Wednesday, April 19, 2017

Entrepreneurship Spirit for Market Transition

The two readings for this week discuss the strategies for large companies to always stay growth and lead the industry frontier. The key point is to embrace the disruptive technologies and adapt to the market transitions in this fast-moving environment. This point may seem to be a cliché as the industry talks about “disruptive technologies” so often, but personally I still find the alignment with entrepreneurship in this statement very fascinating.

How to Embrace the Market Transition?
According to the article “Why Good Companies Fail to Thrive in Fast-Moving Industries”, the common theme to all failures is the decision made from good management. In other words, embracing the market transition means not to use the normal good management toolkit, but to “invest in developing lower-performance products that promise lower margins and aggressively pursue small markets. It needs the courage to break normal rule and make the leap based on a forward-thinking vision.

Sometimes customers may help to provide indications for possible market transitions, but sometime even customers do not have a sense for the revolutionary transitions. In Cisco’s examples, they got the idea of which start-up company to buy from customers, such as Crescendo Communications and Meraki which had the desired technologies their customers wanted. However, when revolutionary market transitions happen, it would be right for companies not to listen to their customers. Companies like Tesla know where the next generation want and they lead the customers as they move to embrace those transitions. Tesla made the decision to acquire Solar Energy Company SolarCity in late 2016 to expand their business lines by a cheaper solar roof, and at first the market didn’t favor this deal.[1]

Alignment with Entrepreneurship

In this way, the adaption to the market transitions aligns with entrepreneurship in term of mindset, skills and the decision-making process. It is also interesting to see the discussion of “a start-up mentality” in Cisco’s example interacts with several discussed principles in another one. “Small market do not serve the growth needs of large companies”, so it is better for large companies to use the spin-off model to let a small group start the new business independently.
“Market that don’t exist can’t be analyzed”, so it is necessary to invest heavily (but still reasonably) in R&D if the large companies intend to capture the new opportunities.

I recall my experience in a fund of funds capital called Yimei Capital. When the partners listened to the business model road shows (the start-ups came to make presentations and ask for investment), they employed the entrepreneurship spirit to every investment opportunity. Is there an inelastic need in the market? Is that the customers want most? Is this company driven by cutting-edge technologies? Does the company founder have a forward-thinking vision of the future? The management team’s background and related experience still matter, but they would just evaluate it last as they can always sit on board and improve the management quality afterwards.  


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