Man of String

Invasive Principles #8: Grow Fast, Spread Fast

Invasive species spread rapidly once they’ve secured their niche.  Zebra mussels have spread the length of the Mississippi in only two decades or so.  The killer bees have spread into large parts of both South and North America within 50 years.  Some species seem to spread almost as soon as they’re arrived, while for others it may take them years or even decades to secure their initial foothold and make whatever adaptive measures they need to ensure their ongoing success.  But in either case, their subsequent expansion is usually very rapid, so much so that it usually appears as if they’ve appeared from nowhere, as if they’re an overnight success.

Their ability to expand quickly is made possible partially because of their adaptations, opportunism and hybridization, but also partially because they are not initially constrained by native counter-adaptations, competitors, predators, parasites and imitators.  Once they’ve established a new, valuable source of resources, however, copycats will follow and start to consume some of those resources.  And so speed is of the essence, to get to those resources before anyone else does.

In the business world, as in entertainment and in nature, overnight successes are usually anything but what that implies.  More often, as the saying goes, “it takes a decade to become an overnight success”.  This is thanks to the lag phase, during which potential invaders have to adapt to secure their niche or prove the potential of their innovations. 

FedEx took years to catch on and nearly went bust more than once before redefining everybody’s delivery expectations and growing to become the world’s largest airline.

Geeksquad had an 8 year lag phase, but once it hybridized with Best Buy it grew from 50 employees with $3M revenues in October 2002 to 12,000 employees and $1B revenues in only 5 years.   Of course, imitators have since followed.  Over the last few years thousands of local, regional and national companies have sprung up to provide similar services.  Hundreds of them have explicitly imitated Geek Squad, trading on the word “geek”.  In business as in nature, imitators follow innovators.

Once Curves found the right combination of customer experience and business model, which included a much smaller footprint than traditional gyms, it quickly spread beyond its original 2 locations to over 10,000 worldwide since its inception in 1994, making it the world’s largest health and fitness franchise.

Invasive Principles #7: Exploit Under-Utilized Resources

Invasive weeds often take advantage of under-utilized and overlooked resources.  Native plants typically gravitate towards the most nutrient-rich soils and towards the places with their preferred level of light and water.  In other words they tend to exploit the low-hanging fruit, the resources that are the easiest to get to.

Would-be invaders are therefore often forced to take advantage of the resources that have been left behind.  If they are successful in doing so they find that they have no competitors, at least for a while, and so can succeed in their new surroundings.  For example, barbed goatgrass, which is native to Europe, thrives in California on soils that are low in nutrients and water but often high in toxins.  Barbed goatgrass can grow profusely on these soils, overwhelming native species that have not adapted well to growing there.

In the business world resources can mean anything from raw materials and energy sources to partners and employees, as well as to customers and other revenue streams.

Some innovators have focused on under-valued customer segments and other sources of revenues.  Enterprise targeted the occasional renter rather than the business traveler, their home rather than the airport, and the insurance company rather than the corporate expense account.  In doing so it left Avis, Hertz and others to fight it out for the same customers and became bigger than any of them in the process.

Similarly, Southwest Airlines operates largely out of regional airports as they had been overlooked by the major carriers and thus offered lower costs.  It moved from Houston international to Hobby field in 1972, its second year of operations, and never left Dallas’ Love field even after DFW was built.  Starting with a fleet of four planes, it is now the largest domestic airline in the USA in terms of scheduled passengers served (source: IATA).

In this new era of climate and energy awareness we can expect waves of innovation to disrupt entire industries and create brand new ones.  Significant innovations have already occurred when organizations have looked at their energy consumption and byproducts and have joined forces with other companies in what is known as closed-loop manufacturing.  Byproducts can be a cheap source of energy.  Even animal dung is not to be sniffed at.  The small village of Juhnde in Germany is almost completely independent of fossil fuels for heating and electricity, instead using the dung from its cows and pigs to produce methane gas which powers the village’s generators.  Though currently on a tiny scale it provides at least one model for cheaper, more sustainable energy.  Solar, wind and water energy sources are also significantly under-utilized.  The opportunities for innovating to reduce costs and/or differentiate and/or be responsible citizens are still enormous.

 

Invasive Principles #6: Hybridize

There is growing evidence that hybridization between non-natives and native species among animals, plants and microbes can give rise to invasiveness.  The advantage of hybridization is clearly the combination of the characteristics of the native species that have allowed them to adapt to their current environment with those of the non-native species that have predisposed them to disperse and spread.  The African honey bee was introduced into Brazil in the late 1950s where it subsequently interbred with the domesticated (i.e. originally non-native but now considered native) European honey bees.  The result of this interbreeding, the Africanized or “killer” bee, quickly began its spread north.  The European genotypes, which have been in the Americas for centuries, are slowly declining in numbers and are expected to disappear eventually.  The most recent research on these bees suggest that the hybridization process has not created a random genetic combination, as might be expected, but rather one that incorporates into the African subspecies the genetic evolution that has occurred over the centuries to better adapt the European subspecies to its environment.

Hybridization in business helps innovators improve the likelihood of success by linking their new offering, customer experience, technology or business model to an existing infrastructure or capability.  This tactic tends to have advantages for both the innovator and the hybrid-partner.

Despite its evident potential and its almost inevitable future success, the electric car has so far been limited in its success beyond the fleet category.  This is at least in part due to the lack of infrastructure that is needed to support the range that consumers expect from their automotive vehicles.   The Hybrid car has, by contrast, proven successful in a comparatively short time, partially of course because of the rising fuel prices during 2008 but also because cars like Toyota’s Prius require no new infrastructure and therefore present potential owners with no barriers to adoption.

Apple was not the first into the MP3 player market by any means but one of its most important innovations was to account for the existing investment that its potential customers had already made in CDs.  Providing them with an easy way to enjoy their favourite music on a new and attractive player proved wildly successful and completely eclipsed the other MP3 players that only provided the new technology.

From a business model perspective, Google may be recognized for its original innovation in search algorithms but its revenue generating model is entirely traditional, selling space and time to advertisers.  The television industry has been in existence for decades based on this same model of providing free content for consumers and providing paid-for access to the consumers for advertisers.  Thus Google has combined an improved version of a recent service, Internet search, with a business model from a different, but now-converging, industry.  This has created a hybrid that dominates the search industry, from which it took its product concept, and casts a threatening shadow over the conventional media, from which it took its business model.

Invasive Principles #5: Play nicely with other invaders

More often than not, invasive species seem to make conditions in their new environment more hospitable to other potential invaders.  In some cases they do this by removing native predators or competitors.  On Christmas Island the invasive crazy yellow ant attacks the native red land crab.  The crab itself preys on non-native plants and snails so its removal by the invasive ant paves the way for the settlement of further non-natives and for “rapid, catastrophic shifts in species composition from mostly native species to mostly non-native species.”

In other cases invaders change the environment itself in ways that are often beneficial to other non-natives.  Zebra mussels were first introduced into the USA in 1986 and have since invaded the Great Lakes and the entire length of the Mississippi river.  They have had a strongly negative effect on native animal and plant species alike but their reproductive and feeding behaviors increase water clarity and organic material at the bottom of the lakes and river, creating new conditions that facilitate the introduction of other natives and non-natives.

In the business world, any disruptive innovation creates new opportunities as well as new challenges.  Innovators should stay alert to the efforts of other innovators, even those operating in different industries, since they may present opportunities for developing non-traditional partnerships or for exploiting new business models, technologies, processes or services.  The development of portable, digital formats for music, e.g. the MP3 format, helped to all but destroy the retail music stores that dominated the sales of music from the 1960s through the 1990s, as illustrated in the 2006 bankruptcies of Tower Records and Musicland, at one time two of the largest music retailers in the US.  But it also facilitated the rise of a whole new way of accessing and enjoying music, from peer-to-peer networks like Napster, Gnutella and Kazaa, to online music stores like Amazon.com and the iTunes Store, to MP3 and portable media players, most notably the iPod.  The latter has spawned its own ecosystem of thousands of accessories and add-ons and integrated docking environments and has driven customer experience innovations in entirely unexpected industries like automotive and the major airlines.

Invasive Principles #4: Embrace disturbed environments and tumultuous times

Invasive species tend to find significant opportunities for success in two quite different types of ecosystem.  As described previously in Principle #3, the first is the isolated ecosystem, the type that has not suffered any kind of external shock for so long that its inhabitants have evolved no defense mechanisms against invaders.

The second type of ecosystem is, counter-intuitively, almost the exact opposite to the first, namely the disturbed ecosystem.  This type includes environments that are regularly, or have been recently, flooded, burned, built upon, deforested, polluted or in any other way altered.  Many invasive weeds flourish along road sides and railway lines, river banks, agricultural land and on the edges of forests.  Interestingly, there is some evidence that even native species which behave aggressively in stable conditions may also act invasively when those conditions are disturbed.

Human ecosystems can be disturbed by a variety of factors.  In the USA, for example, a combination of the growth in the elderly population with the decline in the number of primary care physicians is widely predicted to create a crisis in the health care system.  But for an invasive species this is a huge market opportunity as well and we should expect to see innovative business models and services arising to exploit it.

Other opportunities arise in ecosystems that were hit by sky-rocketing oil prices, swooning real estate prices and collapsing financial markets just a couple of years back.   As recently as September 2008 we saw the extinction of at least one business species, namely the Wall Street Investment Bank, and others will likely be threatened.  But the gaps left by the loss of these businesses will soon be filled by new services and offerings.  It is perhaps too early to say who will emerge as winners from the recession but it is likely that those who are currently buying up real estate at heavily discounted prices, those who are actively engaged in the exploitation of alternative energy sources, and those who are developing new lending instruments will be among them.

Of course, business ecosystems can also be disturbed by the actions of innovators.  These actions often create conditions that are conducive to follow-on innovations.

Invasive Principles #3: Challenge the status quo

Invasive species in nature are, literally, outsiders.  They travel from their native habitats, often hitching a lift from our global transportation, trade and tourism networks, to arrive in an unfamiliar place possibly thousands of miles from home.  In the USA alone, killer bees from Africa via Brazil, kudzu from Japan, hydrilla from China, and the gypsy moth from Europe are among hundreds of alien species that have become invasive.

As outsiders, invasive species tend to have two major advantages over the natives whose ecosystems they invade.  Firstly, the natives often have no defenses against them or the diseases they carry with them.  This is especially true of island ecosystems like Hawai’i whose isolation once gave it protection.  Secondly, the invasive species have no co-evolved relationships or affinities with any of the native species and thus have no commitment to the status quo.

Acting like an outsider and challenging the status quo applies to innovation in many fields of human endeavor.  In his hugely influential book that introduced the idea of paradigm shifts, The Structure of Scientific Revolutions, Thomas Kuhn wrote:

“Almost always the men who achieve these fundamental inventions of a new paradigm have been either very young or very new to the field whose paradigm they change… these are the men who, being little committed by prior practice to the traditional rules of normal science, are particularly likely to see that those rules no longer define a playable game and to conceive another set that can replace them.” (Chapter 8, The Response to Crisis).

In business, Richard Branson, the billionaire entrepreneur and adventurer, has styled himself as an outsider and refused to play by the rules of just about every industry he has entered.  He started selling records in 1970 when he was just a teenager.  He named his company “Virgin” precisely because he was inexperienced at business but nevertheless differentiated himself successfully by selling records at a discount at a time when no one else was doing so.   He went on to enter the recording business in 1973 and signed a virtually unknown musician named Mike Oldfield when no one else in the music industry would touch him because his “songs” had no singing.  Virgin Records subsequently sold 5 million copies of “Tubular Bells”, one of the highest selling LPs of the decade.  Virgin Atlantic made long flights a whole lot more fun and Virgin Galactic is currently poised to be the pioneer in commercial space tourism, its first civilian astronauts scheduled to enjoy a few minutes at the edge of outer space in 2010.

Invasive Principles #2: Speed up your cycles to get to resources earlier

Invasive species develop earlier and shorter reproductive cycles that allow them to get to precious energy sources earlier than their native competitors.

Eurasian watermilfoil is an aquatic plant that arrived in the United States, probably as a stowaway in the ballast tanks of a cargo ship, some time before the 1940s.  Its growth cycle starts well before most native plants, with the spring thaw, and it grows rapidly up towards the water surface and the sunlight.  Once there, it continues to grow rapidly, but this time outwards across the surface, creating dense beds that rob native aquatic plants of access to the sunlight that they need to survive.  This has two main knock on effects; it creates an ideal environment for mosquitoes but it also removes an important source of food and shelter for local animals.

In business, the annual accounting and tax cycle acts like a vortex towards which many other corporate processes become inextricably drawn.  Planning and budgeting becomes an annual process, an unintended consequence of which is the much derided but widely practiced fourth quarter spending spree.  Strategy, marketing, IT and other core business processes all follow suit.  What happens all too frequently is that the internal process cycles dictate the rate at which services and products reach the market.  This leaves significant opportunities for companies who can reset their cycles to match the need or desires of their customers.

In the retail fashion industry, Zara has made major innovations to its business model in order to reduce cycle times.  New lines take less time to go from design to production, are made in smaller quantities and are flown rather than shipped to the stores.  In all, Zara has reduced design-to-store time from an industry norm of 6-9 months to 2-4 weeks.  Once in the store, the lines stay there for no longer than 4 weeks, which causes Zara’s customers in its native Spain to visit the stores up to 17 times a year, compared to an industry average of 3 times.

This approach has paid off.  As at August 2008 Zara’s parent company Inditex Group had more than 4,000 stores in 72 countries, overtaking its main U.S. rival Gap to become the world’s largest clothing retailer.  Zara accounts for more than two thirds of Inditex revenues.

Invasive Principles #1: Start Small and United

Invasive species are the disruptive innovators of the natural world.  They share certain characteristics that can be applied to principles for innovation in the business world. In a March 2010 post I introduced this theory at greater length and promised that I would describe the invasive pricinples in future posts. A year later, here is the first of 8 such posts, extolling the virtues of thinking small...

Most invasive species arrive on foreign shores small in numbers and, interestingly, in physical size.  Smallness seems to be an advantage for these potential invaders as it means that they need fewer resources to survive in uncertain circumstances, and that they can stay unobtrusive, less likely to attract the attention of competitors, predators and parasites.

Small founder populations often also have far less genetic variability than the populations from which they came, typically because they all come from one or only a few females.  Variability improves the fitness of a population against disease, but similarity seems to confer two even greater benefits for invaders:  Firstly, the individuals, even plants, recognize each other as kin and are more likely to cooperate for the good of the group as a whole at a time when the group’s survival is not yet assured.  Secondly, a genetic mutation that increases the likelihood of an individual’s success is typically spread across a small population far more rapidly than a large one, making the small population better adapted as a whole.

Invasive Argentine ants in the Western United States, for example, are nearly genetically identical to one another (and we’re talking billions of ants here).  They are thought to have first come across to the United States from Argentina in the 1890s and all subsequent generations are descended from the first founding queen.  In their native Argentina they have much higher levels of variability and will attack neighboring nests, thus controlling the population size.  In the USA however an ant from one nest can live in a neighboring nest without harm.  Physically they are tiny but fierce and have displaced many local ants up to 10 times larger than they are.

Acting small in business allows you to make initial progress without committing significant resources to an unproven idea, makes it easier to adapt that idea to the opportunities and constraints presented by the business ecosystem, reduces the likelihood of unwanted attention from would-be competitors as well as critics and naysayers, and helps increase the chances of alignment within your team.

The benefits of smallness apply to product and service offerings as well as organizations.  Curves gyms need only 1,000 square feet and as few as 150 members to be profitable in some markets, which means that they can serve small, previously overlooked communities.  Once the concept was proven at its two original locations it quickly spread to more than 10,000 worldwide since its inception in 1994, making Curves the world’s largest health and fitness franchise.

Allee Effects and Small World Networks

It sometimes takes reading about a subject several times from different sources to pick up on something that should have been evident the very first time but somehow wasn’t.  Or at least that’s how it is with me.  For instance, I recently read Clay Shirky’s book “Here Comes Everybody” and was struck by his description of small world networks as being characterized by a balance of small, densely connected groups and large, sparsely connected groups.  Now, I’d previously read several other books about aspects of network theory and had ooh’ed and aah’ed at the examples and explanations of the 6 degree of separation phenomenon, synchronicity and other network effects, but this unexpected component of the small world network structure, first described in 1998 by Duncan Watts (Six Degrees) and Steve Strogatz (Sync), had never really taken hold in my brain until now.

And I think maybe the reason for my sudden but belated awareness is another phenomenon that I stumbled upon a few years back as I was researching success and failure in “founder”, or start-up, groups.

Warder Clyde Allee, an ecologist and zoologist working in the first half of the twentieth century, was particularly interested in how animal groups form and survive.  In the classical model of population dynamics, over-crowding typically has a negative effect on group growth.  What Allee discovered was that under-crowding can also be a problem.  Below some critical density, small populations – as founder groups typically are - can be at increased risk of group decline and even extinction due to effects such as:

- Inability to find mates during the mating season;

- Reduction in foraging efficiency (and other activities) in the absence of cooperating hunters;

- Increased vulnerability to predators when group defensive behaviours (e.g. herding, flocking, schooling) become ineffective at low prey numbers

- Failure to attract pollinators when there are few conspecifics nearby to create an appealing place to forage

Achieving density is thus a prerequisite to population growth.  But only up to a point.  At some threshold the problem of under-crowding, also known as positive density dependence, (or Allee effects, after their discoverer) suddenly gives way to the problem of over-crowding, or negative density dependence (the classical model).

In other words, it’s important for small populations to get to critical density, but as they grow they need to spread out.  And maybe something like this is what’s happening in small world networks.  Small groups thrive at high densities (positive density dependence) and perhaps even need that density to retain group coherence or identity and thus survival.  But large groups - where individuals begin to compete with one another - thrive at lower densities (negative density dependence).  And I’m guessing that this is a recurring, dynamic pattern.  New groups will form over time and only those that develop dense connections will persist. But as they grow they will tend to dissipate, leaving the leaders and fast followers with new groups to found and more Allee effects to overcome. 

Do electric cars dream of invasive species?

In writing the previous post on Tesla Motors and equivalence it dawned on me that the company bears all the hallmarks of an invasive species.  I suppose it should have been obvious except for the fact that the company has not yet had widespread success and it could well be argued that Tesla will disappear as soon as the Chrysler Volt and other electric/hybrid offerings from the mainstream automotive companies move into full production mode.  Additionally, internal combustion engine (ICE) technology offers a longer “between-charge” range than electric vehicles (EVs) and has an enormous infrastructure built up to support it.  And if you consider that EVs have actually been around longer than ICE and yet have consistently failed to compete successfully against it, scenarios in which the big and the established beat the small and the new seem quite plausible.  So what are the chances then that Tesla Motors will become a large scale success and be a leader in a radical transformation in both the automotive and energy industries?

I’m going to argue, as you might expect by now, that the more characteristics of invasive species an organization exhibits, the more likely it is to be a disruptive innovator.  So let’s review which of these characteristics, these invasion principles, are exhibited by Tesla Motors.  First, a refresher list of the principles:

Start, act and think small

Take an outsider view

Speed up your cycles to get to resources earlier

Embrace disturbed environments and tumultuous times

Think hybrid

Exploit underutilized resources

Play nicely with other invaders

Know when to attack (grow fast, spread fast)

Be a serial invader

Which of these then apply to Tesla?  Well, clearly #s 1, 2 and 3 do.  In the August 2009 edition of The New Yorker, General Motors’ then Vice Chairman Robert Lutz was quoted as saying, "All the geniuses here at General Motors kept saying lithium-ion technology is 10 years away, and Toyota agreed with us -- and boom (#3), along comes Tesla. So I said, 'How come some tiny little California startup (#1), run by guys who know nothing about the car business (#2), can do this, and we can't?'”

#4 doesn’t seem to apply as much, except that the increases in oil prices over the last couple of years and the US government’s apparent desire to reduce dependency on foreign oil in the long run creates unstable conditions for the production and consumption of energy which should play to Tesla’s advantage.  It should be noted, however, that Tesla started in very different conditions which were not nearly as conducive to EVs.

#5 is where Tesla detractors might have their strongest argument.  It’s well known that consumers are, in practice, unwilling to make performance trade-offs for a “common good” like energy conservation or reduced emissions.  That means they may well choose, at least initially, a vehicle that gives them a between-charge range comparable to their existing ICE on a tank of gas (or a large part thereof).  In that respect at least plug-in hybrids have the advantage over a pure battery play like Tesla’s and may therefore win out.

Tesla clearly follows principles #6 and #7.  Elon Musk runs not just Tesla Motors but also SolarCity, and the two companies are, naturally enough, partners.  This means that Tesla customers can use solar power, harnessed by SolarCity’s products, to charge their EV, whether that’s a Roadster or one of the forthcoming lower cost models.

But the link to other innovators doesn’t stop there.  From Wired, August 2006: “The central concept of Tesla Motors, founded in July 2003, is that there is no need to reinvent the battery, particularly for a product with a small initial market. Eberhard (Tesla’s founder) simply adopted the lithium-ion technology used in laptops and harnessed the momentum of the computer industry. Let Dell, HP, and the rest of the sprawling PC business, with their billions of R&D dollars, do the hard work of extending battery life and driving down prices. He’d piggyback on their innovations.”

#8 is another question.  Is Tesla growing or spreading quickly enough?  Will 15 Tesla stores (currently) across the nation be enough to do enough to dispel the image of Tesla as a Silicon Valley company with little or no relevance to the “average” car buyer?  It’s difficult to know and perhaps still too soon to be relevant.  The company has demonstrated the efficacy of the EV at the luxury price point but not yet at the Prius one (approx. $22,000 - $32,000).  Evidence from pre-orders for the S Model and for the mainstream competitors may give Musk the information he needs, or perhaps he can turn to the Tesla investors over at Google for data on relevant search activity over time.  Incidentally, Google Trends currently reports a modest increase in search volume over time and a more noticeable increase in news coverage since the beginning of 2008 but nothing to suggest a critical mass of interest.  Perhaps, therefore, too soon for the invasive expansion.

#9 may be the deciding factor.  All other things being equal, the best predictor of a species’ invasiveness is whether it has been invasive before.  In this case Elon Musk, Tesla’s CEO, co-founder and major investor, can comfortably tick that box as founder of Zip2 and PayPal, with other invasions currently underway at SpaceX and SolarCity.

So, Tesla rates a 6 out of 9 just on number of principles applied, although the existence of serious competition from Toyota and GM (see #5 above) is an important factor in deciding its invasiveness.  My final guess is that EV technology will be the long term winner over ICE, causing significant transformations in the automotive and energy industries.  As for the company itself, I think it may benefit from an Apple halo effect; Tesla is way cooler than GM, and its devices are way cooler too.  Expect an invasion in the next year or two.