January 2005
The Next Big Thing?
Generating ideas and creating innovative products
Douglas Abrams
6XXXX
Generating ideas & creating innovative products
• Selecting the right industry
• Finding opportunities
• Identify innovation inflection points
Douglas Abrams
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6XXXX
Product or service?
 Odds of starting a company that made the Inc 500 list of fastest
growing young private companies from 1982 to 2000
 Biotech – 265 times higher than restaurant
 Software – 823 times higher than hotel
 Choosing the right opportunity is the most important determinant of
success
Douglas Abrams
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6XXXX
High risk, low return?
 Product-based start-ups
– High risk of failure
– High return if successful
 Service-based start-ups
– Higher risk of failure
– Lower return if successful
 Choose an industry favorable to start-ups
Douglas Abrams
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Look for favorable knowledge conditions
 Less complex production processes
 Less reliance on knowledge creation – low R&D
 More codified knowledge
 Innovation from outside the value chain – universities and research
institutes
 Lesser proportion of value added in manufacturing and marketing
activities
Douglas Abrams
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Look for large, fast-growing, segmented markets
 The cost gap between new and established firms is smaller in
larger markets
 In fast-growing markets, new firms can serve new customers
rather than customers of existing firms
 Segmented market provide niches for new firms to enter and
reduce retaliation by existing firms
Douglas Abrams
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Industry life cycles and structures
 Choose a young industry – more demand and less competition
 Enter before a dominant design has been adopted
 Labor intensive rather than capital intensive
 Advertising and branding less important
 Less concentrated industries – smaller competitors
Douglas Abrams
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6XXXX
Generating ideas & creating innovative products
• Selecting the right industry
• Sources of opportunity for innovation
• Identify innovation inflection points
Douglas Abrams
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6XXXX
Sources of opportunity
 Technological change
– Large, general-purpose, commercially viable, alter industry
dynamics
 Political and regulatory change
– Allow more variance in ideas, increase demand
 Social and demographic change
– Alter preferences and create demand
 Changes in industry structure
– Change industry dynamics and open niches
Douglas Abrams
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6XXXX
Past and present trends and mega-trends
Pre-industrial
Industrial
New Economy
Labor
Production of primary
products
Technical efficiency
Societal organization
Location of
production
Transportation
speed
Social class
determined by
National wealth
determined by
Low
Rural
Families or manors
Production of
manufactured goods
and services
Higher
Urban
Firms and enterprises
Production of
information and
services
Much higher
Global
Anywhere
5 mph
60 mph
186M/miles/sec
Birth
Ownership of
production
Accumulation of
capital and labor
Knowledge and skills
Abundance of natural
resources and
conquest
Intellectual capital;
knowledge and skills
Douglas Abrams
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Past and present trends and mega-trends
Quality of life
Work
Entertainment
Health
Life expectancy
Pre-industrial
Industrial
Illiterate, no books, no
schooling, no travel
Literate, books,
schools, travel
New Economy
Access to all of human
knowledge, virtual
travel
Back-breaking work in Factory or office work Tedious or dangerous
the fields
work performed by
machines; humans
focus on creativity
None
TV, Radio, Movies
Interactive multimedia, virtual reality
Widespread hunger,
Hunger and disease
Hunger and genetic
debilitating disease
reduced by machines diseases virtually
and medicine
eliminated through
nanotechnology
Avg life expectancy 30 Avg life expectancy 70 100+ year life
years; high levels of
years
expectancy; end of
child mortality
aging through genetic
engineering
Douglas Abrams
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Examples of current tech trends and mega trends
Technology will become ubiquitous
 Broadband and wireless broadband
 Convergence, Integration and interoperability
 Worldwide, instant, always-on connectivity with no external devices
 Mobile computing, PC no longer sole computing device, speech and
voice recognition
 Experience-based transactions (VR) Automation
Douglas Abrams
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Examples of current tech trends and mega trends
Computers will move beyond silicon chips
 20-ghz nano-silicon chips with 1 billion transistors
 3-dimensional chips
 Optical computers
 DNA computers
 Nanotube computers
 Quantum computing
Douglas Abrams
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6XXXX
Examples of current tech trends and mega trends
Technology and biology will merge
• Micro-machines and Nano-technology
• Biometric security
• Bio-informatics
• Exponential growth of machine intelligence leads to intelligent,
conscious (?) machines
• Neural implants to extend human intellectual capability
• Merging of human and machine intelligence creates substrateindependent minds
Douglas Abrams
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Case study: Let’s sell books on the internet
 Technological change – internet
 Market change – disintermediation
 Large potential market –
fragmented
 Timing – young industry
Douglas Abrams
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Which form to exploit an opportunity?
 New product
 New way of organizing
 New raw material
 New production process
 More difficult to imitate
 Exploit an innovation that is appropriate in the industry you are
entering
Douglas Abrams
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Case study: Onsale vs. EBay
Onsale
 Sold blocks of
computers to large
corporate buyers
EBay
Allowed anyone to sell
anything to anybody
Advantage of mass and
momentum
Douglas Abrams
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Sources of new business ideas
 Forces, trends and mega-trends tech, macro, social, political
 Changing market structures and needs
 Market inefficiencies
 Products in the market
 Personal experience, hobbies and pastimes, personal passions
 Cross regional, discipline or industry
Douglas Abrams
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Recognizing opportunities
 Check out opportunities based on innovations by universities and
government agencies.
 Identify weaknesses in established firm’s approach to innovation.
 Pick jobs, social networks, or life activities that put you into the flow
of information about new business opportunities.
 Develop a mind-set or way of thinking that helps you recognize
entrepreneurial opportunities when you come across them.
Douglas Abrams
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Opportunity mindset - observe yourself
 In unfamiliar situations – traveling, trying new experiences
 Ask Why and Why not?
 Take notes, especially of problems – Bug Lists
Douglas Abrams
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Opportunity mindset - being there
 Keep close to the action
 There are no dumb questions
 Be aware of the world around you – ready to spot trends
Douglas Abrams
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Opportunity mindset - being left-handed
 Develop empathy for consumers’ needs
 People are different from you
 Ages, cultures, sizes
 Talk and listen to kids
Douglas Abrams
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Characteristics of successful new business ideas
 First mover advantage?
 Not necessarily a new invention
 Not necessarily a new idea
 Notion that is poised to be taken seriously in the market place
 Idea that is a tiny push away from general acceptance
Douglas Abrams
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Innovation evaluation framework
 Original?
 Feasible?
Good idea
 Marketable?
 Profitable?
 Sustainable competitive advantage?
Viable
business
Douglas Abrams
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Case study – Liquid Paper
 Bette Nesmith noticed artist corrected mistakes
while decorating holiday windows by painting over
the error.
 Tried the same at work but colleagues said she
was “cheating” and one boss warned her not to
use her “white stuff” on his letters.
 Renamed the fast-drying, non-detectable fluid
Liquid Paper & applied for a patent & trademark.
 IBM wasn’t interested in buying her business.
 Sold out to Gillette for $50 million within a decade.
Douglas Abrams
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Expect the unexpected - Velcro
 Chance offers unanticipated insights
 Be open to surprises
 Velcro
– Swiss mountaineers returned from
hike covered with prickly cockleburs.
Douglas Abrams
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Expect the unexpected – TiVo
 Personal TV machine
 Used Sorbathane (the elastic material found in shoes) to dampen
vibration and reduce noise
 Less noisy than competitor products
Douglas Abrams
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Sometimes failure itself generates innovation
 Post-It notes - failed glue
 Scotchgard - spilled on shoes
 Combat - failed additive for cattle feed
Douglas Abrams
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Generating ideas & creating innovative products
• Selecting the right industry
• Finding opportunities
• Identify innovation inflection points
Douglas Abrams
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6XXXX
The technology adoption S curve
Measure of
performance
Measure of effort invested
Douglas Abrams
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Implications of the S-curve for entrepreneurs
 Technologies originally experience slow performance improvement
due to learning curve
 Transitions to new S-curve taken by new rather than established
firms
 Established firms have little incentive to go to new S-curve
– Inferior performance
– Limited application
– Cannibalizing existing technologies
– Can improve existing technologies
Douglas Abrams
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Timing the S-curve: Don’t go too early or too late
 Look for paradigm shifts
 Watch technological frameworks that scientists and engineers are
using as they often signal new opportunities
 After changes in core technology have time to settle but before a
dominant design emerges
 Try to establish a technical standard
– Low price
– Work effectively with complementary technologies
– Simple products
Douglas Abrams
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6XXXX
Establishing a technical standard - Linux
 Linus Torvalds, aged 21, couldn’t
afford an operating system thus spun
out his own.
 Today, Linux has 15 million users &
thousands of independent
developers working to make the
system better.
 Made Linux “open source” software
 Challenging the old assumption that
the best software is proprietary and
maintained by a single company.
Douglas Abrams
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6XXXX
Target an increasing returns business
 Up-front costs are high relative to marginal costs
 Network externalities
 Complementary technologies are important to use
 Producer learning is strong
 Switching costs are high
Douglas Abrams
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Interesting product ideas
 Tivocorder
– A tiny, pen-shaped digital audio recorder. Once in
your shirt pocket, it would continuously record the
sound around you. At any time, while continuing to
record, you could play back the last 20 minutes of
whatever you've just heard
 MP3-toothbrush
– An MP3-playing toothbrush for use during a hygiene
moment.
 Weather-forecasting toast
– The slice of bread pops up with a simple icon of the
day’s outlook: a shining sun, a cloud or raindrops
– A step towards integration of a modern household
with internet technology
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Sources and references
 Finding Fertile Ground by Scott Shane, Wharton School
Publishing
 The Art of Innovation by Tom Kelley with Jonathan Littman,
Doubleday
Douglas Abrams
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Contact us
 Douglas Abrams
 dka@parallaxcapital.com
 necadk@nus.edu.sg
 65-9780-5381 (hp)
Douglas Abrams
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