Understanding your creation myth

By Alan S. Cohen , written on February 18, 2013

From The News Desk

In the early life of every startup, there is the creation myth. This is the point in time when the founder(s) gain the inspiration and insight -- be it idea, technical breakthrough or even emotion -- that lead to a new product or service.

In the modern Internet era many entrepreneurs have had these moments: Marc Andreessen had one (the browser); Larry Page and Sergey Brin had one (the search engine); Diane Greene, Mendel Rosenblum, Scott Devine, Edward Wang, and Edouard Bugnion had one (server virtualization); and Marc Benioff had one (Software-as-a-Service).  Steve Jobs never stopped having them (Apple II, Mac, iXXX).

While all parents think their baby is the most beautiful in the world, not all products are created equal -- and not every creation myth will lead to breakthrough results. As Nicira’s CEO Steve Mullaney often reminded me, there are “transitions” and there are “transformations."

Transitions are puzzle pieces, the next best product or technology iteration that usually leaps just past the competition. Usually transitions give the creators a time-to-market lead versus other players, especially larger, slow-moving incumbents. How urgent the problem is – or how appealing the new technology is -- will dictate the value of this time advantage.

Not surprisingly, incumbents usually eventually win transitions. Customers, frankly, prefer their existing vendors versus newbies in adjacent spaces as the three “Rs”of switching costs -- relationship, retraining, rip-and-replace -- can be painful and expensive. If the older technology is not failing massively or the need pressing, the vast majority of customers will wait for their technology supplier to get it together or to push them acquire one of the new breed leaders. Microsoft has made tens of billions of dollars being late to market transitions (but they have missed the transformations, see below).

Transformations are puzzle makers, altogether new categories that lead to fundamental industry change. For entrepreneurs and investors, they are harder to pull off, but inherently more valuable and disruptive. They are built on top of big creation mythologies and take an entirely different mindset to execute well.

I have been fortunate to been on the ground floor of both transitions (Airespace) and transformations (Nicira). One of the hardest, most gut-wrenching tasks for entrepreneurs is to honestly determine whether they are building a transition or a transformation. Lack of brutal introspection can be fatal to your venture. Transition technologies make users very happy and can be easy absorbed. Transformation technologies can be more complicated, extending the time to take hold, because they change the model. If executed well, though, they will create an army of followers.

Transitions can be extremely fruitful: In the networking industry, Palo Alto Networks, F5, and Aruba Networks are examples of powerful new franchises built on transition technologies. A simple test to determine if you are building a transition technology is if you call it “next generation insert your term here.” If you are heading down this path, speed to market is essential.

Transformations represent a shift in marketplace, a disturbance in the force. Moreover, there is usually only one large winner per generation. Transformations can come from either technology or business model shifts, and usually they are a blend of both. Recent examples include Distributed Computing/Cloud (Amazon, OpenStack), Social Networking (Facebook, Twitter), BYOD (Apple, Android), SaaS (Workday), and the Localization of Everything (OpenTable, Zillow, Yelp). Transformations frequently rely on getting to critical mass first (versus time to market), and the player that gets there first absorbs most of the value.

One of the most interesting transformation models emerging in IT is disruption of the buying center or business model (as SaaS as proven). A great example is Ubiquiti Networks [Disclosure: I am an advisor to Ubiquiti], which is delivering enterprise and carrier grade wireless networking at consumer prices and consumer ease-of-use value proposition. The company has blown apart the classic enterprise sales and marketing model (e.g., high SG&A) with a transformative community-based approach to selling and supporting customers.

So founder, know thyself! What is your creation myth? Did you see an opportunity to steal a march on an incumbent or were hit by a deep inspiration about how to change an industry? Are you a transition or a transformation?