In Rules of Thumb, Alan Weber quotes legendary venture capitalist John Doerr discussing the original business plans for companies he invested in such as Google, Intuit, and Amazon:
In every case you can find the one sentence or paragraph that describes their unique business model advantage. It could be their unique distribution system or the retailing model. It’s the factor that accounts for their success. It turns out the factor that explains their success at the beginning is what accounts for their failure later.
As a former philosophy student, I was reminded of Aristotle’s concept of “hamartia,” sometimes known as a “fatal flaw”:
In Aristotle’s understanding, all tragic heroes have a “hamartia,” but this is not inherent in their characters, for then the audience would lose respect for them and be unable to pity them; likewise, if the hero’s failing were entirely accidental and involuntary, the audience would not fear for the hero. Instead, the character’s flaw must result from something that is also a central part of their virtue, which goes somewhat awry, usually due to a lack of knowledge.
It’s an interesting exercise to apply this principle to technology companies:
1) Google’s strength is its uber-engineering mindset. This seems to increasingly be a liability as the web becomes ever more social.
2) Yahoo’s strength was its breadth. Now they call it the “peanut butter” problem.
3) AOL’s strength was being a closed garden. As users became internet savvy, they were no longer afraid of venturing outside of it.
4) Apple’s strength lies in its genius, authoritarian leader. Apple’s decline will begin when he leaves (sadly).
5) Facebook’s strength is authenticity and privacy – your friends are (mostly) your real friends, and only they see your activity. Facebook has been trying to respond to Twitter’s rise with “open” features like the public micro-messaging. It remains to be seen whether they can successfully go against their own core strengths. I’m skeptical, but give them credit for trying.
6) Twitter’s strength is its simplicity and openness. Will its openness be its downfall? For example, will Twitter end up fighting its apps? Or will it be its simplicity?
This principle also implies how to use incumbents’ strengths against them (sometimes called the “Judo Strategy”). In the chess game of competitive strategy, you can usually bet that incumbents won’t make moves that undermine their core strengths – until it’s too late.
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good post!
Great post — and you can really see your HBS education shining through with the reference to Judo Strategy
The difficulty with FB's moves to be more “open” is they're completely going against their operating model. It's like you said — authenticity and privacy are their strength.
I'd rather see FB stick to their core strengths, instead of diluting what is an advantage by trying to implement the “openness” of Twitter. By trying to be all things to all people, FB is actually making itself more vulnerable to a competing service like Twitter.
thx! yep, I actually think I learned something at HBS.
funny Chris I just today wrote something called “Don't get high on your own supply” http://bit.ly/Xzms0
An entrepreneur and a philosopher…impressive!
i'd hardly call myself a philosopher.
There was an interesting book written on this topic in 1990 by Danny Miller called “The Icarus Paradox: How Exceptional Companies Bring About Their Own Downfall”. It generalizes companies as craftsmen, builders, pioneers, and salesmen. Taken to extreme, they become tinkerers, imperialists, escapists, and drifters.
Microsoft's strength is its tenacity to deliver everything. What once used to be new cool features are now simply little more than software bloat.
Interesting comments.
I believe that the biggest issue for all of these companies and people is one of anchoring their thinking. When you get into the “this is what got us here mentality” you are generally going to lose share over time in a fast moving disruptive world like technology.
If, however, you are in the business of serving up fast food hamburgers, and you stray off into chicken or something else – then perhaps a “back to basics” strategy makes sense – but in tech – it rarely does.
I like this idea, but I think there's a slight disconnect between the original idea described in the first blockquote, and the specific attributes of companies you supply in the list.
For example, in the Apple example, it doesn't seem plausible that the unique business advantage described would be “We've got me, and I'm Steve Jobs.”
I guess you transformed the discussion into character traits/flaws rather than unique business model attributes, but I'd be interested in knowing whether or not you believe the business character flaws you listed are the reasons for the downfall (or future downfall). For example, in AOL's case, I don't believe the consumer choice was between being in a walled garden and not – I think it had to do more with broadband.
Another great post, Chris!
.
Thank you for all your insights, from HBS or from your guts
This post leaves me hungry for more.
What's so different about tech companies? I understand technology is changing at a fast pace, but is this enough to prevent companies from “reinventing themselves”, especially when they have deep pockets?
What about GE, IBM, HP?
Please let me leave Aristotle for a while (I'm just an MIT geek, sorry
), and take Madonna as an example. Music styles keep changing as fast as technology, however some “greater” artists manage to survive this continuous change by readaptating influences from other to stay ahead.
On the other hand, should FB become Twitter or rather keep its ADN and reinvent the Twitter influence differently?
As I customer, I like products that do one thing at best rather than an average mix.
I believe every compelling product has a 5 to 10 year advantage, after which it becomes commoditized. Some with network effect or monopoly may extend this duration. However next cycle of innovation must come out of the previous box…
or bring you down…
Final question is: a company needs “ADN”, is it contradictory to lasting over decades?
Interesting. I'll check it out. Thx.
Good point. I was trying to figure out MS for this post but couldn't come up with something good.
Yes, and the thinking is reinforced by the hiring. Google thinks like techies, hires techies, becomes even more techy, etc.
Look at Apple's stock changes with and without Steve Jobs (I cite it here http://www.cdixon.org/?p=1391).
AOL – Fair point about broadbad, although AOL did try offering broadband for awhile (albeit half heartedly). AOL stayed in the paid content business until just a few years ago until they finally realized too late it was a dying business.
I don't disagree that Steve Jobs is important – I was referencing the first quote's description of the unique business advantage that does and undoes a company and how that is different from the character traits/flaws of a company.
I think in very rare cases (Apple, Sony) the unique business advantage is indeed one person. Perfectly reasonable for you to disagree – but I think given that premise this post is consistent.
Good point. I was thinking from the perspective of an investor who had no a priori knowledge of Steve Jobs ability, which excluded me from thinking – unique business advantage = single individual.
Very interesting greek analogy chris. I am immediately reminded of alexander the great.
Twitter to me seems like an accelerating train without any brakes. It's just cruising at break neck speed and you have your fingers crossed hoping it will not crash. It's simplicity and openness is clearly what brought it here. But as they struggle with making real money I am sure being simple and open will not help. The moment they deviate from this core strength, it may bring about it's downfall.
I keep thinking about the idea of Hubris. You may have inborn Harmatia, yet it is only activated when you dare to stand up as to being stronger than fate and one's inner core.
Such is the tragedy of Oedipus and such is the tragedy of these companies, I think.
Building on the earlier Microsoft point, Microsoft's greatest strength was its ability to copy its competitors products and then beat them with better distribution through their closed operating system. This has/will ultimately lead to their downfall as their closed system has become a sprawling mess of ad ons making it very difficult to deliver a good product and thus leaving the door open to someone to break their monopoly.
It isn't so important that companies have a fatal flaw. All of them do as well as people. It's the *longevity* of that business advantage that matters — before it turns into a fatal flaw. It's also how adaptive the management is. Cisco could have been a “has-been” but learned how to acquire magnificently.
good article – this is what I call human gravity factor, because people tend to stick to same principles that brought them success/pride before without knowing time or context has changed.
Is it possible Google's strength lies less in “uber-engineering” and more in a 'scientific' approach to building and running a business for the long term? Question everything, test, measure, learn, iterate. Applied it to all aspects of their business not just engineering. In theory this should allow them to embrace change.
[...] via What carries you up will also bring you down — cdixon.org – chris dixon’s blog. [...]
I'm doing an art experiment on this point, I think that “open” versus closed model is actually more confusing- It seems like the zen simplicity of twitter makes it easier to fragment oneself right now…
In theory perhaps…
I call it, ” Your greatest strength shall be your greatest weakness and that day you would have lived a lifetime” rule.
Of course, those who have experienced it can vouch for it.
[...] From cdixon.org [...]
I call it, ” Your greatest strength shall be your greatest weakness and that day you would have lived a lifetime” rule.
Of course, those who have experienced it can vouch for it.
[...] What carries you up will also bring you down — cdixon.org – chris dixon’s blog – In every case you can find the one sentence or paragraph that describes their unique business model advantage. It could be their unique distribution system or the retailing model. It’s the factor that accounts for their success. It turns out the factor that explains their success at the beginning is what accounts for their failure later. [...]
[...] at customer learning than their larger competitors and more flexible in their thinking (“What carries you up will also bring you down”). Entrepreneurs are prone to burying this advantage in an effort to emulate late-stage firms. [...]