Sell to the masses, live with the swells; sell to the swells, live with the masses.
I want to sketch briefly the milieu of the start-up company. I break down in the book, following Drucker, the symbiotic relationship between the innovator and the conservator: the innovator introduces the new, the conservator lowers the cost and eventually makes the product or service available universally. Thus a free market (not what politicians call a free market) effects the introduction and just distribution of goods and services.
Now most entrepreneurs get to a certain point, where they find the optimum balance in their business and lifestyle, and stay there, remain a small business. Some, like a Steve Jobs or a Howard Schulz, go from start-up to conquering the world. Either way, they start at the beginning, start small. To get to the place where you can choose to move on to the big time, you must start.
What we innovators introduce is of course rare to begin with, not very well designed, very expensive, and slow to come by or acquire. The first Nikes, the first cell phones, the first airplanes are all good examples.
Once you get the product good enough to gain enough orders collectively from customers to cover the suppliers minimum production run, in a workable amount of time, profitably, then you are on your way. Of course customer feedback will ever suggest improvements, which lead to wider acceptance, more sales and profits for you. It will take years to perfect the item to the point where the conservators “steal” the idea, apply their awesome economies of scale in promotion, manufacturing, finance and distribution, and begin their work of taking the item down in price to where it is universally available. On your side the work takes years of iterations, in which you are taking profits consistently, and after the handoff the conservator also takes years to adjust the item for attracting ever more customers, until it becomes a commodity item, we have more, better, cheaper, faster.
We never introduce a perfect product. You charge a premium for every improvement you make on the way to the perfect product, the conservator takes a profit arbitraging the perceived value of features that are falling in cost faster than the perceived price.
Thus we get true wealth, division of labor, more options for goods and services distributed far more widely. Those societies lacking in goods and services are lacking in freedom to innovate, and lack freedom from interference. Poor countries do not lack smart people, they lack respect for rights and the concentration of power in the hands of a few. In a country where the rich get richer and the poor get poorer, the cause is always the same.
Those who run conservator businesses selling commodities, in essence and by definition the basics that everyone relies upon, have leverage in society, and carry heavy responsibility, for it they fail many suffer. Think of Enron. If we fail, no one knows and no one cares. Think of Standard Specialties. (Who?)
We expect conspicuous consumption from the celebrity CEO people: car, house, clothes, libraries of leather-bound classic books, transport, exclusive club member ship, and the most conspicuous consumption of all: largesse, that is support of charities (I have so much money, I can just give it away...) We judge them by their consumption, our judgment a reckoning as to the alacrity with which they do their conservator job. We want them to have their private jets, their high level meetings, their vacation Islands, because we want our TV shows and our cool cell phones, and Fritos. While we judge these people on what they consume, these very people are most concerned about getting the cost of what they produce ever lower than what they consume
The very lifestyle they live is actually both a confirmation to the masses their well being is being maintained, and also a sort of golden handcuff, keeping these people at their task. These people tend to live in gated communities, resembling minimum security prisons.
A tiny but important fraction of the conservators’ disposable income, especially on the part of wives and kids, goes towards the very upscale products the innovators sell. There are the exception, such as the working poor who find the innovative product the most economic option. For example it was a surprise to Apple to learn an important segment of their market are people to poor to pay for phone and a computer and service to both, so the iPhone is most economical. In any event, it is those largely those wealthy from conservator activities who finance the introduction of the new and different by their patronage. It may be a tiny fraction of their disposable income, but it is more than enough to launch a thousand companies.
It is not uncommon for the rich to be the ones who first install indoor plumbing, champion experimental drugs (on themselves), and encourage the bicycle making Wright Brothers to reach for the stars. It is not “finance” that gets a company launched, it is paying customers who will cover the super premiums necessary on small production of exceptionally complicated sourcing required for an innovative product.
The innovator’s job is his lifestyle, and he has not the slightest interest in such games as golf, in which amusingly attired adults both knock away and then fetch a little ball, often in the rain, so that an important conversation may occur between the players, something inexplicably critical to the conservators.
The innovators moves in a circle of other innovators, wearing their clothes, eating their food, reading their works, living in their remodeled quarters, often bartering but in any case far more concerned with immersing themselves in the creativity of what they produce than the cost of what they consume.
As an innovator, one who competes on design, not on price, people judge you on what you produce, and you are most concerned about getting what you produce ever better than what people consume now. You are what you do. And as you do it, you make begin to undermine the desirability of some commodity item, offering a better alternative, or making an item irrelevant, like the cell phone did to the wristwatch.
Just as CEO of IBM in 1979 was setting into a banquet celebrating the indisputable leadership worldwide of their monster company, and its awesome 5 year plan, his wife was agreeing to buy the funny little Apple Computer his daughter so longed for halfway across the country. And so the process ever goes.
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