 So Matt, today we're reviewing the Innovator's Solution by Clayton Christensen, a follow up to his tremendously successful Innovator's Dilemma, a book we previously reviewed and you didn't really like that much. Hopefully this book changed your mind. So in the first book Christensen unveiled a famous theory of disruption whereby a traditional incumbent, say a Fortune 500 company, is upended by an upstart who's wielding a technology that the incumbent doesn't usually take seriously until it's too late. Yeah, so the signup of this book is you're a Fortune 500 executive, you've read the Innovator's Dilemma and you're worried. Disruption could come from anywhere, any angle, but good news, Clayton Christensen is here to help you out. He's written the Innovator's Solution, which will help you maybe even disrupt your own business. Yeah, so my notes for this book I had down that was essentially the Empire Strikes Back of Business books and that's trying to help Fortune 500 companies kind of regain the upper hand. Like any Star Wars movie, you're going to have seen some of it before. There's quite a bit of rehashing in this book or the first book. In particular, we talk about Christensen's classical model of disruption, whereby disruption really comes from downmarket to upmarket. So to give a tangible example, we can look at something like TVs. Let's say a premium TV, a flat screen costing thousands of dollars, now that's an upmarket product. Whereas a portable TV you might find in a college dorm, that's kind of a downmarket product. And Christensen argues that disruptors or upstarts kind of start downmarket, build a base there, and then move more and more upmarket to where the profits are, slowly eating more and more of the incumbent's business. Matt, I know you're itching to critique this theory, so why don't you go ahead? Yeah, you said a rehash, but that's putting it lightly. The entirety of Innovator's Dilemma is included in this book, which would be fine other than it's completely wrong. He messes up the entire, you know, last 10 years of tech development when he lays out this theory. You can use Tesla as an example. This is a company that started with a very upmarket product. The Roadster basically only appealed to rich Silicon Valley, you know, millionaires and billionaires, and then suddenly has now moved all the way downmarket with the three to capture a much wider audience. So if you're a CEO at Ford, you have been deceived by Clayton Christensen. You were looking for this low-end competitor to put you out of business, but instead Elon Musk has dropped this ultra-expensive vehicle on you that's taking away your market. Yes, every business theory has counter examples, right? This one's no different. And yes, we have seen a lot of times where there has been upmarket to downmarket disruption, but Christensen doesn't really consider feasible in this book. But to his credit, I do think he builds out his theory more in Innovator's Solution than he did in Innovator's Dilemma. For example, he talks about how disruption could not only come from downmarket, but also can come from a separate market altogether. In fact, when he's advising, you know, would-be disruptors, would-be upstarts, he says you really want to compete against non-consumption. You want the customer to either buy your product or not buy anything at all. You don't want them to be choosing between your product, say, and a market leader because it's just never going to go well. This actually echoes advice we saw from Peter Field when we reviewed Zero to One, where he advocates going up to a very small, untapped market and just trying to absolutely monopolize it. Yeah, you know, in theory, I completely agree with this approach, but in practice, I think it is so hard to do. The example that Christensen gives in the book is that you're the CEO of a fast food restaurant and you found out that you're selling lots of milkshakes in the morning. Great problem to have. So you go and you look at your demographics and you say, oh, maybe I should make it a little bit sweeter to appeal to this group or a little chunkier for this group. I think though, you know, when he walks to the example, he says, actually, don't look at any of that. What you should look at is why people are buying milkshake. Why are they hiring the milkshake to use his vernacular? And he says that really, you should look at the need states, which basically go back to people are buying milkshakes in the morning because they want something interesting to do on the morning commute. They want something that keeps them occupied without creating a big mess. And the milkshake just fits the bill perfectly. And I think, you know, it's great that he can do this. But I think in reality, this is so, so difficult that it's kind of a useless example. Well, actually, since reading this, Matt, I've started a very successful milkshake business where I now collect millions of dollars in revenue. So thank you for that. One of the things that I would critique about this book, and I'm surprised you have not mentioned yet, is a very post hoc nature of the analysis. So Christensen lays out, 30, 40 examples of successful disruptors. Southwest Airlines is one, for example. But all of this analysis is done very much in retrospect, where it is obvious now that a particular company that was once a lowly upstart has become a very successful disruptor. Yes, this was my chief criticism in the innovators dilemma, which is that, you know, a sustaining change is one that helps the existing industry grow. And a disruptive change just completely upends the existing players. And you can't tell any of this until you have, you know, some period of time to this post hoc analysis. And it basically means that all of it is completely arbitrary until you can look at it in the past. And, you know, if you were going to believe Clayton Christensen, you should buy companies like RIM and Cisco. But I would argue you would probably be pretty upset with your tenure returns had you followed his advice. But regardless, Adam, I think we should switch gears a bit and talk about the disruptive technology of our day, Bitcoin. What are your thoughts? So if you put Bitcoin into kind of Clayton Christensen's model of disruption, you basically have it going up against an established incumbent in this case, which would be US dollars and, you know, the general financial system of the world. In terms of performance attributes, you would say that Bitcoin underperforms in terms of things like transaction speed, and, you know, having a value that doesn't move by 30% every day. On the other hand, Christensen would potentially argue that Bitcoin is serving an underserved market right now, which would be people who say want to want the money. And for that reason, it could grow this underserved market, get better in the other attributes, and eventually maybe overtake, you know, the current incumbent. Yeah, you know, reading through this book, I just felt that Clayton Christensen was perhaps just a bit too soon. His publishers were too eager to get this book out in 2003 because shortly after everything changes. And, you know, I think this is one of the traps we fall into where we look at societal changes versus tech changes. And we didn't actually realize that 1999 to 2003, really the same exact tech. We had large centralized servers, people were on desktop computers. But then shortly after, we have this huge revolution, largely driven by the iPhone and other smartphones where now we have mobile devices, now we have cloud computing. And all of the paradigms that are set up in this book just completely fall over in the face of that. And, you know, making a callback to my previous statement, you know, Cisco is now in trouble because all of its architecture is built on this staying the same and it all changed. And so, you know, this is this is one of those I think where, you know, really would have been better served just to wait a couple, couple years. Yes, you mentioned Cisco, you also mentioned previously Ram, who researched in motion, who built the BlackBerry. And that's a very long extended discussion of the BlackBerry and the Palm pilots also in this book, where the entire time you're reading it, you're just yelling at him, the iPhone is coming, just to wait a couple years and everything is going to change. And I think BlackBerry in their position is kind of instructive of, say, the flaws of Christensen's theory. So he lays out a sort of very nice idea, but products are either below customer needs or above customer needs. So what I mean is that when you're below customer needs, you're not delivering the performance that a customer would really want. It's now to improve your product, you have to have a very integrated product or the systems need to be self contained, and you're really just focusing on maximizing performance. But eventually, you're going to get to a stage where you actually exceed the performance for customer wants, your products is really too good. And at that time, your product would be modularized, as Christensen would call it, whereby you're basically outsourced different bits of the product, because the technology is basically stable, it's good enough for the customer's needs. And by outsourcing to different suppliers, you're going to be lowering the overall price of the product. Now Christensen's argument, this has been a long wind and wind up, is basically to say the Blackberry was potentially at the point where their product was too good for the market. So he would say that rather than being an integrated product, he would have expected them to become modularized over time, different suppliers making different pieces, now kind of bring down the price of the Blackberry because it was already too good for customers. Now of course, in retrospect, we know that the iPhone is going to come along, which is going to be so much better than anything Blackberry can do, the Blackberry was actually not meeting the needs of the customers fully. But if you're in Blackberry's position at the time, there's absolutely no way to know where you are on this integration versus modularization spectrum, because how do you really know what true customer needs are? Yeah, this is a great example of how the milkshake scenario just completely falls over in reality. I'm sure RIM would have loved to figure out that the real need state of customers was to check Tinder while waiting in line at the airport, but just couldn't figure that out, the customers just weren't telling them that's what they needed. And so, obviously didn't work out for them, but all kidding aside, I think this theory works a little bit better for physical goods than it does for things that are a little bit more intellectual or a little bit more hard to define. For example, I don't even know how you would apply this to the current state we are in tech, where basically everything's free. Your attention is what you're paying to get access to these products and there's no real cost to customers directly paying to use any of them. Right. I think Christensen's theory works well for physical goods, like you said, especially like business to business, like B2B scenarios. And it doesn't work well for this just really weird tech paradigm has kind of developed. In particular, he gives you some advice that anywhere else would really seem quite sensible. He says, for example, that you need to be impatient for profit, but patient for growth, meaning that when you start a new venture, you should see very early on if it's actually capable of making money and kind of worry about building it out until later. But of course, this, you know, runs completely counter to the philosophy of companies like Uber, who are all about growing, growing, growing as fast as you can and getting profits. You know, it's on far one point in the future. Yeah, you know, yet another area where Christensen is his whift, the theory is not working out as intended. If you look at all of the recent VC investment, it's all towards growth. Everybody wants to grow as fast as they can. And then you can look at a company like Amazon, which went 15 years without ever making a profit, just completely violates every theory in this book. You can even look to their modern development of AWS and sort of leading the cloud computing revolution. And again, this is something that's not predicted. They are one of the largest companies in the world. And yet they're creating a extremely disruptive technology. Christensen says this shouldn't be possible, but yet it happened. To be fair to Christensen, I think if you told someone in the early 2000s that we'd be in 2018 and Amazon still wouldn't really care about making a profit, they would have called you absolutely insane. So I don't really knock him too much for missing the vote on that one. But I would say something like Ben Thompson's aggregation theory has kind of become the prevailing wisdom around here, like how tech works, rather than Christensen's theories of disruption. Switching gears, though, I don't want to spend this entire review bashing the poor man. I think he has written a very tremendous influential book, even if some of its theories don't quite hold up today. In particular, I think Christensen actually has good views on hiring. So in the book, he talks about how you shouldn't just hire people for having what he calls the right stuff or kind of a conventional wisdom of how a salesperson should work or an analyst should work. You should really focus on hiring for a specific circumstance where they're going to feel of a particular need for your company. And this, of course, reminds me of something we saw in our last book review of The Hard Thing About Hard Things by Ben Horowitz, where Horowitz actually advocates for a very similar principle. Yeah, absolutely. I love the theories in the book that really you should look for people who have tried to do something and failed or tried to do something and pivoted because those people got experience. If you look for people who only had a string of successes and then you try to do a new venture, these are probably not the right people to pick for those roles. And so I thought that was really smart. I thought the other thing that he talked about a lot was the power of middle management, that oftentimes middle management is the first filtering layer in any company to decide what the company does and doesn't do. And if senior managers are trying to pick different projects and they're choosing the ones that they think will lead to the most financial growth, then this actually leads them down the path of peril, whereby they kind of ignore all the new changes. He also makes a great point I thought about senior management, which is that senior management oftentimes feels like they have a great view of the business of what's going on. But in reality, they usually only see what middle management is willing to pass up. And pretty soon at any organization, middle management becomes really good at tuning the type of projects they're going to present is stuff that they know that senior management will already accept. So this area of the book I really like thought it was extremely solid. Yes. And I think part of the reason why Christensen has that kind of insight is because he's not just a theorist and an ivory talent, as you might want some accusing of being, he's actually run a company himself. He's been a CEO. He's kind of walk the walk. And so I get him a lot of credit for doing that. Well, I noticed that he had to obfuscate the name of the company throughout the entire book into his own self-admission didn't seem to be a great CEO. He just didn't want to draw attention to his success. I googled the company, they do still exist in some sort of materials manufacturing. And I'm sure it was due to his leadership. That's kind of surprising. But putting all that aside, we've covered the highlights and the lowlights of this book. But I would wrap it up by saying the first book, Innovator's Tylima really upset me. I was kind of angry with a lot of the theories put out because I thought they were wrong. This book, Innovator's Solution just really disappointed me. It's a rehash of the entire first book. There's nothing new. And you know, if you came away thinking the first theory was great, well, there's just more of it in this one. So I'm definitely a lot higher on these books than you are. I think there's a reason they're considered business classics. I think the theories have kind of been absorbed to such an extent by all these different companies that they just don't seem particularly novel now. But I think in my day, they're really quite original. One thing I think that's interesting what's happened is that rather than trying to create disruption internally, a lot of companies have moved to more of an acquisition model where they try and find these potential upstart disruptors, acquire them as quickly as possible. But in principle, it's still the same if you're trying to avoid being disrupted. For future segments, we will again return to the topic of disruption by discussing Bitcoin and the blockchain next week. Until then, thank you for watching Rad and Talkers. Make sure to subscribe on YouTube, and we'll see you next time.