Six Common Steps to Disruption

1. Disruptive innovation is first developed at an established firm.
2. The established firm elicits feedback from its customer base. More often than not, customers will not recognize the disruptive innovation’s actual value.
3. The management team at the established firm chooses to ignore the disruptive innovation.
4. New companies, often founded by ex-employees of the established firm, are created to make use of the disruptive innovation.
5. Through trial and error, the newer companies find product-market fit. 
6. The established firm belatedly tries to defend itself against a fleeing customer base. It is usually too late.

There is a distinction between disruptive innovation and sustained innovation. Sustained innovation brings about sustained success. Disruptive innovation brings about cannibalization. Management teams loathe disruptive innovation for this very reason. A good management team is expected to lead its firm toward sustained success. Disruptive innovation steals from this goal by eating into profits that get generated by a sustained innovation.

Disruptive innovation often overshoots market demand, but over time market demand catches up with technological capability. Each sustained technology has a certain purchase threshold. Once the threshold has been passed the market is said to have become overserviced. In economics, one would say that supply had outpaced demand. Such markets are ripe for disruption.

Fireside Chat with Vinod Khosla from Khosla Ventures

Vinod Khosla: 

My willingness to fail gives me the ability to succeed.

To be an entrepreneur you have to be an optimist. A good entrepreneur is unreasonably optimistic, maybe even a little bit irrational. You have to be able to ignore failure until you achieve success. Who remembers a successful person’s failures? No one. Failure can become irrelevant if the entrepreneur takes the right attitude towards failing. It is okay to fail as long as you fail quickly. Trying to not fail is a self-fulfilling prophecy to mediocrity. Failure is the key to success. 

If you don’t have a vision you are unlikely to succeed. If you have a vision, then keep trying until you succeed. How do you decide when to stop thinking about an idea and start building it? Passion. If you are passionate about an idea you will not stop trying to implement it until you achieve product/market fit. Passionate people do not give up easily. The iterative process for a passionate person is seemingly endless. This is something that VCs look for.

If you are going to pitch a VC, first figure out 3-4 things that appeal to them. Pitch to that. In other words, give the VC 3-4 things to talk to his partners about.

An entrepreneur should always be trying to answer the question, “Why should a VC invest in me?” Investors only have two feelings: greed and fear. Use this knowledge to help you answer the question.

E.g.

1. Here are 3-4 reasons why an investor should invest in me.
2. Here are the risks. 
3. Here’s how my company will address those risks.

The single biggest task you will face as an entrepreneur is managing risk. Everything an entrepreneur does increases some risks while decreasing others. A successful entrepreneur knows how to successfully manage his company’s exposure to risk. Deciding whose opinion to trust is another major hurdle that every entrepreneur must face. Vinod Khosla’s best practice is to narrow your choices down to 2-3 people, hear their opinions, then make a decision on who is most trustworthy. After you make a decision, it is important to list the Top 5 reasons as to why the decision you made was wrong. People often spend more time justifying decisions than inspecting them for errors.

Be sure to check out Vinod Khosla’s 15-page essay on Gene Pool Engineering. He cited the paper on multiple occasions throughout the night.

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Material sourced from a fireside chat with Vinod Kholsa at RocketSpace SF.