Platt Perspective on Business and Technology

Building a startup for what you want it to become 11: adding in disruptively innovative products and product portfolios 6

Posted in startups by Timothy Platt on January 15, 2016

This is my eleventh 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 1-10.)

I have been discussing the development and offering of innovative new products over the course of the last five installments to this series, and with a primary focus on individual new product types, and their production line and marketplace dynamics. And I have been discussing this in the context of admittedly more mature-business historical case studies as offered by multimedia content formatting, and the battle for supremacy in offering the most consumer accepted and used equipment for playing it, and for gaining the greatest market share for that industry.

I stated at the end of Part 10 that I would conclude that phase of this series-long discussion by looking into the transition from DVD and Blu-ray formats to cloud-based streaming media. And then I will shift focus from essentially single product-types and 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 in these simplified case study examples, back to the startup and early stage business context.

I begin with the shift from use of physical recording media to using the cloud and to streaming media, and with a goal of noting and discussing one pertinent detail that comes out of that story: fundamental disruptive technological change can and often does mean a fundamental shift in which businesses and types of them are even potentially positioned to gain market share for it, let alone market leadership there.

• Up until this disruptive change of the progression of them under consideration, viewer content was always inextricably linked to physical media, that had to be separately purchased and then played on specific hardware to be accessed. Movie rental businesses only reduced the costs to purchase for individual consumers for their gaining access to larger libraries of this content; these businesses had to buy all of those individual tape cassettes and then DVDs and Blu-ray disks. In either case, this often meant separate players that were connected to televisions and that was in fact the only approach generally available for viewing the content stored on tape cassettes. It also increasingly meant disk players that were built into desktop and laptop computers as first CD and then DVD formats took hold and with Blu-ray added to that as well, as that format began to take off. And all of this meant adding specifically designed and built hardware that would connect to a television or fit into an available bay in these computers and that would be designed to work with its operating system. And the manufacturers of all of this add-on hardware continued to in effect own a significant sector of the overall multimedia market with their products essential elements in enabling consumers to participate in it.
• As soon as content is stored in the cloud, consumer purchased physical storage media for it becomes obsolete and certainly as those consumers turn from older formats to this new one. And the market for such storage media of whatever format at least incrementally shrinks as each individual consumer who makes this decision, switches to using cloud-based sites for accessing and viewing this content – and at least potentially from anywhere where they can gain online access. And the market for specialized player hardware incrementally shrinks from each of these decisions too.
• Who wins here? Computer and I add smart phone manufacturers probably gain some from this but only incrementally as the same people who purchase their hardware with this capability would do so anyway, for the most part, for its other uses. No one, for example, buys a tablet computer or smart phone just to watch movies even if many use them for that, and even regularly.
• Content owners gain because online-offered content is formatted and network transmitted for the most part using open source, essentially universally accessible formats and standards, meaning they do not have to enter into anything like the restrictive contracts that they had to during the videotape format war as discussed here in Part 9.
• And of course, businesses that hold server farms dedicated to hosting cloud computing and cloud storage are well positioned to win big here. As of this writing, that means businesses such as Netflix and Hulu as more specialized entries to this field, but it also includes businesses such as Amazon and Google that were in effect already pre-positioned to enter it from having developed the necessary computer systems infrastructure for other business purposes, that they could repurpose in part in this direction.

I am going to turn next to consider portfolios of products, and developing balanced portfolios of marketable offerings that can both increase returns on investment, and reduce or at least better control costs and risk. But before doing so I am going to consider all of what I have been writing here in this multimedia-centered narrative, from a startup and early stage business perspective.

• Innovative startups always face unknowns and risk, even as they seek to create positives and success. Innovation always means stepping out of the familiar and into new territory so this is inevitable.
• Building a startup and particularly building an innovative one with new types of offerings, is all about leveraging potential value while seeking to understand, limit and control risk. What I have been writing here, in terms of larger and more established businesses, applies to the smaller and newer business context too, but with one vitally important difference. Startups and early stage businesses face these potential challenges and these potential opportunities with much fewer supporting resources; they do this without the safety net that an established business can build up for itself before attempting anything like this, in the form of reserves and an already established positive reputation.
• Returning for a moment to reconsider the videotape format war discussion of Part 9, I reiterate that RCA and their supply chain and other partner businesses in this, and Sony and theirs, each took a side in a contest that by its very nature would play out as a zero-sum game with at most, one of these sides winning all as their chosen format became the standard, and the other (or perhaps both) failing to gain ongoing market share and disappearing. And perhaps most crucially for purposes of this discussion, the two formats under market consideration there were technically close enough in performance value to be equals, and they were equally cost-effective to build for, effectively eliminating any gain from pursuing a more through due diligence review when deciding whether to enter this game or not. This was a gamble, in many respects one where either side could have won and certainly on the merits of the technology involved itself.
• The only real difference was in how these competing sides marketed their respective formats and the devices that used them, and particularly for how effectively they marketing to and negotiating exclusive rights contracts with the content providers who would or would not offer their new movies and other material through them.
• Startups have to make decisions and choices, and both for what to do and for what not to do, and always. And deciding what not to do can be even more important than deciding what to do in this. Every business should do this due diligence, and effective operations and strategy are at least as much as anything else, a matter of being able to systematically make these decisions and through processes that would increase the likelihood of success. And this example represents a situation where that due diligence before deciding on what to do or not so, was not possible, at least on the relative merits of the innovative technology alternatives in play themselves.
• Effective startups focus on and pursue opportunities where due diligence and risk management assessments can in fact quantifiably offer them at least something of an advantage in favor of success. Anything else is just gambling and of a type that cannot be sustainable long-term.
• The videotape format war was a mistake for large business enterprises to enter into and certainly as they did as that zero-sum contest. It was a disaster for any startups involved, and for that example consider any new or small business that found itself committed to one side or the other there through supply chain commitments, where their offerings to their side could only be used in their one of these two format contexts.

And with that, I turn to consider product portfolios, as now promised over the course of a succession of installments here. I will start with that in my next series installment – finally.

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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