52% of the Fortune 500 companies in 2000 went out of business by 2020.
The world's largest companies with the biggest budgets.
And most died in just two decades.
Companies have two options to stay or become relevant:
1️⃣ Sustaining Innovation.
Making iteratively better products allows you to charge more money from your current customers/market.
2️⃣ Disruptive Innovation.
Making products cheaper and more accessible for people outside your current market. Or changing the technology or form factor to drastically improve the product. This typically undercuts your current products.
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Examples of this playing out:
🏎 While all the gas car companies were fighting over marginal cost, fuel consumption, size, and "sexiness," Tesla built electric, futuristic cars and became worth more than all gas car companies.
🔎 Google focused on making more money from Search. Despite having the most data to train AI, OpenAI creates ChatGPT and replaces many Google searches.
🚀 Lockheed Martin & Boeing made insanely expensive rockets. SpaceX emerged and made them way cheaper and reusable. It has already launched more satellites than all other companies combined (while also disrupting Internet Service Providers with Starlinq).
If a company doesn't do #2, someone else will and kill them over time.
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Most companies focus on #1 for a simple reason:
👉 They’re made up of individuals trying to accumulate short-term evidence of achievement: more money, promotions, and awards.
And avoid evidence of incompetency: demotions, firings, or failure.
Employees and executives are often compensated with annual bonuses. Companies don't retroactively take back the money if the company fails 10 years later.
To maximize bonuses, they focus on improving current products for current customers and charging more money.
An example of this is the iPhone:
The iPhone 4 cost $199 to $299. The iPhone 15 costs $899 to $1599. We're happy paying that because the iPhone 15 is so much better.
However, many companies neglect to invest in long-term, risky bets that could make their products cheaper and more accessible, or completely different.
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Startups are different.
Hungry, young founders are often driven by longer-term big payouts rather than short-term marginal gains.
Startups also typically can’t compete with incumbents on the best. But they can compete on different.
Startups are run by ambitious founders.
Massive corporations are run by committees.
It’s unlikely Apple will choose to disrupt the iPhone. iPhone sales are 52% of Apple’s revenue.
Disruption will kill the $199B/yr cash cow.
A startup will unless Apple maintains a culture of disruptive innovation, even if it hurts in the short term. But that's unlikely now that a committee runs Apple.
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You need both:
Sustaining Innovation to sustain or increase profit and keep customers happy.
Disruptive Innovation to stay or get ahead, and wow new or existing customers.
Another reason why I ❤️ startups
Multi-channel marketing for $100M teams 🤙
1yLove the breakdown Neal 🔥