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MBA2713 Must Read: The Innovator's Dilemma By Clayton Christensen
00:16:42
Why do massive companies like Nokia or Blockbuster get crushed by newcomers, even when they seemed to be doing everything right? How does innovation sneak up and change the game before the big players even notice? This episode unpacks one of the most important business books of all time.
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Guys, thanks for helping me carry my Christmas tree. Zoe, this thing weighs a ton. Drew Ski, live with your legs, man. Santa. Santa, did you get my letter? He's talking to you britches. I'm not. Of course he did. Right, Santa, you know my elf Drew Ski here. He handles the nice list. And elf, I'm six' three. What everyone wants is iPhone 17 and at T Mobile you can get it on them. That center stage front camera is amazing for group selfies. Right, Mrs. Claus? I'm Mrs. Claus Claus much younger sister. And AT T Mobile, there's no trade in needed when you switch. So you can keep your old phone or give it as a gift. And the best part, you can make the switch to T Mobile from your phone in just 15 minutes. Nice. My side of the tree is slipping. Kimber, the holidays are better. AT T Mobile switch in just 15 minutes and get iPhone 17 on us with no trade in needed. And now T Mobile is available in US cellular stores with 34 monthly bill credits for well qualified customers plus tax and $35 vice connection charge credit sentinel balance due to payout earlier. Cancel Finance Agreement 256 gigs $830 eligible Ford in a new line, $100 plus a month plan with auto check out 15 minutes or less per line. Visit t mobile.com Listen. I found that the best B2B marketing gets wasted on the wrong people. So when you want to reach the right professionals, I Recommend you use LinkedIn ads. LinkedIn has grown to a network of over 1 billion professionals, including 130 million decision makers. That's people that have the ability to say yes to your offer. That's why LinkedIn has the highest B2B ROAs of all online ad networks. Spend $250 on your first campaign on LinkedIn ads and get a free $250 credit for the next one. Just go to LinkedIn.com MBA that's LinkedIn.com MBA Terms and Conditions apply. Ever wonder how the iPhone beat Nokia? Or how Netflix beat Blockbuster? Or heck, how did cars beat horses and buggies? Well, it's all about a concept called the Innovator's dilemma. In today's must read. I'm going to break down one book that explains why giants fail and scrappy newcomers that come into the market really are able to thrive and what it means for your business. Now, yes, this book hit home for me because I built, grew and sold a software company. But even if you're not in tech, no matter what market in you're in whatever you Sell if you want to be the best. This book is going to be a game changer. And that book is the Innovator's Dilemma by Clayton Christensen.
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Welcome Back to the $100 MBA Show. I'm your host, Omar Zenholm, where I deliver practical business lessons three times a week, Monday, Wednesday, and Friday, to help you start, grow and scale your business.
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Before we jump in, can I get 30 seconds of your time? We love guiding you on your business journey and we want to help even more people build their dream businesses. And so if you could hit the follow button on this podcast app, it would be greatly appreciated. It's completely free and it helps us out more than you know. Thanks. I'm going to share with you three key insights, three takeaways I got from this book that you can learn and apply right now. Number one, this is what the book is really about, and that is that great companies, they get crushed because they are improving on what today's customers want, but they're ignoring what tomorrow's customers will demand. It's a dilemma because you as a product builder, as a company owner, you're getting feedback from customers, right? And they're telling you, we would love to see this. We want that. And if you do do that, you will make more money because you are actually supplying demand. So what's the problem? Where's the danger here? Well, the problem is, is that often as business owners, we listen to our customers and we just do what they want blindly because we feel like that's just going to add revenue to the bottom line. And it will. In the short term. What we do is we start up the things that we're known for, the hits in our business. Right. But at the end of the day, when you do that, you're not really innovating. You're not really bringing in something new to the market, and you're not actually staying ahead of the game. This often looks like doubling down on what works. And I'm telling you right now, it is natural to feel like this, hey, this is working. Let's continue to do this. Let's continue to make money here. But the problem here is that you're not innovating and somebody's going to come and take your lunch because they are not just listening to customers what they want. They're actually more focused on the problems that customers are having. And they're going to solve these problems in a better way than you are, because, again, they're innovating. The best companies in the world do this to themselves. They cannibalize their own products. For example, the ipod by Apple got replaced by the iPhone. When they came out with the iPhone, they knew the ipod would not be able to be a product in their product suite anymore. No one's going to buy it anymore. But they rather cannibalize their own products than get wiped out by their competitors. The second biggest insight that is actually counterintuitive, but makes total sense that I want to share from the book, is that your disruptors, your competitors that are going to come and take your business, they're not obvious. They don't come out of the gates being amazing. They actually come out of the gates looking worse than your product. Yes, they start out worse, but they start in a place where the big players ignore, where people are not even noticing that they exist. For example, when smartphones started to have cameras in them, like if you look at the first iPhone's camera, it's horrible. No one would use that camera instead of a professional camera instead of a dslr. So camera companies were not really worried. They're like these guys, they're a phone company, they're like a technology thing. They're like a little ipod. It's not really my competitor. Real people that love great photos are always going to use my cameras. And guess what happened? The technology in those phones got better and better and better. The companies that did do this, like Apple and Samsung, they realized that, hey, yes, it's bad right now, but once this technology gets better and better, year after year, people are going to use our product because it's in their pocket all the time. And people are going to prefer to use their phones than a professional camera because it's convenient, it's easy, and it takes brilliant photos. I can tell you right now when I go traveling, this is the camera I love using. I have all these fancy cameras. I have 360 cameras. This camera is the easiest and best camera I have. And it wasn't always that way. Just a decade ago you wouldn't say that. Same thing happened in the car industry. People laughed at Tesla and laughed at electric car companies saying no one's gonna buy an electric car. The range is horrible. You can't go anywhere. It's not fast, it's not fun. No one wants to drive your car. People love driving and they're gonna want to drive gasoline cars. Guess what happened? The technology in these electric cars were horrible. In the beginning it was not great. No one you know were saying it was great. But it improved very rapidly and soon enough people prefer electric cars. On a lot of markets because they're incredibly fast. The torque is incredible. There's no gears. It's just go, you know, zero to 60 in less than three seconds in a lot of these cars and all the latest, you know, manufacturers are now just manufacturing their new cars are all electric because it's just so incredible and people want that now. So because Tesla was an innovator and started early on, when people caught on and the technology started to get better, they had a huge lead upon every other car and manufacturer. That's why Tesla is the most valuable car company in the world. If you got travel coming up, visiting family, heading abroad, or even a dream trip for the new year, imagine feeling confident greeting people in their own language. Rosetta Stone makes it easy to feel more connected and have a richer experience wherever you go. With over 30 years of expertise, Rosetta Stone makes learning a new language natural and lasting. Immerse yourself in 25 languages, get real time pronunciation, feedback and learn anywhere, desktop or mobile. 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Another example is Netflix got laughed out of the room by Blockbuster. They wanted to sell their company for a billion dollars. Blockbuster just total laughed in their face. Netflix started out by you just sending DVDs back in the mail. You would be able to rent three DVDs at a time, and then when you're finished with them, you can just go ahead and put them back in the mail. The funny thing is that they innovated because you had no kind of deadline. You can keep those for as long as you want, but you can't rent anymore until you give back one or many or all of them, right? So Netflix really innovated in this area and people realized, oh, I want to be able to have access to my media and watch it whenever I want. I don't want to feel this like, pressure of returning it after two days. And then they moved their media to the web, right? And now they have streaming services. Even when they started out, people didn't really love Netflix because Internet speeds in most homes were not that fast. So therefore it wasn't the best experience possible. You know, the, the quality of the video wasn't great. But quickly, we're talking about a matter of a few years. Internet speeds got faster and therefore Netflix became so much more convenient. You'd never have to leave your house. You don't have to go to the post office. You don't have to do anything. Blockbuster got obliterated. The crazy thing is that these little competitors, they grow quietly until suddenly they hit a tipping point and they go bananas, and they're huge. Third, big insight, the rule. It's not the tech, it's the business model. Disruption almost never comes from better technology. I think this is very, very important. It comes from a better business model, a model that is simpler, cheaper, more accessible to the customer. It's also more accessible way to deliver value to the customer. Think, for example, Amazon. Amazon's not a better bookstore. It didn't start out as a better bookstore. It was just a simpler, more accessible way to get the book. Somebody recommends a book to you, you don't have to drive down to a store. You can just order right from your phone. If you order an Uber today, it's not necessarily better than a taxi, but it's simpler, it's more accessible. It may not be cheaper, but it's just easier, right? When you reduce friction from a customer's buying journey, it's usually the choice they make. I use this example, Uber, because I travel a lot internationally, and I often use Uber because I don't know what the local situation is when it comes to taxis. You know, do I have to negotiate my rate? Is there a meter? Do I pay them up for? Is it afterwards? How much do I tip? There's all these factors that are different in every country in the world. But if you use Uber, it's unified, it's easy. I know what to expect. There's less friction here. And therefore I will use it because I'm always going to optimize for convenience. So if you really think about it, they're not really changing the product. They're not innovating with the product itself. They're changing the model within. They deliver the product to the customer. Netflix is another example, right? They didn't invent movies, they didn't invent TV shows, right? They existed beforehand, okay? And they still exist. And they still put movies that are produced by other production houses and other producers, but they change the way you consume that movie, how you consume that show. When we were building webinar ninja for 10 years, we ran into the same exact dilemma ourselves. You know, competitors were producing new features, and our users kept asking us to match those features, even if it wasn't aligned with our vision. But what I soon realized is that if I keep trying to chase the big guys in the market, you become a weaker version of them. We focused more on Simplicity, and we made it easier to use because it wasn't bloated. So our product was made for somebody who's going to be running the webinar by themselves and didn't have a team of people to manage everything behind the scenes. If you needed every bell and whistle and every feature that requires multiple people to run your webinar, then that's for a bigger team. But if you're a solopreneur, you're an author, you're a speaker, trying to sell your products or services, that's overwhelming. So we went the other way so that we don't have to compete with trying to come out with a feature every single second that would actually make our product more confusing and harder to use for our ideal customer. Right. For our customers that we were serving. And that's how we grew, by niching down and focusing on the people that we are meant to serve. So the author explains in his book, your best customers unintentionally steer you into the past. They want what's safe. They want what they know. So what does this look like? Well, it looks like them saying things like, I want more features, I want more power, I want more performance. These are the things they understand. But disruptors in the market come from less simpler, smaller, cheaper, more accessible. So as an example, you want to build a Kindle and not an iPad. An iPad does a lot. It's a lot of power, has a lot of apps, a lot of features. But the Kindle does one thing better than anybody else, and that is being a book reader. You can read books off a Kindle, and it's more enjoyable, and it's a better experience, and it's lightweight, and it's got 40 days of battery power. So it does that incredibly better than anybody else, incredibly well. So you want to focus on those types of products because that allows you to have less competitors and allows you to continue to innovate and be ahead of the curve. You're solving a problem, a specific problem. For people better than anybody else, winning isn't about improving what already exists. It's about betting on what doesn't exist. And that's where the dilemma lies. Do you focus on what your customers want today or what you believe they'll want in the future? Because you have to understand that once you start working on the future, whatever you offer is going to be not so great at the start, because it's still not there yet. But your future success depends on building the things that your current customers don't even want yet. So they won't be asking for it. So just keep that in mind. It's super important. Now, my opinion is to do what Apple has done for years is serve your customers. But a good portion of your effort, time and money is spent on the future, so they're able to continue to serve them in the future. So you're going to be releasing products and ideas and features that people will be like, oh, I didn't even know I wanted that. That's really smart. So I want to give you an exercise to put this into action this week. Do a disruption scan. Ask yourself three questions. One, what's a tiny toy in my industry everyone is ignoring? What is a small little thing that no one's actually thinking about or working on that maybe I can pay attention to? What do beginners want that experts dismiss? What are beginners in my niche looking for or need that experts don't really care about? And number three, if I had to build a product that costs 1/10 the price, what would it look like? This forces you to simplify. Your next business breakthrough is probably hiding in one of those answers. So this book, this must read book, the Innovator's Dilemma, is one of my favorites that I've read this year because it really wrangles with this idea that we all need to be aware of. Like we may fail because we're clinging to what has worked for us, what makes us money. Right? We can't continue to just do just that. The great ones, they let go of something before it's too late and they build what's next, not what's now. It's your job to balance that. One of the things that I learned from the company Atlassian, that's an Australian based company, they have a 20% rule where they spend 20% of their time in the company innovating, doing crazy new ideas and they may fail and they may not do well. It allows them to explore what's possible and what the future needs. So even if it's just 20%, you don't have to put all your eggs in one basket. You don't have to just flip your whole business and risk everything. What you can do is slowly do that. That's what Apple did. You know, they didn't just dismiss all their product lines or computers and their phones and they said, hey, okay, this device, we're going to replace it with this device in the future because we believe that's where the future is going. It's not going to be so awesome. You know, if you look at the first iPhone. I had the first iPhone. It didn't do anything very well. It actually did a lot of things poorly. The camera was poor. There was no app store. The resolution of the screen wasn't fantastic. The battery life was horrible. It was much worse than a typical phone. So it really didn't do anything well. The phone itself was not that great. You couldn't even hear phone calls. The speaker wasn't super loud. So what does that mean? It means that that was just a starting place because it turned the phone into a tablet, turned into a screen thing that no one ever saw before. It was just always this, like hard keys. And now your phone doesn't have any buttons anymore. We had one button at the time. But the point here is that they took that product line and innovated with it. They still continued to sell their laptops. They're in their desktops. And then they came out with the iPad and all that kind of stuff. So this book, I highly recommend it. Pick it up. The Innovator's Dilemma. This book is not about big companies like Netflix and how successful they are. It's a warning. It's a warning to every entrepreneur that if you don't disrupt yourself, someone else will. If this episode has given you any insights or has made you think a little bit differently about things, share it. Share with a friend. Let them know that you're thinking about them. Send them on a WhatsApp or personal message, or just tell them in person. Thank you in advance for doing that. Before I go, I want to leave you with this. This book is very challenging and I love books that challenge the way you think because it really makes you feel like, oh man, I need to do something differently because what I'm doing right now may not serve me in the future. That's scary, okay? And it's confrontational. But if you don't expose yourself to these ideas, you will get caught by surprise. You don't want that. You don't want to lose everything you worked hard on. Make sure you're continually to grow your mindset through challenging books.
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If you found today's episode helpful and you want more practical business lessons to help you start, grow and scale your business, the best thing you could do is subscribe. Subscribe to this podcast. Hit subscribe or follow on your favorite podcast app, the one that you're using right now. Whether it's Apple or Spotify or ever, you listen to podcasts by hitting subscribe, you get our next episode automatically. And it's the best way to support the show. It's absolutely free, and it's a way for you to commit to growing your business. And now that you've subscribed, I'll check you in the next episode.
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Hey, everybody, it's Rob Lowe here. If you haven't heard, I have a podcast that's called Literally with Rob Lowe. And basically it's conversations I've had that really make you feel like you're pulling up a chair at an intimate dinner between myself and people that I admire, like Aaron Sorkin or Tiffany Haddish, Demi Moore, Chris Pratt, Michael J. Fox. There are new episodes out every Thursday, so subscribe, please, and listen wherever you get your podcasts.