Ian Shott, chairman of the Royal Academy of Engineering Enterprise Committee, explores why some companies achieve that breakthrough moment while others get left behind.
We live in an era of unprecedented market disruption, where the internet has dramatically lowered the barriers to market entry for would-be entrepreneurs. Each week, it seems, we’re witnessing the meteoric rise of new innovations that disrupt traditional markets in a very short space of time, challenging established monopolies in everything from retail to transport.
Yet there are some common themes running through many of these success stories, and understanding these elements is key for any SME looking to take on the big fish in today’s disruptive markets.
Swimming against the tide
Take Cambridge-based chip-maker ARM. The company was only founded in 1990, yet its extraordinary rise has seen it capture 95% market share in smartphone chips and overtake Intel in combined sales of tablet and personal computer chips.
ARM has been able to do this by swimming against the market tide. While rival chip-makers race to design ever more complex chips with more functionality (guided by the principle of Moore’s Law that chip processing power doubles every two years), ARM’s designs have focused on achieving simplicity, efficiency and doing more with less. This means that ARM chips are cheaper and consume less power than those of their rivals, which is exactly what the market needed.
Another example is RealVNC, which also focused on achieving more with less to disrupt their market. The company created remote access software that enables consumers to get maximum functionality from very low-power devices by remotely connecting to other more powerful devices. Among other applications, it allows a car with a low-power screen to connect to a powerful external computer to display sophisticated traffic data or vehicle diagnostics. In this way, an array of remote devices is connected into a ‘smart’ ecosystem sharing power and functionality between each other.
Remote access software is a competitive marketplace, but RealVNC has achieved a significant and growing market position and its technology is now used by the likes of Google, NASA and Smart cars. In 2013, RealVNC won the Royal Academy of Engineering MacRobert Award, which is the UK’s premier engineering prize and has recognised the most successful, and often disruptive, technologies since 1969.
Getting closer to the customer
The success of these two companies in rapidly and successfully delivering a disruptive technology can in its purest form be distilled into two key components. The first is that they did not attempt to beat their competitors with the most extravagant functionality, but instead used technological innovation to engineer more efficient, lower-cost ways of delivering the same benefits to the consumer.
Secondly, RealVNC’s business model was scalable, allowing rapid growth in a short timeframe. While software is inherently easy to scale, as a chip maker ARM had to adapt its business model to achieve the same growth potential. Rather than manufacturing their own chips, ARM chose the unconventional route of selling their intellectual property. This allows them to focus exclusively on improving the technology, but also means that it is easy to sell their design millions of times as it is to sell it once.
Too many inventors focus too much energy on the capabilities of their technology; on doing something new, even if the market is really only demanding a better version of what already exists, be it faster or cheaper. At the same time, entrepreneurs must also be thinking about how best to equip themselves for growth. Technological innovations succeed when they are streamlined and designed to be scalable from the outset.
In today’s dynamic markets, where consumers will switch brands overnight to find lower prices and greater ease-of-use, there have never been so many openings for the SME with the next great idea. The critical factor is listening to what the market really wants, rather than assuming that disruption only comes from completely reinventing the wheel.
Ian Shott, Chairman of the Royal Academy of Engineering Enterprise Committee and Managing Partner of SME investment and advisory firm Shott Trinova LLP