The Importance of Being First

If you have read anything that I have written on innovation over the last several years, you already know that I am very critical at times of things that I deem to be results of “me too” thinking.

Every few years we see some truly innovative or new ideas. For years in between however we seem to be blasted at trade shows by another 50 companies all jumping on the bandwagon to create copy cat products with no real unique value proposition. The pitch is typically: “Well, you already buy these anyway, why not buy them from us?” These type of companies typically saturate the market, quickly creating a race to the bottom on price, as they had little R&D investment in developing the product in the first place.

This type of product introduction strategy rarely creates large gains for any manufacturer. The reason being is that it enters the product cycle after the time that high margins are able to be demanded based on the novelty and innovation of the company that first introduced the product.

This phenomenon is not unique to small companies or AV, but can exist even in innovative large companies as well.

I remember working for IBM in early 2000. IBM spent more money in R&D and registered more patents than Compaq, HP and Dell combined. It was a machine when it came to creating unique IP. Typically, what the company would do is develop a new and innovative product or feature in a product. Then it would immediately sell the rights to use the technology to its competitors, with one caveat — IBM would place a window of time on the implementation or product release by the competitors. The agreement would be to share the technology so the competitors could get it ready for market, but then set a time frame of say, two years, during which time IBM could sell its own flavor of the innovation in the marketplace without having any competition for that set amount of time.

IBM knew the importance of being first. There was only one problem. It never seemed to capitalize on it, at least in the Intel based PC/laptop sector. It would develop a technology, license it out, and then fail to get its own product to market before that window expired. The result was that Compaq or HP would release its version first, the window had opened, and then IBM looked like the copycat coming to market later, even though it did all the real work. It was not surprising to me when IBM sold its PC/Thinkpad business to Lenovo, as it just never made the turn quick enough.

Sometimes you can be second to market with a product that is substantially better than the product that created the category. In this case there is always the possibility of being successful if you can prove the value of the improvements and if you can get anyone to listen or care once they have already set a path with the product that was first.

IBM also learned this lesson again when it purchased Lotus Software. Lotus 123 and Lotus Notes were deemed to be highly superior to the MS Office products of the time, at least from a features and benefits perspective. The problem was that Microsoft was first in the space an already had the market share. Compatibility was a huge issue and IT staffs did not want to run a mixed environment. Ask your kids what Lotus is and then watch the look on their faces.  Being first is many times more valuable than being “better.”

There is a book called Six Disciplines: Execution Revolution that does a good job of explaining the profit wave from innovation to commoditization. The author charts it out as the Business Excellence Model.BusinessExcellenceModel

The chart shows you that you should try to move from Innovation, to Sustainability and Reliability, to Commoditization and Economies of Scale while trying to avoid Firefighting in any stage as much as possible.

True profits are larger in the beginning, while market demand is low and the product is at a premium. Then as market demand grows, competitors start to enter and you have decreased margins but the benefit of experience and name recognition the new competition does not have. Finally, as more competitors emerge and the level of experience needed to be successful becomes smaller and less relevant, the firm that developed the product hopefully has realized the economies of scale needed to sustain revenues through higher numbers of lower margin product.

The trick here is knowing when to Jump The Curve.

Innovative companies need to, as the book says, “innovate purposely.”  They have to know when to slaughter the cash cow product that has been commoditized and feed the new calf that will feed them through the next product cycle.

Companies that can’t see when to jump, end up in the “me too” stage, hanging on continuously by reactive innovation, being consistently in a “me too” mentality that may sustain them over time, but only in a way that leaves them in the second or third tier forever. They never enjoy high profits or the market and mind share of the innovator.

Companies like Crestron have been historically good at creating a MInimum Viable Product (MVP) and getting it to market quickly. The product is often not even all the way out of beta, but the company gets it to market and then helps its integration partners through the process of getting it to work and perfecting it or adding features as needed. This type of innovation allows Crestron to invest a minimal amount in the MVP, and then use sales revenues to improve and invest in the advancement of that MVP in realtime. At the end of the first few jobs, that MVP has changed dramatically, and the next wave of products is inherently better. If they waited and perfected the MVP first before releasing it, they may have just missed that all important opportunity to be first.

So as manufacturers and AV firms, my challenge is to ditch “me too” and replace it with “me first.” Companies that do take a risk but also reap the biggest rewards. If you do decide to follow and counter-punch by being second to market with a product that is “better,” make sure you have a great sales and marketing budget to get the word out. It’s always good to be better, but it still seems best to be first.