Mark Suster: How to Recognize Disruptive Opportunities

Uploaded by BrianSolisTV on 02.08.2012

Hello I'm Brian Solis and welcome to the Revolution.
With us today is someone who's going to help us walk the line between emerging and disruptive technology,
and help us see into the future so that we can bring it back to the present.
Mark Suster, thank you for joining us.
Thanks for having me.
So, that's a lofty introduction.
Why don't you tell us really quick about yourself, and then lets jump right into the dialogue.
Sure, well I grew up a software programmer since the time I was thirteen years old.
I grew up in Northern California, we all had computers around us.
That parlayed into a career helping advise big companies on IT strategy all across the world.
In Europe, I worked in nine countries. I lived in Japan.
I worked at the board level at Sony, helping with their internet strategy.
In 1999, I left to do my own start-up. It was also based in Europe. I did that for five years.
Then I moved back to the states, I sold that company to a French, publicly traded company.
I started my second company in Silicon Valley.
I ran that company for about two years, and I sold that to where I became VP product management.
And after I finished that tour of duty, I switched into Venture Capital where I now work with small start-up companies.
I've been doing that for four and a half years.
So you have certainly, a significant amount of experience working within the enterprise
with big businesses, also with decision makers and the process of making those decisions and now,
you kind of are on the other side of the coin, working with start-ups, really dynamic, real time
but now we are seeing the two sort of come together where big businesses have to realize that emerging technology is the future
of how not only the organization itself will run but how it connects with it's customers.
At what point - and I'd love your definition of this, does emerging tech become disruptive?
Well, look. We can throw around all sorts of words and everyone will have their own meaning,
so what I'd like to do is put a stake in the ground and at least define what I call disruptive technology
and the truth of the matter is, I have to credit the person who came up with the term, which is Clay Christiansen.
Clay Christiansen wrote a book called "The Innovator's Dilemma", one of the most profound books on innovation that I've ever read,
and what it basically said, disruptive technology was something that was an order of magnitude cheaper, an order of magnitude
lower quality - which I want to define - an order of magnitude lower margin captured by the provider of that,
which ultimately captured a much greater market opportunity. And what he basically said is, "Over time, as the quality grew
of what that product offering was, eventually the well established market that was paying very high margins
would trade down all at once"
and he called that "The Innovator's Dilemma", which is the person who has a vested interest in high cost, high margin, high quality,
can't respond to that disruptive technology.
Right, and so, when you talk to an executive, they'll say, "Our mission for 2012, 2013 is to get closer to the customer.
Yet, when we look at technology, whether it's disruptive, emergence, or just standard
It seems that we've operationalized ourself and automated ourself to actually get further away from the customer.
Now you are investing in companies, you're guiding and advising companies that individuals, human beings, are embracing.
It's changing their behavior, it's changing how they make decisions, not just the innovator's dilemma
I mean, what is the dilemma that the business has to face now that we've seen two different things:
one is, hands off, you know, we don't see any significant value in this.
The other is, jump into everything that is hot and popular. What's the strategy? What's the business thing to do?
Well let me say this. First of all, I like to use the analogy of frogs boiling in water
and you've probably heard this metaphor before
you drop a frog into hot water, it jumps out, you drop it into cold water,
you slowly turn up the heat and it doesn't jump out, it boils
and it's a wonderful metaphor for what happens in technology. As it happens, it turns out not to be true
frogs will jump out but nobody knows that but I love the metaphor, anyway.
[Laughs] Did you test this?
No I researched it actually because I give a lot of speeches about technology and the impact.
And I just want to give one example, which is television.
For twenty years, we have been saying, "Digital interactive television is coming".
And for twenty years we have been wrong.
And the problem is, being too early is the same as being wrong.
And so, what I think we get lulled as an industry, the television industry is a false sense that
we've been told for twenty years it's not going to happen for a variety of things.
Innovation tends to happen when multiple factors all simultaneously enable innovation to happen.
And I think in television, for example, that's going to happen in a big way from 2012 on
and the problem is, companies stuck in looking at the fact that disruption hasn't happened to them yet, become complacent
and that's what you've got to be careful of.
Well complacency though is a very contagious disease
and it affects a lot of companies and decision makers. Not just the television, I mean,
it's customer service, communication, sales, process, everything is complacent
because it doesn't recognize the one thing that, even in television, the factor of people in the equation
and now, people are becoming sophisticated, they're connected
the devices and appliances that they use, they control they guide, they dictate who they're connected with
and the experiences that they create for themselves, based on the companies, the people, so everything is changing.
But what's missing on the other side? I gotta imagine that what we really need is someone to recognize disruption
as opportunity and then be able to do something about it.
Let me talk about a couple models that I've seen companies, large companies, use that I think make sense
and I think a lot of these are experimentation and toe-in-the-water and recognizing what your value as a big company
is relative, not trying to be like small companies. So one model is I'm going to set up a corporate venture arm
and I'll use Comcast as the example, they setup Comcast Ventures. Comcast Ventures has the remit to invest as a Venture Capitalist
not to try and improve Comcast, but in having that Comcast Ventures, they're getting a lot more access to
what's going on at easy stages of companies, it's almost like they're an advanced scout
for what's going to happen. And they're trying not to invest in things that impact today's business,
but tomorrow's business. I think that's a great model as long as you can separate it from your core operations.
If you invest as a Venture Investor and your objective is, I want to be a Venture Capital Investor
so that I can find technology to integrate into my business, I think you're likely to fail.
The second example I want to give you is American Express. So American Express really wants to be an innovator
and really what they're trying to do is capture the 85 percent of all transactions that happen that are cash.
They don't need to win more market share from Master Card, Visa or whatever, they want to win market share against cash.
And so they're experimenting with all sorts of models. So what do they do? They do a partnership with FourSquare.
So FourSquare is an innovative technology company, been around for two years, and American Express says, "Well, let's
put the toe in the water and let's run a campaign with FourSquare and let's see if it works.
Let's see if we gain more customer insight, lets see if we gain more customer loyalty." And I think running pilot programs,
what start-ups crave is executive level support from big companies for programs. And it's a great way to learn what's
going on, to test what's going on and ultimately, if the pilots don't bear out you just don't continue.
Where does Walmart Labs fall in that?
You know I have to be honest, I don't know enough of what their objectives are to really comment on that one.
One of the things that I'll just throw out there is that it seems they're just investing sort of a hybrid between the two,
and that is acquiring companies that they recognize as potentially disruptive to improve tomorrow's experience today.
And peruse that idea of that different type of customer who's a little bit more connected than let's say
the traditional customers of the past, but what I've also recognized is that disruption tends to happen also
like shifting gears, right, there's first, second, third and we've witnessed with Facebook and Twitter for example
first it was disruptive and how people communicated, then it was disruptive in unlocking people in sharing and
over-sharing things that they would never have considered sharing online before. And now, we see it impacting the news
and media industry, brands and marketers, service. At what point do we recognize that these tools are tools?
And at what point can we actually recognize internal process innovation to do something about this?
So, let me start by saying this, Marc Andreessin wrote a piece in, I think it was the Wall Street Journal
where he talked about, software is eating all industries. And directionally I tend to agree with him.
Software just enables so many things, I mean, going back twenty years ago, Nicholas Negroponte wrote this
famous book that talked about turning atoms into bits, physical goods into digital goods,
and we're seeing it across many industries, even ones you never would have expected to happen, and so I think really
on your executive team, having software professionals who have a good sense of the software history
will help you to avoid mistakes, and I want to give you a quick example, Brian.
You and I have been around the block a long time and we saw AOL. Back in the early days they had a walled garden
and every company I knew would advertise: "My AOL keyword is X" and that was their advertising campaign
they wanted people to join them on AOL, and at the same time there was this movement called the internet which was open
it was free and you could build value. Well, history repeats itself. So the last two years it's all been about
Facebook fan-pages and "Likes" and "I want to acquire Likes" and every client that I see, brands, agencies
I say, "well, hang on a second, don't give up your microsites. What you really want to do is use Facebook
as a tool to build better relationships with your customers, to communicate more with your customers, but you still
have to give them a place to go that's independent of Facebook, that you own and control and is compelling
and to basically abdicate all responsibility for customer relationships to Facebook is a bad strategy.
I think it's a return to ten years ago, and I think the management teams of these companies don't understand the
sense of history. What is going to happen, I predict, is that there will be a backlash against Facebook "Likes"
and Facebook fan-pages. And by the way, I see nothing wrong with Facebook fan-pages, other than the fact that they're
not a part of the open internet. But I think people put too many eggs in that basket and I'm seeing a return right now,
we're in the early phases of it, to building social tools that are distributed, that will sit on your website and allow
you to build customer relationships with people on your product, on your inventory that you can manage.
And so I just think, having people as a part of your senior team, that have that sense of history
of where things are going, will help you be a better business.
But who's that person within the organization right now that recognizes the difference between, and this
is why disruptive and emerging is such an important thing to build an infrastructure around.
Facebook and Twitter, sure they're disruptive, but those organizations don't even recognize
how to truly embrace these opportunities.
and that's the part that's missing. You have experience within the enterprise
it comes down to culture, it comes down to leadership vision
how do we take these and execute against the relationship we want to have
where they play a part, or an enabler in that part? But how do you get the organization to change internally?
Let me say this to address part of your question which is: I grew up in Northern California, I'm a technologist at heart
I'm a geek at heart, but Silicon Valley mindset unfortunately does not cater that well to the enterprise because
they're thinking, "We want scale, we want volume, we want low touch, we don't want to have to deal with customers", right?
Like, who's the customer service department at Facebook or Twitter, right?
And that, I think, is a real problem. You do have a company and I worked at that company, which is,
which is the opposite. It was built with an expectation of understanding that it's all about the enterprise and
helping them transition and change their companies. So I do think that one has to be careful with using all the new toys
and tools of really understanding, "How it's going to impact your business? How's it going to impact how you reach out to clients?"
But here's the truth, the truth is, Twitter, in and of itself, is way more disruptive than Facebook, in my opinion.
and because what it is, is so unique and different, it's an open platform where everything you publish is open to the masses
and what's unique about that is: People complain about your airline
they complain about your cable service, and they do it in public,
people praise you and talk about you and all of the data that exists in the public sphere can be used by your company
to make better decisions. you can find out "What do twelve to seventeen year old women, girls in South Florida think?"
W"hat do 35 to 49 year old republicans in Maine think?" All that data is out there. And so, again, I think as part
of your company culture has got to be experimentation, has got to be trying to understand the trends and figuring out
how they support your business objective, but not just racing to do whatever the trendy thing is.
That, in of itself, that's a book I should probably tackle because the problem is you have business intelligence,
and then you have social within the organization.
social recognizes that all of this information's out there, but they're not interpreting that data,
they're looking for mentions, they're looking at sentiment
but they're not translating that into insights.
What needs to happen?
Well, I think you used a perfect word for me which is business intelligence. And it really emphasizes my point of view.
Business intelligence was rolled out about ten years ago. There were a bunch of tools that actually did business intelligence.
Business Objects was the leading one, which was started in France. And everybody spent tons of money on
business intelligence, but not thinking about, "How is business intelligence going to help us better make decisions
or make things actionable?" I think what you really need to understand, as a company, as an enterprise
what the objective of the technology is and how it supports your existing business. The problem is, in my opinion,
most big companies, the senior execs, maybe it's the age. Maybe we have to wait ten more years
until people my age are running American Express.
But the problem is: the senior execs are not part of the digital natives. I was a digital native only because
of where I was born and the time I was born. It's kind of like the outliers Malcolm Gladwell argument
I happened to be there when it all happened, but many of these people weren't. So, the new tools get relegated
so social media, as you know - because you are one of the leading guys who spotted it early and worked in it early
social media was relegated to a junior person in the marketing department to say
It still is. [Laughs]
You're the social media manager. I'm the guy walking into the executive's suite.
I invested into a company called Data Sift, that's trying to give insights into the data, walking into the board room saying,
"Do you realize how impactful this data could be on how you make decisions in your company?" and I'm trying to elevate
it to the board room. The problem is as you said these Silicon Valley firms aren't doing that.
So what's next for disruptive and emerging technology and what does the business need to think about moving forward?
How can they better take advantage of these opportunities?
Number one, I think the trend towards open is not going to go away. And that's something that every business
needs to think about, how does a world of open information, how do I channel that to better decision making
about the products that I create about customer service, about how I lead my people?
I met a guy yesterday, and actually quite a very smart guy, Harvard undergrad, Yale Law School, you know,
early 40's, seasoned professional, right? His stated goal is to create an enterprise version of WikiLeaks.
I'm like, "What on Earth are you talking about?" He said "Look, I believe in transparency. I believe society
is better when there's better transparent information." There are enough people in our society who believe that.
I think it's coming. I think the transparent world is coming. I think it's not going to be closed, it's going to be open.
And we as leaders need to understand that, that sunshine is a good thing, not a bad thing.
And I think companies have got to think about this open data world, even potentially your information that you don't want
to be open, being open. And you need to think about that. Number two, the world of the internet has become significantly
more closed in the last three or four years, and that's a bad thing for all of us. Apple has been a,
I mean, I know we love Apple, but they've been a leading proponent of this. It's in our ecosystem, we control it,
we control distribution, profit margins, whatever, it's in a closed environment and it's not open.
It's not HTML which is an open standard. Facebook. We love to love Mark Zuckerberg and Facebook.
Facebook by nature, closed system. I want my ecosystem and I control everything.
And a lot of people disagree with me, Brian, on this topic. But I believe over time market forces force open systems
and I think we're going to move toward open and less toward closed. So you, as a company, when you're thinking
about where you're making your investment dollars, invest in Facebook, great. Invest in, you know, Apple distribution
and Apps, great. But you need to think longer term about what your strategic asset… and I'll give you this one example:
If I look at the world I work a lot in, which is TV and film and media, everything they're thinking about is
"How do i distribute and get maximum money?" "How do I get through Netflix and get as much money as I can?"
"How do I get up-fronts from who though and get as much money?" I say, "What is your asset?"
Like, for me - that is your golden egg. What's the goose? And do you know what the goose is? The goose is e-mail.
I want your e-mail address. I want your Facebook account. Think like Obama. Obama brought all these people to stadiums
and he didn't say, "I want", well he probably did say "I want 500 dollars each."
But he said, "I want the most valuable thing I can get from you, your mobile phone number."
Because he knew that that was the goose. And I think corporates need to think about the goose.
Like how am I going to get customer information to build a meaningful relationship with my clients over time
and don't think about the short term golden egg, how do I get "Likes" or how do I distribute my App?
And this is what it comes down to, it's not just about the ability to recognize disruptive technology
it's about creating an open environment, an open experience, basically figuring out how to better build relationships
with customers, employees, having an infrastructure to do so, having the ability to recognize the need for change,
the ability to lead change, create a syndicated strategy that offers a holistic experience.
Mark, thank you very much.
Thank you, appreciate it.