Saturday, September 22, 2007

Disruptive Innovation

I have been following Apple's introduction of the iPhone with great interest. The story actually begins with the success of the iPod - a great story of stupendous growth being driven by organic innovation, something we rarely see large companies do. Though the technology and marketing was innovative, the most critical thing that Apple got right was targetting a highly fragmented and underserved market for digital music players.

The success of the iPod helped bolster Apple increase its marketshare in computers, bolster its bottomline and made it an investor favorite. Apple, more than anyone else, probably knew that the gains could not be sustained just by introducing smaller and sometimes crippled versions of the iPod. The introduction of the iPhone gives us a great insight into where Apple is headed over the next decade or so.

Those who have read Clayton Christensen and Michael Raynor's "The Innovator's Solution" will notice many patterns that make the iPhone a disruptive innovation in the classic mould, including the targetting of non-consumption of legal digital music, the innovative approach to licensing music through iTunes, the use of proprietory (interdependent) architecture to get better performance and integration with iTunes. In fact, the last point about how Apple's proprietory and integrated architecture, which was its bane in the PC market, turns into a key strength, is also predicted in the chapter on commoditization.

The authors argue that a proprietory architecture is critical to the success of new products as customers will demand the best performance for their investment in the product. A proprietory or integrated approach will be better optimized to provide better performance than a modular one with components and software from different vendors. However, as the market matures and more entrants join the fray, the marginal improvements in performance or form factor (a la, the iPod mini, nano, micro, pico, etc) will not always lead to better price or margins. The product will eventually become a commodity, with the focus shifting to volume away from high margins.

This phenomenon will slowly shift the balance away from proprietory architectures to modular ones which are better suited for higher volumes. Fortunately for companies like Apple, this is phonomenon is cyclic in nature. As the product becomes a commodity, companies will focus on new markets which play to their strengths. Apple may have found a new market and the right product (iPhone) to do just this. For now, Apple seems to have the Midas touch and if you were thinking of investing in technology, Apple is a stock that I'd highly recommend ...

Saturday, September 8, 2007

Referral based and Skillset based Hiring

Solidcore has been growing rapidly and in the last few months we have more than doubled in size. I have averaged about 2 interviews per week for the last 3 months or so and would like to share my thoughts about how the size of an organization affects its hiring choices.

Until very recently, we could track the lineage of every employee and without exception every one of the earlier hires came to us with stellar references from ex-colleagues, friends or investors. Our hiring process would often start with a resume arriving from one of these sources and following a few rounds of interviews, we'd typically extend offers to the candidate. The quality of the referrals were very high and we managed to recruit top talent this way.

Such an approach meant that all the employees were no farther than 2 degress apart from most of the others, all being part of a small, well-knit silicon valley community. Most of us had startup experience and knew fully well the risks and thrills associated with building companies. Some had already been part of successful startups and others had tried following their dream. Though individual reasons for joining a startup varies, a common and inviolable goal for everyone was to help build a great company through hard-work and perseverance.

This burning ambition and an all stars team have helped us time and again overcome tough situations. Now, we have reached a stage where our growth demands us to fill openings quickly. A booming job market and an immediate need to fill the openings means that we are now open to considering resumes from recruiters and not just the ones that come from internal references. Making this change is part of our transition from being a startup to a larger and more mature company. This does not, however, mean that the hiring process is any less rigorous. We still continue to attract and hire great people.

This phenomenon which forced us to change our processes from a referral based hiring to skillset based hiring is very interesting. Employees are mostly replacable in large organizations. Their hiring processes also reflect this with most open reqs emphasizing specific skillsets and experience. The ideal candidate is one who is seen as good fit for the team and company culture. Leadership qualities are never considered for entry level and sub-senior management positions. Under such circustances, even exceptional employees find it difficult to progress up the corporate ladder. The impatient leave for smaller companies and many others get on the MBA bandwagon.

On the other hand, smaller companies place a premium on leadership skills. I know of a few instances where offers were extended even when there was no open req in the particular business unit. One may think that such behavior borders on fiduciary irresponsibility, but if you consider that one of the biggest assets of startups is its people and the IP they help develop, this approach does not seem illogical. Counterintuitive maybe, but definitely not illogical :)

Does this mean that larger organizations cannot or should not hire leaders? The answer is a categorical no. Leadership at all levels is key to the long term success of any organization. Larger organizations use different mechanisms to find and cultivate leadership in their organizations. Hiring is mostly focused on immediate needs and market needs. The best hires are eventually promoted and groomed for leadership. However, the pace at which this happens in a large organization makes one feel that leadership is not an immediate concern. Does this make you think of moving to a smaller organization? Do check out our open positions at