Why start-ups sometimes win

I’ve always been told that most start-ups fail — seem to recall numbers in the 95% range after five years. What’s amazing is that some do succeed and eventually replace the behemoths of their time, companies who had all the advantages that money, talent, economies of scale, established pipelines, and so on offer.

So why do the big guys (sometimes) lose? Here’s a priceless example from Chris Matyszczyk over at Cnet.com:

This is surely the greatest opportunity for the new MicroNokia. Both companies have plowed their own, sometimes lonely, road toward making products that enjoy a completely different aesthetic from Apple’s.
With time and a little more luck and taste, it’s in the aesthetic area that MicroNokia might make the swiftest progress.

One of the biggest obstacles is the imaginations of the companies involved. One brilliant phone designer told me recently that the biggest problem he faced was to persuade senior executives to accept revolutionary forms, ones that don’t look like existing products.

From “So Apple does own beautiful and sexy,” http://news.cnet.com/8301-17852_3-57613576-71/so-apple-does-own-beautiful-and-sexy/

Even Apple itself isn’t immune. As Dan Gillmor notes in The Guardian:

Apple’s iPhone may still be the slickest combination of hardware and software in the mobile market, though Android phones have grown vastly more sophisticated and easy to use. But Apple has resolutely declined to compete in one arena where the competition is kicking butt: size. While Apple tops out with a 4-inch screen, Samsung and the other phone makers are producing that lots of customers want: a bigger phone that can double, in some cases, as a small tablet.

The cause in Apple’s case may be the Maginot Line Syndrome:

Apple remains, as well, resolute in its wish to control how customers can use their devices. By restricting the sale of apps solely to its own store; by its sometimes heavy-handed treatment of third-party developers; and by any number of other actions over the years, the company has made it clear that it wants users of its products to enter a restrictive, if alluring, ecosystem that can be hard to leave.

From “Apple won the latest legal battle, but Samsung wins the size war with phablet,” http://www.theguardian.com/commentisfree/2013/nov/23/samsung-versus-apple-290-million-fine-phablet

Certainly Apple isn’t alone in this — Amazon, Samsung, and even Google try to lock you into their ecosystem. But the effect is corrosive across the board. If you think you have a “core competency” or a “barrier to entry,” you tend to want to defend it, which is an internal focus. Emphasis switches from operating inside customers’ and competitors’ OODA loops to locking phones and filing lawsuits. The courtroom replaces the showroom as the venue that occupies the board’s attention.

Tom Peters once suggested that instead of suing to protect previous innovations, companies should send technical descriptions to anybody who wants them, or patent and then license at nominal fees. What better way to insure that competitors never develop the abilities to innovate on their own? It will keep your company in fighting trim — paranoid as one might say — and always working to become leaner, quicker, and more opportunistic out in the marketplace where it counts.

21 thoughts on “Why start-ups sometimes win

  1. “One brilliant phone designer told me recently that the biggest problem he faced was to persuade senior executives to accept revolutionary forms, ones that don’t look like existing products.”
    I have to wonder if the real problem is with the designer. In other words, the real fault of a company not accepting revolutionary forms is on the designer him/her self.
    The designer is within the corporations OODA loop, so the designer needs to create a tipping point between Orientation and Decision that tips his/her way in desision making.
    He/she could possibly accomplish this by creating a moment of inertia (a z-axis if you will) that points in the other dimension the designer wants to go.
    Of course this would mean that at times that the designer must almost completely destroy how the corporation is oriented, which one could conclude that this old orientation is why the corporation “creates” this problem in the first place.

  2. I know Chet has stated that Boyd wanted people to do something, but I am having a difficult time reconciling the concept of OODA to mean that we should attempt to apply it across the board. Larry keeps referring to individual vs. company OODA loop. All I get out of that is chaos. Granted, Boyd addressed that state as being responsible for synthesis in some cases. But to apply it to designers, vs. the company being designed for seems to place business on an ever escalating conflict within itself, let alone with other competitor/adversaries. The notions of COIN within a company seem to further my disconnect with what is being supposedly described as a grand strategy. In other words, an internal COIN becomes necessary to apply the concept of OODA in a competitive (inter-company) environment. If this is true, then it certainly goes a long way to explain why corporate competition appears to be an exercise in dysfunction. As Chet and others have vividly described, the Pentagon would represent the perfect case in support of my observations. The military would represent the corporation in total, and the Pentagon would be the supposed Board of Directors”, who though internecine conflict actually manage to increase the expense of doing business, while the overall mission becomes the ancillary concern. All of which runs counter to the underlying theme of being able to accomplish the “fast transients” and gain the advantage and ultimately prevail. It seems as if the current notions of conflict are being internalized. In my mind, that is no way to bring about meaningful change and the subsequent re-harmonization necessary to sustain the upper hand in the international (let alone domestic) marketplace.
    The notion that humans can “create” anything seems to feed on the confusion. All humans really do is manipulate the environment, or elements thereof, into new patterns and applications. Chet and Col. Boyd have referred to this as “building a better snowmobile”. “Creation” is the word we apply to the process, but it is not a concept humans really understand. With regard to the design of new portable devices, the manipulation seems to be more about reinventing the wheel than actually breaking new ground. There are numerous ways that companies try to package old ideas and call them “new”. Chet probably has better insight into this as he has no doubt seen how it works with military hardware. Patterns reflect that companies want to fulfill the desire to apply the conveniences of a good design in new and easier to use forms. Bu the current design DNA only allows for a finite number of developmental manipulations. Each iteration or production run may enhance many of the most desired features while other useful features are degraded. Thus there is never 100% satisfaction among the consumers, which fuels still another design sequence. Research and Development continues from the current thread of proven technology, but it is expensive and unable to find application across the financial spectrum of consumers. The real key to ground breaking design will come along the lines of a design application that will embody the most useful and predominantly desired features / functions in a package that is intuitive, simple, and most of all affordable. In my humble opinion, that is when the next “snowmobile” will take a step forward. The size of the success will not be dependent on the size of the company.

    • Tim,

      Thanks. A lot of what Boyd tried to do was harmonize all this internal activity to accomplish the mission / objectives of the organization without stifling individual creativity and initiative. I think that if you look at his work, particularly the parts about blitzkrieg culture in Patterns along with most of Strategic Game and Organic Design, you’ll get the essence of his approach.

      I’m going to be away for several weeks with limited connectivity, so I may not be able to participate actively for a while. Will try to review and approve (or not) comments, but there may be a little more delay than usual. Thank you for your patience.

      Chet

    • “the Pentagon would be the supposed [“]Board of Directors””
      I think the Pentagon is what it is, the approximate center of the US military’s Orientation.

      The actual structure of the Pentagon was created (built?) by those forces of command and control of the US military that Observed an advantage in locating its position where it is. If there was no observable advantage in building the structure where it is, it would not have been built where it is.

      As the environment has changed since the Pentagon was built, the real location of the moment of inertia (the plot on which the Pentagon was first built on) for the US military is somewhere between the points of the Pentagon, Washington D.C., and New York City, i.e. the Military, Industrial, Congressional Complex. But I feel the “pivot point” for that location (a moment of inertia moves around as the forces and distances in the environment observed change) is somewhere out in the middle of the Pacific Ocean.

      “All of which runs counter to the underlying theme of being able to accomplish the “fast transients” and gain the advantage and ultimately prevail.”

      The “underlying theme” is being able to enter another’s OODA loop, and to accomplish that task “fast transients” are used. The advantage being, once inside another’s loop you have some control over the location of its Orientation. In other words, once inside another’s loop, the advantage is yours to command. The advantage is almost always fatal, because the loop is structured out of the result of its forces in command and control, and once inside the loop you have access to both..

      Inside the structure that was created out of the forces of command and control rests the culture. The culture represents the internal forces of the Orientation. What I am suggesting (and it is all really a guess for me), the culture can be divided.

      If there is an insurgency within the culture (and, in the orientation of the US, I believe the Tea Party represents a insurgency), then you have a incumbent/insurgency (ying/yang) 4GW conflict.

      If the culture is divided, with a gap in between the ethical forces that makes up the culture, you have a civil war conflict.

      Of the two conflicts an insurgency is the most damaging to the loop, because if the insurgency wins, the command and control forces no longer “fits” the old structure, and the structure of the loop is destroyed. The civil war simply divides or multiplies the culture inside the structure, but the structure remains. A civil war is nastier, because an incumbent forces usually don’t understand that there is a war on, but in the end an insurgency is worst. It usually turns out that those in command of an insurgency are just as “bad” as those in command of the incumbent forces.

      “The size of the success will not be dependent on the size of the company.”

      I think that is a accurate statement, but then the customers are inside the culture of Apple’s OODA loop. So basically corporations have two options. Either create a culture that “pulls” customers their direction (which is a matter of connections), or get inside Apple’s OODA loop and gain access to Apple’s customers. I think, perhaps as Chet suggests, most small companies fail at the first, and it takes more resources than most small company can obtain to accomplish the second.

  3. Among so very many things that stand out, when you watch the few surviving Boyd videos.
    Is how he treats people in attendance, the patience in his replies. He treated those in the audience with reverence and respect. He’s eager to listen, and learn, from anyone,
    at anytime, and makes a point about never being dismissive.

    “I’ve got a background, you’ve got a background,
    everyone has a background, I bet you have a dam fine background.”*

    *JRB

    • ““I’ve got a background, you’ve got a background,
      everyone has a background, I bet you have a dam fine background.”*”

      But he must have said the above statement to make a point, as he didn’t seem to mince word in those videos. Also, he didn’t seem to me to be the type of person who would listen to drivel for very long.

      I mean, by “background” didn’t he mean how a person was oriented? The point being that most of our backgrounds give us some kind of an advantage.

      Or is your point being that we must listen to be able to observe that advantage, and Boyd was some kind of listener? That point I would agree with, as he jumped on every question.

      • “But he must have said the above statement to make a point, as he didn’t seem to mince word in those videos. Also, he didn’t seem to me to be the type of person who would listen to drivel for very long.”
        My point being, Boyd was a master in complex situations where mincing and drivel is required. The OODA loop is complicated, but not complex. In its simplest form it is a particle-wave that spreads out in time and space as a wave, but uses the culture of the environment it observes as an orientation that can, under complex situations, be used to hit with.
        In an OODA loop it is the people who are doing the hitting.

  4. Further to my previous, there’s a saying by the Japanese,
    “a man is as good as the room he’s in”
    Those in the room with Boyd, or here on this blog, proves the point.

    M

  5. there was study of silicon valley startups that claimed that the most common characteristic of those that had succeeded was having completely changed their business plan at least once during the first two years (OODA, agile, adaptable) … in the 80s there had been silicon valley formula for getting startup money from the VCs … which included 300 page business plan … as if being able to do a business plan was the most important criteria to succeed (getting funding and succeeding wasn’t necessarily the same).

    • A business plan tells the person reading it where you have been and where you are hoping to end. It also tells the person how you plan (PDCA) on getting there and the logic you plan on using. So a business plan gives the end and the way, while the VC supplies the means.
      Therefore, a business plan is very powerful. It is strategy without the means to accomplish a strategic move. As the strategy is completely written (minus means) for the VC to observe, decisions come with a very short binary tipping point.
      While I believe all strategy is flawed, the business plan gives the VC a powerful tool in identifying that flaw or flaws based on what he is observing.
      As much of the OODA loop needs to be discreet, the business plan, to a VC, must act like a can opener, as it opens opportunity up for him/her to see.
      It also might be more accurate to say that these companies are not completely changing their business plan, but are changing their strategy without thought of the means. That is to say, it might be the “means” that is the reason they are changing the plan, but strategically the means is a known, unlike the end and way.
      in other words, to us outside the loop, what we are observing is a business plan changing, but it isn’t. What is really being observed is those that are writing these business plans have found flaws in the strategy and its the strategy that is adapting to fix those flaws. The advantage being in changing strategy: it is easier to change strategy than the whole process, i.e. process is linear and strategy isn’t.
      Stopping the process because of change, somewhere inside a process, may mean you need to start over, as everything crashes to a halt. But with strategy there is no reason to come to a screeching halt. You are only fixing a flaw, that is mainly virtual as in a vision of the past or future anyway, or a re-write of some rule-set in your logic.
      But more important strategically, and for strategy to work, you need a non-flawed process to go along with strategy. A process that, because it isn’t flawed, doesn’t change. For start-ups that process that doesn’t change may be represented by a business plan. So there might be a reason being able to write one was the single greatest event for start-ups in the 80’s. Those who are actually willing and able are in short supply. A business plan is actually strategy over process.,–non-linear over the linear.
      Like resumes today, business plans must be, in a way, nothing more than big data in wait for the right algorithm to open its secrets. I wonder if a human even reads a 300 page business plan any longer, or has machines taken over these fast transits of information–going from what’s observed in a business plan to decisions made, in supplying the means for the end, in seconds.

      • I read in an account of the runup to D-Day, that most of the commanders from Eisenhower down to the company level felt that once the battle was engaged, all the plans to that point would be worthless. I agree with the hypothesis that successful startups change their business plans at least once in the first two years. Depending on the field of competitors, maybe more than once. Most business plans seem to be presumptive in nature, given that the intent is to map out events that have yet to occur. Obviously, there are many inferences that remain valid, but there cannot be a 100% concordance between the plan and the actual event.

      • Tim,

        That is so true. I’ve found that one of the best results of a well run planning exercise is stronger Einheit. And then, again if it’s done well, planning can give you a better understanding of the options available, which you’re going to need after first contact with reality.

      • Chet,

        Planning exercise?

        Well of course with a planning exercise you are going to have opportunities in building Einheit, that just “planning” isn’t going to provide.

        What’s your point?

      • “I dunno. What’s your question?”

        How do you build Einheit into a business plan, when a business plan is static, without a workspace, and is pre-orientation?

        I mean Orientation doesn’t happen until there is movement (maneuver) towards a point, there is no tipping “point” for decision making (change) until there is an environment where an advantage is observed, and there is no “point” to orient from (pivot) unless a center of gravity is created?

        So without Einheit, perhaps Obama’s “pivot” to the Indo-Pacific doesn’t work, or is that the “plan”? 🙂

      • Larry,

        Thanks much. I figured that if I gave you a chance, you’d answer your own question: “How do you build Einheit into a business plan, when a business plan is static, without a workspace, and is pre-orientation?”

        I didn’t say, and hope I didn’t imply, that the planning process has to build Einheit because we’ve all seen those things become divisive.

      • “I didn’t say, and hope I didn’t imply, that the planning process has to build Einheit because we’ve all seen those things become divisive.”

        But (not to answer my question for you) strategy, in the context that it is a form of planning, should contain Einheit?

        And if strategy should plan for a Einheit-building mechanism (for the lack of a better word), what would that “mechanism” look like?

        But in answer to that question, in order to be non-static, maneuvering, and orientation building that mechanism would have to be most likely events based, right?

        From experience: to management much of the parts of strategy such as coaching and empowerment (a way to the means) is just paying so much lip service to the uninformed. In other words, in their eyes the workers are little more than children needing to be treated as children. It is a divisive situation that would need a little “Einheit”.

        And I have to say from my experience, management usually got, at least at times from myself, what they expected. Which is not at all what I expected. Management was never in my workspace, so I never believed they were truly a part of our (workers) orientation,and in many ways they were not.

        A workspace is not a static environment, so even if management, at one time, was a part of the workspace, the workspace became decentralized (going in another direction) from them in time.

        So even within departments, and areas within departments, internal “stove-pipes” develop, and Einheit is used to correct this?

        As an example. After a project and where a new line of electrical contracting equipment was on display, if the CEO ordered a luncheon for the workers and management to attend, it might be important for everyone to attend, because he was trying to build Einheit?

        So, I wasn’t just absent when they passed out brains, but turkey salad sandwiches as well?

        At least now I think I understand why HR mutter under her breath an “oh, fuck”, when I said that I hadn’t attended.

        In other words, the luncheon was my opportunity to form Einheit with the workers on the project, from the position of the lowest order of magnitude in drafting and design.

        In my training as a mechanical engineering technician, I should have been the closest to the position in management to where the “rubber meets the road”, so to speak, and I was absent?

        Oh, f#*k!

        They actually teach this crap in business schools? 🙂

  6. The first time I sponsored Boyd’s briefing at IBM, I tried to do it through the employee education department. They initially agreed … however later as I provided them more detailed information about the briefing (and OODA-loop), they changed their mind. They said that IBM spends a significant amount of money training managers in dealing with employees … and exposing ordinary employees to Boyd’s briefings would be counterproductive (as if managers and employees are in competitive relationship). They suggested that I limit the audience to only senior members of competitive analysis departments.

  7. That is the difference between management and leadership. Einheit is a term developed by Hans Guderian to instill unity of purpose, which I think is what the literal translation equates to. Einheit is not a mechanistic application toward a goal. In my understanding, it is more of an “inductive” approach to harmonizing effort, which has been the subject of much of our traffic on this subject. I agree with Chet’s interpretation. What we are talking about has nothing to do with a structured method of harmonization.

    • I agree with you both.

      Einheit is not a mechanism, but it does survive in a culture that has a structure or, more accurately, an image of its structure that people can see.

      I am just suggesting that there was some kind of mechanism or process that built the structure, and Einheit is just one lever, inside that mechanism. A lever that takes advantage of the environment for a certain culture, created from the workspace (orientation), of that environment.

      Einheit is a lever that has some kind of advantage (distance x force) that produces energy. Which energy distributed over time is power.

      Therefore a nation or a corporation gains a little power with the use of Einheit.

      And, because the energy from Einheit is a form of potential energy, as anyone like me who has studied fluid mechanics knows, most of the energy in any flow is potential. Most restrictive to that flow: friction forces inside the fluid.

      Perhaps that fluid (earth) needs a little Einheit to contain all that friction, eh?

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