This post will act as a trailhead for the TiVo problem. Coined by Alex Rampell, it’s the contest between incumbents and innovators. As a question: can incumbents get innovation before innovators get distribution.
- Netflix innovated to distribution before Blockbuster distributed innovation.
- White Claw innovated to distribution before Budweiser distributed innovation.
- Tim Ferriss innovated to distribution before Known-Media-Personality-A distributed innovation.
In the Netflix example, Mario Cibelli spoke about how Netflix fixed many small problems that accompany innovation. That work on a small p, large N problem helped Netflix stay ahead of Blockbuster.
But it’s not easy.
Kara Swisher joked that Evan Spiegel (of Snapchat) is the chief designer of Instagram; an ongoing contest between the distribution of Facebook/Instagram and the innovation of Snapchat. Bill Abbott, CEO of Hallmark complained about the distribution advantage that Lifetime has, as a Disney owned company, riding along on sister-site Hulu.
One of the more interesting instances ‘cheating’ on distribution. That’s the case of 5-Hour Energy, whose founder Manoj Bhargava noticed that getting in the convenience store coolers would be a tall order. But getting on the cash register counter was much easier.
For Innovators, there appear to be at least two techniques:
- The weak/strong dichotomy. This was the 5-Hour Energy plan. Coca-Cola’s manufacturing and marketing strength was also their weakness. Innovators then should go where Distributors can’t because of their established business.
- In his original assessment of the Innovation-Distribution race, Alex Rampell suggested to ‘Be Boring‘. This is unglamorous fixing of sorting machines at Netflix.
In addition to the first post, we can add two more ideas of small probability times a large number yielding a significant result.
In the first instance, our large N is t (time), and the small probability event is genetic mutations which lead to cancer. Jason Fung writes about mutations: “This small likelihood of success explains why cancer often takes decades to develop, and why cancer risk rises sharply in people over the age of forty-five.”
The second is an idea from Mario Cibelli about accumulating advantages. Cibelli told Patrick O’Shaughnessy that he visited a Netflix distribution center during their DVD heyday.
“I think what we saw essentially was an operation that was very, very hard to replicate. They had years and years of finding and bumping into bottlenecks and eliminating them, and getting more and more and more efficient. That would range from how labor was used, the lack of storage of DVDs. They actually didn’t store them anywhere, they always remained on the desks. The manager explained to us how the DVDs were always looking for a home. They weren’t trying to find the DVD that the home wanted, they would have the DVD in hand and say, “Hey, which home wants this?” To a bunch of machines that they bought that sorted the material that didn’t work, that destroyed a number of DVDs, and that they had to customize.”
Each obstacle was small, take many small improvements and you’ve got a business. Netflix’s small p large N effort was how they won the TiVo Race.
Via Alex Rampell (2015):
“The battle between every startup and incumbent comes down to whether the startup gets distribution before the incumbent gets innovation.”
White Claw succeeded, gaining distribution before Budweiser could imitate/innovate. Hallmark is entangled with this problem as Disney/Hulu carry Lifetime. Barefoot Wine succeeded finding the overlap between price-point, JTBD, and non-wine-snob. Snapchat introduces stories, Facebook copies. Innovation vs. Distribution.
There are a few options given this condition.
1/ Rampell suggests to “be boring”. Or, to be first in the chronology. Customers wanted Comcast before the wanted Tivo.
2/ Innovate where the competition can’t. This is (was?) the SoFi plan: filter better borrowers who default less lowering costs and pass on
the some savings.
3/ The system might change, as in the case of medicine where the large firms (Glaxo) mostly license innovation.
This post will be the first thread in a larger exploration of this idea. For instance, Etsy seems to have held off Amazon Homemade and Candy Crush is still crushing it.