorded versions of any new movies or other content that might be offered through that alternative format. And this created risk for all. I wrote of risk to the manufacturers in Part 9 that they might back the losing side of this format war. Consumers faced comparable risk, with those who chose Betamax and the Sony players that were built around it finding that they had made an investment in expensive electronic equipment that they could not get much, and then essentially any new movie content for, that they could play – at least on this system.

Now, with that lose-lose scenario is mind, let’s move forward to consider DVD technology and the shift from that to Blu-ray. And I begin with DVD diskettes themselves, and with a simple if stark point of contrast between this technology and video-tape technology. And I begin by noting that I have been oversimplifying and even misrepresenting DVD when I imply that it is or that it has been a single format. DVD is a recording technology, much as tape is and there are a variety of distinct DVD formats that can be recorded onto variations of those same size and shape diskettes (see DVD formats for a discussion of that.) But unlike the case with recording tape, DVD player manufacturers sought from the beginning to make sure that their equipment would be fully compatible with as many of these format variations as possible, and seamlessly so as far as their end user customers were concerned. A customer would simply pop in a DVD and play it.

This approach mirrors the way in which compact disk (CD) player manufacturers sought to make their equipment universally compatible with the range of CD format variations out there. And turning back to DVD players, most of them were designed and built so that they could play CD’s too, if a user wanted to play music instead of view a movie on that same equipment. Think of this as the fruit of lessons learned from the videotape format war. Design, build and market to be able to accommodate all conceivably applicable formats and format variations, to avoid Sony’s Betamax fate.

And when a next generation higher resolution and higher image and sound quality technology came out with the development of Blu-ray and its diskettes, they were build to be physically indistinguishable from earlier technology CD and DVD diskettes and intentionally so. New Blu-ray players were designed and built to be able to play older technology DVD’s too, and at the highest quality of image and sound quality that could be offered through a DVD diskette. So they played DVD’s and often better than DVD players did and certainly older ones. This meant that customers could make an investment in buying a new technology Blu-ray player without losing their investment already made in the DVD version movies and other content that they already owned. And they could try out new and more expensive Blu-ray diskettes as they chose to and at their own pace, and according to their own entertainment budgets and their willingness to invest in and use new technology per se. But even there, when these new format diskettes looked the same and played on what to the consumer are similar players, with no new learning curves for playing them, any resistance to new technology acceptance was minimized.

I am going to return to the issues of how this all applies to the startup and early stage business context, further on in this series and its discussion. But in anticipation of that, I note here that the lessons learned for more mature businesses from this story, are even more important to these smaller and less financially grounded enterprises. This means always making choices where realistic, blind spot-free due diligence is possible, and it means making these decisions on the basic of risk and opportunities assessments, and both in the short-term and for moving forward longer-term too.

The CD was a genuine innovation when it came out and so was the DVD and Blu-ray. They were all disruptive innovations and certainly in their early days. Be innovative and disruptively so where possible, but always design, develop, build, market and sell with a goal of making consumer acceptance easier and less disruptive to them. Always build and sell with a goal of advancing acceptance into and along the innovation diffusion and acceptance curve so you do not end up like Sony – where they did capture some pioneer and early adaptors but never went beyond them.

I am going to continue this discussion in a next series installment where I will look into the transition from DVD and Blu-ray formats to streaming media. And then I will move on to discuss the second of my two topics bullet points from above:

• And I also stated that I would widen this discussion from primarily focusing on what might be seen as more individual products, or at least single product-type bottlenecks, to consider larger and more comprehensive product portfolios and particularly in a startup and early stage context. And my goal in all of this, is to tie the types of decision making processes involved here, back to the startup and early stage business context.

Meanwhile, you can find this and related material at my Startups and Early Stage Businesses directory and at its Page 2 continuation.

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