A Brief Look at Markets Ready for Disruption #3
In my last post "A Brief Look at Markets Ready for Disruption #2", I attempted to suggest ways to discover more opportunities and insights on existing industries by trying to apply models that better define the approaches to disrupting an industry, and their results, more clearly
This post is going to apply those concepts to a great report by CBIsnights on 8 industries Elon and his companies ares disrupting.
The first industry that the CBIsnight report reviews is energy - more specifically electricity. Before I apply the framework for disruption to better understand the effects of Elon's work, I just wanted to pay attention to the way the information was displayed and in what order it was presented in.
The first graph shows the net Generation of nuclear electric power, in all sectors, from 1949-2011. Why does it appear they did that? I can assume that it is to prove that the existing "monopoly" industries were in some way lacking, and seemingly plateauing. It is something to lean on when looking for the "opportunity" of a product with disruptive properties... But, it isn't enough of a support for the whole discussion - so they added that great graph showing the current age of all types of existing electric generators, and their respective capacities (by fuel type from 2012-present).
What this really meant to me was that as the discussion that supports the exploitation of an opportunity continues, the timing of that solution can now be "leaned" on. This provides a sort of call to action to the potential investor and a sense of urgency to the startup team. Timing, it seems, is everything if you ask Bill Grove "why startups succeed?".
Moving along, the information has married some data with the idea that existing energy solution is old, and that this new solution is a good answer at a good time... but the next logical discussion point is: "is it affordable? " Well, looks like it certainly is as the report shows the Swanson effect graph data in regards to the price of building photovoltaic cells. But as this speaks to the manufacturing cost in a broad sense, they tap in the ultimate tag team followup of data showing that as the installation of solar panels goes up, the price of manufacturing drops drastically... a manufacturing wet dream.
Expert move answering manufacturing costs and implementation/installation costs all in one go. Kudos.
So when looking at the flow of information in this report, it seems to be telling a story that the reasoning behind Elon and Solarity's initial success was a combination of the timing and cost as a platform to ask a really a really simple question: "why isn't it happening already?! look at this historical data! This is nuts!". The answer to the question is that no one had a great implementation strategy and so, the answer to "what is the reasoning behind Elond and SolarCity's initical succes?" strategy.
SolarCity's "solar lease" plan was the obvious answer to an obvious question. I think you could google "how to be an entrepreneur" or "how start my own business" and find hundreds of articles on creating a scalable business model instead of a business plan or product concept - this is a great example of the power of that concept
But, I used the term "Initial Success" with great care for one reason - This example also provides insight into how you can do the right things initially and still fail HARD.
It seems SolarCity didn't build a great business model that could keep up with the scale of their implementation plan. I meant what I said that the Solar Lease sales strategy was an obvious answer to an obvious question because it worked too well. Don't ever plan to disrupt an industry without considering the rate of scale in correlation with the rate of success. I mean... I would hope that you're going into the whole situation with the idea that you're going to be the "last industry standing" - why wouldn't you plan for that vision?
Big questions, maybe they should've used the disruption framework to assess before entry... so let's try that. starting from the ground up as advised, the six layers to the framework are: Theory, Technology, Value Generation Model, Industry Architecture, Consumer Behavior, Institutions
The first point of the framework is scientific community and its "theory" (or whatever theory you made based off of their works). In this instance, it is pretty clearly defined - Solar Power tech definitely advanced to a point, with supporting data, to suggest that the traditional industries were lacking. Plus science threw global warming and resource scarcity into the mix. First level of scientific communities and their publications is a go
Second, the "technology" layer comprised of R&D and patents I think is also covered in the first layer in this scenario - so technology is a go
Third, Value Generation Model: Here I think we have to speculate on how SolarCity formed theirs looking at their product, offering, and the limited snapshot of the solar panel industry CBInsights provided. Let's assume that they kept the Innovator's Dilemma in mind and met with their management and R&D team. Under this assumption, it looks like SolarCity did this well. Consider The Value Generation and Continuous Innovation - then conclude that they were realized in the data supporting that photovoltaic cells ( as material/manufacturing cost) dropping by 20% every time to the volume of solar panel production doubles in volume.
More installs, cheaper panels, more profits - all the benefits. Now we can practically hear the conversation where management signed off on the idea. It allowed them to tie the R&D team's innovation closer to the current product timeline. This lets them allow the product to mature until it stands on its own legs as a unique product segment. THEN the R&D team can innovate with new tech and new functions like they originally planned... that is just the nature of the business manager and the nature of the R&D team - one makes it sellable and one improves or changes the product.
I think this is the first area where SolarCity lost its way in the process to disruption..which is an insight only formed after applying the framework. guys.. it's working. To me it looks like the story so far has been all internal and B2B. When did someone raise their hand and ask "We proved this is totally gonna work, but what do we do when it does?" let's keep going.
Next, Industry Architecture: more specifically SolarCity as a firm. We climb this step on the ladder easily because the Value Generation model is clearly ideal for management to approve of the capital necessary to allow the company to launch. SolarCity's management put their heads together and settles on an architecture that revolves around the Solar Lease strategy. But, before we say it is a go, I'd like to identify what makes this layer of the framework important to me. What makes it important is that it highlights the area in which you should use the new technology from the R&D layer as a tool, in order to build the initial value generation model AND take into consideration how the product launched may either coexist with the current industry models or completely change them. (change being what happens most of the time, as we are talking about disruption). You can master the use of that R&D tool all you want, and make a reallllllly great 10x value add solution but you have to be prepared for the segway into the next layer - Consumer Behavior
Consumer Behavior: Not all disruptive innovations are perfect, they all have flaws, which might influence people’s quality of life. In general, disruptive innovation not only changes the value network or industry structure of an enterprise, but also causes a huge impact on society.
This is a function of the new product, with a disruption property, crossing the industry layer, and then directly impacting the consumer layer. Let's call this function "market need". Market Need should have pulled SolarCity back to change their original industry architecture in a way that accounts for the function. Here is where I suspect the major disconnect was:
After the launch of that industry disrupting Solar Lease Strategy, SolarCity should've transformed into a new industrial structure to adjust to the new market it created. After major success with the Solar Lease strategy, they could have possibly coped with such disruptive changes through mergers and acquisitions.... of say major roofing companies and contractors. If they built some sort of coping mechanism into their architecture and model, they might have been able to avoid their transformation into a snack - later devoured by Tesla. Tesla stopped the bleeding and masterfully retooled SolarCity as a value network stream of their Industry Architecture.
Based on the report, Tesla was developing the technology to help people charge their Teslas at home and on the road. These so-called Powerwall batteries were being installed in homes and connected to solar generators by third parties. After SolarCity’s acquisition, their business became organized under the Tesla “Solar Roof” product. This allowed Tesla to provide end-to-end residential solar energy rather than just the battery.
What you're seeing here is the proper approach of Industry Architecture with the Market Need function's "pull back" accounted for. I.e run through the framework for Tesla up to this point, then cope through merger and acquisition, then re-organize to 10x their value stream of both SolarCity and Tesla's market demand. Apply that R&D layer tool again, Then merge that and 10x their giga factories output value and effectively kill all the bird with one stone.
Brilliant.
What's the point of this exercise? Certainly not to reiterate that I am a fanboy... But definitely to begin the practice of looking at good examples and picking them a part as they apply. In my opinion, great innovative minds don't look forward; They look back and see the effects and outcomes. They think of how it could have changed, and the possibility of those different outcomes.
When the road of opportunity forks into two dark paths, most try to find ways to peer through that darkness. These great minds are applying the clarity of the past to make a better present day choice, and as a result pave a better path into that dark future... only 2 variables of the 3 (past, present, and future) are clear and definable - build off of them
This exercise is exemplary of that opinion - You can apply models and analysis to the choices made by your predecessors and make a better decision, in your present day, about your own future. THIS is the logic of group learning. of analogical learning. of the scientific method. of the human collective mind. And as such, fits within the working theoretical concept of the Modern Business Mind.
Try it for yourself, and see what you come up with :)
Sincerely,
MBMJeremy
This post is going to apply those concepts to a great report by CBIsnights on 8 industries Elon and his companies ares disrupting.
The first industry that the CBIsnight report reviews is energy - more specifically electricity. Before I apply the framework for disruption to better understand the effects of Elon's work, I just wanted to pay attention to the way the information was displayed and in what order it was presented in.
The first graph shows the net Generation of nuclear electric power, in all sectors, from 1949-2011. Why does it appear they did that? I can assume that it is to prove that the existing "monopoly" industries were in some way lacking, and seemingly plateauing. It is something to lean on when looking for the "opportunity" of a product with disruptive properties... But, it isn't enough of a support for the whole discussion - so they added that great graph showing the current age of all types of existing electric generators, and their respective capacities (by fuel type from 2012-present).
What this really meant to me was that as the discussion that supports the exploitation of an opportunity continues, the timing of that solution can now be "leaned" on. This provides a sort of call to action to the potential investor and a sense of urgency to the startup team. Timing, it seems, is everything if you ask Bill Grove "why startups succeed?".
Moving along, the information has married some data with the idea that existing energy solution is old, and that this new solution is a good answer at a good time... but the next logical discussion point is: "is it affordable? " Well, looks like it certainly is as the report shows the Swanson effect graph data in regards to the price of building photovoltaic cells. But as this speaks to the manufacturing cost in a broad sense, they tap in the ultimate tag team followup of data showing that as the installation of solar panels goes up, the price of manufacturing drops drastically... a manufacturing wet dream.
Expert move answering manufacturing costs and implementation/installation costs all in one go. Kudos.
So when looking at the flow of information in this report, it seems to be telling a story that the reasoning behind Elon and Solarity's initial success was a combination of the timing and cost as a platform to ask a really a really simple question: "why isn't it happening already?! look at this historical data! This is nuts!". The answer to the question is that no one had a great implementation strategy and so, the answer to "what is the reasoning behind Elond and SolarCity's initical succes?" strategy.
SolarCity's "solar lease" plan was the obvious answer to an obvious question. I think you could google "how to be an entrepreneur" or "how start my own business" and find hundreds of articles on creating a scalable business model instead of a business plan or product concept - this is a great example of the power of that concept
But, I used the term "Initial Success" with great care for one reason - This example also provides insight into how you can do the right things initially and still fail HARD.
It seems SolarCity didn't build a great business model that could keep up with the scale of their implementation plan. I meant what I said that the Solar Lease sales strategy was an obvious answer to an obvious question because it worked too well. Don't ever plan to disrupt an industry without considering the rate of scale in correlation with the rate of success. I mean... I would hope that you're going into the whole situation with the idea that you're going to be the "last industry standing" - why wouldn't you plan for that vision?
Big questions, maybe they should've used the disruption framework to assess before entry... so let's try that. starting from the ground up as advised, the six layers to the framework are: Theory, Technology, Value Generation Model, Industry Architecture, Consumer Behavior, Institutions
The first point of the framework is scientific community and its "theory" (or whatever theory you made based off of their works). In this instance, it is pretty clearly defined - Solar Power tech definitely advanced to a point, with supporting data, to suggest that the traditional industries were lacking. Plus science threw global warming and resource scarcity into the mix. First level of scientific communities and their publications is a go
Second, the "technology" layer comprised of R&D and patents I think is also covered in the first layer in this scenario - so technology is a go
Third, Value Generation Model: Here I think we have to speculate on how SolarCity formed theirs looking at their product, offering, and the limited snapshot of the solar panel industry CBInsights provided. Let's assume that they kept the Innovator's Dilemma in mind and met with their management and R&D team. Under this assumption, it looks like SolarCity did this well. Consider The Value Generation and Continuous Innovation - then conclude that they were realized in the data supporting that photovoltaic cells ( as material/manufacturing cost) dropping by 20% every time to the volume of solar panel production doubles in volume.
More installs, cheaper panels, more profits - all the benefits. Now we can practically hear the conversation where management signed off on the idea. It allowed them to tie the R&D team's innovation closer to the current product timeline. This lets them allow the product to mature until it stands on its own legs as a unique product segment. THEN the R&D team can innovate with new tech and new functions like they originally planned... that is just the nature of the business manager and the nature of the R&D team - one makes it sellable and one improves or changes the product.
I think this is the first area where SolarCity lost its way in the process to disruption..which is an insight only formed after applying the framework. guys.. it's working. To me it looks like the story so far has been all internal and B2B. When did someone raise their hand and ask "We proved this is totally gonna work, but what do we do when it does?" let's keep going.
Next, Industry Architecture: more specifically SolarCity as a firm. We climb this step on the ladder easily because the Value Generation model is clearly ideal for management to approve of the capital necessary to allow the company to launch. SolarCity's management put their heads together and settles on an architecture that revolves around the Solar Lease strategy. But, before we say it is a go, I'd like to identify what makes this layer of the framework important to me. What makes it important is that it highlights the area in which you should use the new technology from the R&D layer as a tool, in order to build the initial value generation model AND take into consideration how the product launched may either coexist with the current industry models or completely change them. (change being what happens most of the time, as we are talking about disruption). You can master the use of that R&D tool all you want, and make a reallllllly great 10x value add solution but you have to be prepared for the segway into the next layer - Consumer Behavior
Consumer Behavior: Not all disruptive innovations are perfect, they all have flaws, which might influence people’s quality of life. In general, disruptive innovation not only changes the value network or industry structure of an enterprise, but also causes a huge impact on society.
This is a function of the new product, with a disruption property, crossing the industry layer, and then directly impacting the consumer layer. Let's call this function "market need". Market Need should have pulled SolarCity back to change their original industry architecture in a way that accounts for the function. Here is where I suspect the major disconnect was:
After the launch of that industry disrupting Solar Lease Strategy, SolarCity should've transformed into a new industrial structure to adjust to the new market it created. After major success with the Solar Lease strategy, they could have possibly coped with such disruptive changes through mergers and acquisitions.... of say major roofing companies and contractors. If they built some sort of coping mechanism into their architecture and model, they might have been able to avoid their transformation into a snack - later devoured by Tesla. Tesla stopped the bleeding and masterfully retooled SolarCity as a value network stream of their Industry Architecture.
Based on the report, Tesla was developing the technology to help people charge their Teslas at home and on the road. These so-called Powerwall batteries were being installed in homes and connected to solar generators by third parties. After SolarCity’s acquisition, their business became organized under the Tesla “Solar Roof” product. This allowed Tesla to provide end-to-end residential solar energy rather than just the battery.
What you're seeing here is the proper approach of Industry Architecture with the Market Need function's "pull back" accounted for. I.e run through the framework for Tesla up to this point, then cope through merger and acquisition, then re-organize to 10x their value stream of both SolarCity and Tesla's market demand. Apply that R&D layer tool again, Then merge that and 10x their giga factories output value and effectively kill all the bird with one stone.
Brilliant.
What's the point of this exercise? Certainly not to reiterate that I am a fanboy... But definitely to begin the practice of looking at good examples and picking them a part as they apply. In my opinion, great innovative minds don't look forward; They look back and see the effects and outcomes. They think of how it could have changed, and the possibility of those different outcomes.
When the road of opportunity forks into two dark paths, most try to find ways to peer through that darkness. These great minds are applying the clarity of the past to make a better present day choice, and as a result pave a better path into that dark future... only 2 variables of the 3 (past, present, and future) are clear and definable - build off of them
This exercise is exemplary of that opinion - You can apply models and analysis to the choices made by your predecessors and make a better decision, in your present day, about your own future. THIS is the logic of group learning. of analogical learning. of the scientific method. of the human collective mind. And as such, fits within the working theoretical concept of the Modern Business Mind.
Try it for yourself, and see what you come up with :)
Sincerely,
MBMJeremy
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