Lessons from Magellan

"The achievement of one courageous man will awaken the courage of an entire generation" - Stefan Zweig

I recently discovered the story of Ferdinand Magellan - the famous explorer who captained the first expedition that successfully circumnavigated the globe. The story as told by the excellent Stefan Zweig had me completely captivated from start to finish, and I’ve had it on my mind ever since.

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Great Teams Have Psychological Safety

I recently finished reading "Smarter, Faster, Better" by Charles Duhigg - a great read full of insights about how the most productive individuals and organisations work.

One of the best sections is about what makes a good team and it refers extensively to work done by Google during "Project Aristotle". Google spent several months studying all of their teams to try and determine what the highest performing teams have in common and whether traditionally accepted wisdom held up to scrutiny.

What they found was that it was surprisingly difficult to discover any features of a team that were always correlated with high performance. There were high performing teams that were very extroverted, but also those that were introverted. Some were best friends outside of work, while others never spoke outside of the office. They had hypothesised that teams who are physically located together would outperform teams who are distributed around the world - but even that turned out not to be the case.

The one thing that they found to be a reliable and consistent feature of high performing teams is what they called "psychological safety". The size, location, organisational structure, and every other feature you could think of turned out not to be essential for high performance. Only psychological safety is absolutely essential.

What is psychological safety? 

According Duhigg:

Psychological safety is a "shared belief, held by members of the team, that the group is a safe place for taking risks. "It is a "sense of confidence that the team will not embarrass, reject, or punish someone for speaking up... It describes a team climate characterised by interpersonal trust and mutual respect in which people are comfortable being themselves.

- Page 50, Smarter, Faster, Better.

A team that does not have psychological safety is one in which members of the team aren't comfortable being themselves and may worry about speaking their mind or taking risks once in a while. On the other hand, teams that do have psychological safety encourage innovative ideas and novel approach to be aired publicly. Of course, a team that has psychological safety is not guaranteed to be high performing, but, according to Google's research, those who don't have it will be very unlikely to reach their full potential.

How does one produce psychological safety within a team?

Again, Google has the answers. There are two behaviours that all good teams share and which contribute to an atmosphere of psychological safety: social sensitivity and equality of conversation turn-taking.

Social sensitivity is a short way of saying that members of great teams tend to be aware of how other people within the group are feeling. As Duhigg puts it, good teams "were skilled at intuiting how members felt based on their tone of voice, how people held themselves, and the expressions on their faces." (pg 60)

The other behaviour that leads to psychological safety is 'equality of conversation turn-taking'. This simply means that "all the members of the good teams spoke in roughly the same proportion... In some teams, for instance, everyone spoke during each task. In other groups, conversation ebbed from assignment to assignment but by the end of the day, everyone had spoken roughly the same amount." (Pg 60)

These two behaviours are perhaps not the two you would think essential for high performance, but once they are pointed out it's not hard to see some logic behind them. A team in which individuals are not socially sensitive are more likely to develop poor relationships over time. It's often said that a huge proportion of our communication is non-verbal i.e. There's more to understanding other people than just understanding the meaning of the words we say.

A team where individuals don't pick up social cues based on tone of voice, body language, etc is one where people will very often misunderstand one another. Best case scenario that means they will make mistakes because they're not all on the same page. Worst case scenario there will be hurt feelings, arguments and a sour mood.

As for speaking in equal amounts, it should also not be very surprising to discover that this how high performing teams operate. Assuming you have hired well in the first place, shouldn't you expect each member to have something valuable to offer when addressing a problem? The more voices that are heard, the more perspectives will be brought to bear and the more likely you are to find an innovative solution to a difficult problem.

What's more, it's almost certainly a universal law that people want a voice and they want to be heard. Giving each member of your team a voice doesn't mean that everyone gets a vote in the final decision, but it does mean that they feel valued, respected and meaningful. If you've ever been a part of a meeting where you can't get a word in you'll know how hopeless it feels. I wouldn't be surprised if that feeling spreads across all areas of your work over time.

The final comment on implementing a culture of psychological safety is that it's important that leaders set the tone and behave as they expect their team to behave.

"To create psychological safety, team leaders needed to model the right behaviours... Leaders should not interrupt team mates during conversations, because that will establish an interrupting norm. They should demonstrate they are listening by summarising what people say after they said it. They should admit what they don't know. They shouldn't end a meeting until all team members have spoken at least once.

... There are two general principles: teams succeed when everyone feels like they can speak up and when members show they are sensitive to how one another feels." (Pg 66)

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I'd really recommend getting a copy of Harder, Faster, Better by Charles Duhigg. It's got a ton of really interesting stories and insights on motivation, setting goals, building a great team and more.

 

The New ABCs of Selling

For a lot of people, when you say the word 'sales' they think of sleazy men with greasy hair trying to trick you into losing your money. The fact is that selling in the 21st Century is a completely different kettle of fish.

In 'To sell is human' by Daniel Pink, he makes a compelling case for a new frame of mind: Everyone does sales. It's an entirely human activity and one that doesn't deserve the bad reputation it has. To get started on the path being a great salesperson, first you need to redefine the ABCs of selling. Here's how to do it.

Coffee's for closer

If you haven't seen the film 'Glengarry Glen Ross' you should stop reading right now and go watch it. (Seriously, it's on Netflix. It's amazing.) If you have seen it, you'll recognise this scene in which Alec Baldwin motivates a sales team in a ball-busting, angry sort of way:

 

This is what many people think of when they hear the term 'salesman'. Some great quotes from Baldwin that make you hope never to cross paths with someone like him:

  • "First prize is a Cadillac Eldorado ... Second prize is a set of steak knives. Third prize is your fired. You get the picture?"
  • "Only one thing counts in this life! Get them to sign on the line that is dotted!"
  • "They're sitting out there waiting to give you their money! Are you gonna take it?"
  • "Nice guy? I don't give a shit. Good father? Fuck you, go home and play with your kids."

As Alec Baldwin suggests in the clip above, in traditional sales, 'ABC' stands for 'Always Be Closing'. It's a call to action for pushy salesmen to do whatever it takes (and say whatever they can think of) to get you to sign the dotted line as quickly as possible.

The good news is that although there are undoubtedly still Alec Baldwin type figures in the real world, they are a dying breed. And it's not the way to be a great sales person today.

The New ABCs

The first step towards being a great sales person is to redefine your understanding of the ABCs. Daniel Pink, in his great book 'To Sell is Human' suggests these new definitions:

A is for Attunement

Attunement is the ability to put yourself in the other person's shoes, or get on their wavelength. To be successful in sales, you don't bulldoze through every conversation as if every person is exactly the same. People are very complex and if you attempt to brow beat your prospective customer into handing over their cash you'll only drive them away.

Try to see things from the perspective of your customer and ask yourself, 'what pains and problems they are feeling?'. Have an honest conversation in which you seek to learn more about your customer's life and identify a way in which your product or service can solve a problem for them.

Many people assume that extraverts make the best salesmen i.e. those who are outgoing, assertive and lively in social situations. On the traditional view of salesmen that makes sense - if you enjoy being the life and soul of a conversation and taking the lead in social situations then you'd have no problem talking someone's ear off until they pay you. However, Pink argues that rather than aiming to be an extravert, you should aim to be an ambivert.

An ambivert is someone who is equal part introverted and extraverted. In order to be a great salesman you must not be so extraverted that you overwhelm the other person and steamroll their ability to talk, or make them feel like they're being pushed around. But equally, you must not be so introverted that you're unable to open the conversation in the first place and close the deal when the time is right.

Be an ambivert. Listen to your customer and make a genuine attempt to understand them.

B is for Buoyancy

Buoyancy is all about staying positive and not letting rejection get you down.

Anyone who has ever tried selling something knows what it's like to get rejected. Some people are so put off by thought of rejection that they never even try to make a sale. They take rejection of a product as a personal rejection of their worth as a human being -- obviously to be a great salesperson you cannot let rejection get the better of you. You must be buoyant.

Pink's strategies for remaining buoyant are broken into three stages; before, during and after.

For me, the most important part of being buoyant is the final stage: explanatory style.

If you try to make a sale and are turned away, you naturally explain your failure in one of two ways: optimistically or pessimistically. When a pessimit is rejected, they say something like: 'This is all my fault. I can't sell anything to anyone, and it will never get better.' They see rejection as a permanent, pervasive and personal thing.

On the other hand, optimists recognise that rejection is almost always:

  • temporary ('Not this time, but maybe they will say yes next time.)
  • specific to a particular situation ('They just weren't in the mood today, but not everyone will be that way.')
  • and almost never personal ('They aren't rejecting me personally, they just don't need what I'm selling at the moment.')

People with an optimistic explanatory style stick with things longer, make more sales and quit their jobs far less frequently than pessimists. Of course, Pink isn't recommending a pair of rose tinted glasses - you shouldn't be blindly optimistic no matter what. Instead, you should try to form what's called 'flexible optimism - optimism with it's eyes open.' (Pink is quoting Martin Seligman.)

C is for Clarity

Finally, there is clarity which is all about identifying the real problem (through attunement, above) and framing your product or service in the right way for your customer.

People pay for products or services to solve a problem, but they aren't always experts on what the real problem is, or what the best solution looks like. For instance let's say a team of accountants is working on a bunch of spreadsheets together. They go to a software developer and ask him to build them a messaging service so that they can talk to each other more easily and make sure that everyone is using the latest version of the spreadsheet.

It sounds like the accountants know the problem, but actually it might be the case that a messaging service is not what they need. What they need is something like 'Dropbox' - a cloud storage solution which each person can update in real time so that everyone is working on the same thing.

In this way, the salesman's job is often not just to listen to the customer identify the problem. The salesman may also have to help the customer see that they haven't got to the 'root' of a problem, or that the solution they have identified isn't the best one.

As for framing - the general idea is that you can frame your offering in a number of ways that will impact whether customer chooses to buy. The 'frames' that Pink talks about are:

  • The less frame: Too many options can be a bad thing. If there are lots of options then it's easy to be overwhelmed. Sometimes reducing the options to just 2 or 3 choices can greatly increase the number of people who buy.
  • The experience frame: People gain more happiness from experiences, so frame your sale in experiential terms. If you're selling a car, don't spend too long on how nice the leather seats are, talk about how it will make them feel to drive along the coast on a beautiful summer evening.
  • The label frame: When you assign a positive label to a person or group then they often conform to that positive characteristic.
  • The potential frame: Potential is more interesting than accomplishment - sell yourself on your future as well as past.

The final part of clarity is giving your customers clear directions on how to act. It should be very easy for them to take the next step, and they shouldn't have to spend time trying to 'figure out' what to do.

Go and sell!

So, there we have the new ABCs of selling. If you're keen to learn more, I would very much recommend Daniel Pink's book, it goes into much more detail. The final third of the book is all about how to act when you're selling, and there's real practical tips on making the pitch, improvising when you need to and serving your customers to make a sale.

Of course a lot of the stuff he talks about applies not just in the cases of formally selling a product to a customer, but applies to any occasion when you need to persuade someone.

Next time you're having a disagreement with someone, try the ABCs of selling. Attune yourself to their way of thinking - what are they really concerned about? Try to be buoyant - don't take the disagreement personally, it won't last forever. And aim for clarity - identify the real problem and frame your solution in the best way.

Hope that helps!

Buy the book:

How to be a ‘backable’ entrepreneur

If you’re a budding entrepreneur the chances are that you’re thinking about getting investment of some kind, or that you will at some point in the future. I was recently fortunate enough to attend a seminar by Ivan Nikkhooas part of the New Entrepreneurs Foundation. Here’s his expert advice on what you need to become a backable entrepreneur.

Be a missionary, not a mercenary

Be honest with yourself for a second. Are you solving a problem you really feel strongly about? Or are you just trying to make a load of money? A mercenary just wants to make money and would start any company that they thought would bring the biggest ‘prize money’.

In reality, chances are that the mercenaries of the world are not going to be a successful entrepreneur. And those mercenaries that are a success, won’t do it with backing from a venture capitalist. Think of it from the investors point of view — you wouldn’t give millions of pounds to the guy that will lose interest as soon as a more lucrative opportunity comes his way. As soon as a mercenary is feeling the heat, they’re likely to give up and find some other way to make money.

Now there’s nothing wrong with wanting to make money, but it can’t be the only thing you care about. Investors want to see that you are a missionary. You care passionately about solving a problem and you’re committed to getting it done. You’ll not only attract investment — being a missionary will make it easier to attract early employees who are as committed as you are, and your customers will join your ‘tribe’ in droves.


Be Innovative

The second step to being a backable entrepreneur is to be an innovator. Investors are looking for huge returns on their investments, and that’s unlikely to happen if your idea for a start up is to do what someone else is doing/has done.

In order to get investment your company needs to be addressing an underserved niche, solving a problem in a way that wasn’t possible in the past, or some other innovative approach. Don’t go to a Venture Capitalist and expect investment for your dog grooming shop unless you’ve got a reason for thinking that you have an innovative approach that gives you some defensible competitive advantage over the incumbents.

Of course being innovative extends to more than just your business model. The journey from start up to billion dollar exit is frought with problems that have no easy solution. When you’re running out of money and that big business deal is falling through, you need to be an innovator to solve what looks like an impossible situation.

Which nicely ties us in to the third element of being a backable entrepreneur…

Cope with stress well

By the time you’re stood in front of an investor, you’re almost certain to have learnt the lesson that being an entrepreneur can be a stressful profession. You need to be able to convince your potential investor that you’ll cope with that stress effectively rather than collapse like a dying star.

How do you demonstrate that you will cope with the stress? Having a track record of executing well is a good start, particularly if you have played a key role in launching a successful start up before. Another great indicator is that you have managed to create a great team around you. When you have a great team, you can delegate responsibilities and share the load.

Easy right?

So there you have it, who knew being a ‘backable entrepreneur’ was so easy? Of course it’s easier to say than to do. Get out there and be a stress free, innovative missionary!

I’d love to hear from anyone else out there who think there’s something else that should be added. Get in touch!

What are investors looking for? Be a line, not a dot!

What do investors look for? It’s the million dollar question (sometimes literally!), so it’s worth spending some time thinking about the answer. In a recent NEF workshop we visited London Business School to hear from Dr Jeff Skinner about what investors want to know before they put their money on the table.

 

 

 

Ideas are cheap

You’ll often hear about how ‘ideas are cheap’ - and it’s true to an extent. The world is full of people who have ideas for the next big thing and will be more than happy to tell you about why they’re the next Uber/Apple/AirBnb. Sure some of them might turn out to be on to something, but undboutedly the majority are being a bit too optimistic.

So, how to make sure that your idea is a really good one, and you're not just another misguided individual? Try asking yourself the following questions. If you can answer each one then you just might be able to convince someone to give you some money to get you started. If you can’t, then think about working out the answer, and asking yourself whether there’s more work to be done before approaching investors.

1) Why now?

As noted above - ideas are cheap and easy to come across so the chances that you’re the only one that has thought of something is exceedingly slim. So on the assumption that someone else has already had your idea - why doesn’t it already exist?

Did someone already try to do your business, but fail? Why did they fail? And why won’t you fall at the same hurdle?

When you first have that ‘Eureka moment’ it’s easy to get swept up in the excitement of having spotted an opportunity and to charge straight in to action. In fact, discovering that someone else has already attempted your business idea is almost certainly a good thing! The things you’ll learn from them will either help you avoid their mistakes (if that’s possible), or save yourself months or years of work trying to get a business off the ground that can’t succeed.

So, investors are going to ask you why your idea could be done now, when it couldn’t have been done before. What has changed? New technology? Different culture? Whatever it is, make sure you’re clued up in advance.

2) What’s your competitive advantage?

Related to the ‘why now?’ question is one about what your competitive advantage is. Assuming you have made it past question 1), you’re now left with a great business idea and the time is right for someone to take this to market. So what’s to stop anyone else coming along and competing with you?

If your idea is easily replicable by any Tom, Dick or Harry then even if your business is profitable now, it likely won’t stay that way for long. Why won’t the large established companies just copy your service or product? Why won’t some other entrepreneur just start their own business and try to do it better?

Your competitive advantage has to exist in the present, but should also be something that will be defensible in the future. For instance there is something to be said for being the ‘first mover’ - but if that’s the only advantage you have then you may soon find that bigger and more experienced competitors will use their advantage to undermine you.

The sort of things that might count as a competitive advantage are varied. It could be the relationships you have to suppliers or advertisers, a patent you hold on some technology or a strong brand.

3) Can you execute?

More than just the idea - investors will want to know about you and your team. First, are you all on the same page regarding things like vision for the future of the company and attitude to risk? If they’re not then investing would be very dangerous indeed! There will be enough external threats to survival - it’s not ideal to add internal conflict to the list!

Crucially, the investors will want to know whether or not you and your team can execute on the critical success factors. That is, can you get things done? More than anything, establishing a relationship for yourself as a team that can execute is essential.

As the title of this post suggests, investors invest in lines, not dots. You turning up on their doorstep with a bright idea is all well and good, but teams that can’t execute almost always fail. The process of receiving funding takes at least 6 months, and some times much longer. During that period of discussion investors will be keeping a keen eye on which of your targets you’re hitting and how often you fail to achieve objectives you identified as critical to your success.

 

Of course, there's plenty more that could be added to the list. Hopefully it serves as a starting point when evaluating your next business idea. If you have any more suggestions to add - let me know in the comments!

Hiring a developer - a guide for the non technical entrepreneur

Putting your entrepreneurial vision into motion will almost certainly involve some coding at some point, whether it's a website or an app. But if you're not as tech savvy as you need to be, how do you make it happen? Learning how to code is possible these days with a wealth of free and affordable online courses (e.g. Codecademy), but not everyone has the time (or the desire) to spend a lot of time learning the ins and outs of programming. Unless you want to learn those skills for their own sake, you're more likely to get frustrated and eventually give up on the project altogether.

An alternative for most budding entrepreneurs is to get someone else to do the coding for you, but how do you go about it? I recently attended a web development workshop through NEF, led by the nice people at Steer. Here's a quick guide about what I learned on hiring a developer.

Step 1: Decide what you're building

There's no point looking for a developer until you know what you're going to be asking them to do. Are you building an app or a website? What will it do? What will the user journey look like? What features are absolutely essential and what would be nice to have as an extra?

Get as clear as you can with what you're hoping to achieve so that you can be very clear with developers who express an interest in getting on board.

It's also useful at this stage to build a wireframe - a visual representation of what the website or app will look like, where the buttons will be and what they will do. You can do this just using a pen and paper if you want, but there are also several online tools to help. Take a look at: balsamiq.com or gomockingbird.com.

Step 2: Think about cost

The amount you have to spend on developing your site can obviously make a big difference about what the end result is like and how many of the more complex features you have been able to include. On the other hand, if all you need at this point is a more basic product then you shouldn't waste money on hiring someone very over qualified for the task.

At the cheaper end of the scale a junior developer will expect to be paid somewhere in the region of £10-20 per hour and will most likely have between 1-3 years of experience.

A highly skilled individual developer with more than 5 years experience will usually be paid between £30-40. This option would be the best choice if you want to be really sure that the end result will be up to scratch, or if you want something complicated that would require the developer to really know what they're doing.

If time is of the essence or if one person is unlikely to have all the knowledge required to deliver the product then you may have to look at hiring a team of developers. Here things start to get very expensive and can vary wildly, but expect to pay around £100-200 per hour.

Finally, you have the option of hiring an agency that will take the whole project off your hands and do everything from designing to coding to maintaining afterwards. It's very unlikely that you will need to use an agency, particularly if you are trying to build a very first version of your idea. However if you do go this route, you could end up paying about £10,000 per project.

Step 3: Find a developer

Assuming you're not going down the agency route, you next have to actually find someone who might be interested in working on your project. This becomes more difficult if you have no idea at all about what developers do or how websites/apps are built. It would be extremely wise to educate yourself on at least the basics before moving ahead.

This doesn't mean you need to become an expert, but if you don't understand how the technology works, it will be impossible to articulate what you need in a developer! There are a myriad of ways to build a website or an app, but fortunately there are also dozens of resources that will allow you to teach yourself what you need to know. Have a google, speak to any tech-fluent friends you know, and write a list of required skills for your project.

When it comes to finding developers, depending on where you live there may be many different ways. In most major cities there are regular tech meet ups that can be found quite easily, but you should also make the most of your network to get the word out. Post on Facebook and LinkedIn, see if your friends know anybody that might be interested.

Another option would be to post your job on one of the many job boards out there that cater specifically to the developer community e.g. Stack overflow, GitHub or Silicon Milkroundabout.

Step 4: Vetting candidates

Okay, so you've worked out what it is you need done and you've managed to attract interest from a few developers who are keen to work on the next big thing - now you have to look a bit further and decide on who is most suitable.

Before the interview you should ask them to send you some code samples and/or previous projects they have worked on. Have them explain exactly what it is they did and if you're really new to coding you should ask a friend or technical adviser to take a look and ask for their opinion.

The final step is the interview, but it could be as informal as meeting for a coffee so you can get to know each other better. Again, if you have a friend who knows their stuff, see if you can ask them to join you for the interview, or perhaps arrange a phone call between the candidate and your friend so he can ask the right technical questions where relevant.

Aside from that you are looking for three things; do they have a personality that you can get along with?, do they have the time to commit to the project?, and are they actively involved in the coding community?

On the other hand, warning signs to watch out for might be; do they struggle to answer technical questions about their previous projects?, do they have a big ego or a bad attitude? And have they been unwilling or unable to share sample code with you?

Step 5: Success!

Hopefully you will end up with a developer who has the right skills, that fits your budget and who will do a great job for you!

Hopefully the quick guide will give you a starting point. If you have any more advice, leave a comment and let me know!

Hiring a milkshake - finding the jobs to be done

A common piece of advice shared with budding entrepreneurs is that you should start a business with the intention of filling a gap in the market, or providing a service where there is a need. However, a good way to frame this same of advice is to ask: What jobs need doing? and Why is your product or service is worth hiring to do it?

Clayton Christensen uses the example of a fast food chain that wanted to sell more milkshakes - they knew that milkshakes were being purchased, but couldn't increase the number. Their breakthrough came once they understood the job that their customers were hiring a milkshake to do.

See this great video of Clayton telling the story.

[embed]https://www.youtube.com/watch?v=s9nbTB33hbg[/embed]

The Burger King customers were hiring a milkshake to a) pass the time on their way to work and b) keep them going until 10am. It turned out that milkshakes do the latter job better than the alternatives (apples, doughnuts, toast, and so on), but if these customers arrived at Burger King on their way to work and there was a long queue, then they would just put up with being bored.

So the answer to selling more milkshakes wasn't to make Burger King milkshakes more delicious than McDonalds milkshakes. The answer was to make Burger King milkshakes do the job they were being hired to do, but do it better, by being more readily available to commuters who were in a rush.

Slaying giants: Why disruption works

When a startup talks about 'disrupting' an industry, what are they really talking about, and why does it work? Disruption occurs when a new technology or innovation comes along that undermines the profitability of the established incumbents, often leading to the collapse of the latter. Often this collapse occurs very quickly over the course of just a few years.

Take for instance the mass production of cars at the beginning of the 20th Century. At the turn of the century it would have been almost incomprehensible that horse drawn carriages would be replaced as they were. However, along came Henry Ford and the mass production of cars, and very soon the number of horses plummeted (as well as the various services that existed to serve those horses).

However, why does disruption work so often, even these days? It can't simply be that the large companies can't imagine the technology that is around the corner, just waiting to wipe them out. Some of these companies spend millions or even billions of pounds researching and developing new technologies. The idea that every case of disruption was caused by some genius entrepreneur inventing a technology in his bedroom that would wipe out the competition doesn't seem very realistic.

Certainly there have been some extremely brilliant minds who have disrupted an industry (e.g. Bill Gates), but there have been too many examples of disruption for every one of them to be a genius. Plus, sometimes the millions spent on research do lead to a breakthrough, but doesn't prevent bankruptcy for the incumbent. Look at Kodak who established themselves as producers of film for cameras. Kodak actually invented the digital camera, the technology that would kill of camera film, and they still managed to go bankrupt!

Big companies have all the advantages of established dominance of a market, millions of pounds to spend developing the next big technology, and yet still manage to get displaced. What's the answer?

The Answer

The real reason that disruption occurs is because large companies are not free to think in the long term, and are under immense pressure year on year to deliver profits. When a company comes up with an innovative new idea, they must compare the likely profitability of that new product with their established business model.

Let's consider Kodak again - their core business was in producing and selling camera film, a business with a healthy margin of profit of about 85%. That meant that for every pound someone spent on a roll of Kodak camera film, 85p was profit for Kodak!

When they designed the first digital camera, the proposed profit margin was something more like 15%, much less than the traditional core business. This meant that every year when planning what to focus on, Kodak had to choose which of their options would produce the most profit and so keep their shareholders happy - obviously there was no competition as to which would win.

They chose to keep supporting their camera film, even though they knew that digital cameras were the future of photography, and eventually they ended up going bankrupt.

Another example to help illustrate the theory would be to look at Amazon. They have a very small profit margin on their core business (selling books) and so are much more likely to innovate and seek out more profitable products. This is why today Amazon allows people to sell things second hand through their site, and why they launched the Kindle which has proven extremely successful. When your core business has very slim profit margins it's easy to choose other alternatives and not suffer.

The lesson here is that when large companies behave rationally, they open themselves up to be disrupted. They don't have the freedom to move away from their core business for the sake of the long term because the pressure of delivering profits year after year is so high.

As a result, every mature profitable industry has a space with lower profit opportunities which the 'big guys' won't be interested in. It won't be worth their time focussing on the areas of their business with the lower profit margins and so there is an opportunity for start ups and entrepreneurs to move in.

 

The start of Alibaba

This is a great speech from Jack Ma, founder of Alibaba speaking to a group of friends in 1999. Recently, Alibaba shares closed at $93.89 at the largest IPO ever for the US stock market. At $231 billion Alibaba is now worth more than Facebook, Amazon and Ebay. In this short presentation from 1999, Alibaba's CEO Jack Ma outlines his vision of internet and his plans to take on Sillicon Valley. Ma is right about every single thing he says, except the prediction of the IPO date.

[embed]https://www.youtube.com/watch?v=Up9-C4_8dVo[/embed]