Conventional wisdom suggests that speed to market is crucial to business success. But the history of Silicon Valley contains stories of second-placed competitors who ultimately triumphed over their speedier opponents. We go in search of insights from the archives.
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Certain fables offer wonderful business lessons. The Emperor’s New Clothes reminds us not to be blinded by power. While the mouse that pulled the thorn from the lion’s paw contains a lesson that even the mightiest may some day be saved by small and loyal friends (or customers).
I’d like to propose another tale to add to the business canon: The Tortoise and the Hare. You remember this one – a tortoise and a hare agree to a race, the hare speeds off, hits all of the mile markers first, arrogantly lays down to rest, and ultimately loses to the tortoise, who has adopted a slower, more considered pace.
While we often hear about the importance of being first to market, the history of high-tech innovation teaches us that being first isn’t everything. Apple wasn’t first with the graphical user interface; IBM wasn’t first with the PC; and the World Wide Web wasn’t the first internet protocol.
In some cases, second-place winners succeed because they have the opportunity to learn from the shortcomings of their predecessors. In others, the companies that come first are too far ahead of the market. And nearly always, the mere passage of time – and the relentless march of Moore’s law – can make the difference.
So here, for your entertainment and enlightenment, is a pair of lesser-known stories of tortoises beating hares in high-stakes business races. Sit back and read at your leisure...
“The history of high-tech innovation teaches us that being first isn’t everything.”
Venture Capital
Today, Silicon Valley is the world headquarters of venture capital, but the first venture capital company in Silicon Valley, founded in 1959, was not a success.
The founders of Draper Gaither & Anderson (DG&A) – Generals William H. Draper and Frederick L. Anderson, alongside attorney H. Rowan Gaither – were brilliant risk-takers with connections at the highest levels of American finance, politics, and business. They boasted a stellar list of savvy investors, and were wisely located near Stanford University, with easy access to advanced technology and educated engineers and scientists.
DG&A was the first venture capital firm to focus solely on profits for investors (earlier firms aimed to improve regional economies), and the first to use the limited partnership model (in which partners’ primary compensation comes from a percentage of profits, rather than a salary) that is now standard throughout the industry.
But even these assets could not compensate for the difficulties DG&A faced simply because they were first. Venture capital was largely unknown on the West Coast in 1959, and entrepreneurs were wary. One junior associate recalled driving from small company to small company, begging CEOs to please, please take some money.
Moreover, because DG&A was essentially inventing modern venture capital, they made mistakes. They took all their investors’ money up front, which meant DG&A needed to put it to work as soon as possible to protect the fund’s internal rate of return. The result was a scattershot investment approach in areas ranging from glaucoma drugs to camshaft bearings.
But even as DG&A struggled, the younger men who worked there were taking notes. When they left, these men – Pete Bancroft, Bill Draper, and Don Lucas – did things differently. They took investors’ money in several tranches (called ‘capital calls’), and invested it only when portfolio companies hit certain pre-determined milestones.
As venture capital became an established part of the financial ecosystem, the generation of investors that followed DG&A could pick and choose from a much larger pool of entrepreneurs eager for funding. The names of the companies they backed might ring a few bells – Sun Microsystems, Oracle, AOL, Netscape…
Handheld Digital Assistants
In the late-1990s, Palm’s PalmPilot – a ‘personal digital assistant’ featuring a calendar, datebook, notepad, and address book – was all the rage. The cool factor came from an innovative method of entering data: Using a stylus and writing in a special script called ‘Graffiti.’ It sold two million units in three years.
The PalmPilot supplanted a device called the Newton MessagePad, made by Apple. The Apple Newton could do everything the PalmPilot could, but it never captured the market in the same way. Why?
Critically, the Newton had problems with handwriting recognition – the joke on the street was that the only handwriting the Newton reliably recognized was its own project manager’s.
“Palm designer Jeff Hawkins spent months carrying a block of wood in his pocket, pretending it was a handheld computer.”
The PalmPilot flipped the Apple model on its head. Rather than teaching the device to recognize a wide range of styles, Palm would teach a wide range of people a single way to write. Watching Apple’s mistakes gave Palm the confidence to gamble that people would modify their behavior to fit the needs of a machine – if the modification brought them really cool technology.
Palm learned another thing by watching the performance of the Newton. At 18cm high and nearly 2cm thick, it was too big. Palm designer Jeff Hawkins wanted to build something smaller – something that could fit in a shirt pocket. To determine the right size, Hawkins spent months carrying a block of wood in his pocket, pretending it was a handheld computer. Every time he set up an appointment or recorded a thought, he mimed entering the data into his block of wood. Once he decided the block was about the right size, it became the model for the PalmPilot.
Of course, now another 15 years has passed, and the screw has turned again. When it comes to handheld devices, sales of Apple’s iPhone have eclipsed those of Palm’s smartphone. In other words, we’ve witnessed the tortoise and the hare reconfigure themselves for another lap of the circuit.
Do these stories imply that speed-to-market means nothing at all? Hardly. Business guru Jim Collins points to three scenarios in which being first ‘virtually guarantees a sustainable advantage:’ If you can secure ‘ironclad patent protection,’ set a proprietary industry standard, or use your lead to establish such a beachhead that even if better options become available, your customers will find it ‘too much of a hassle’ to switch (the QWERTY keyboard is the example he offers).
If none of these scenarios apply, you might think twice about surging ahead. Let the hare make a few mistakes. If history is any guide, the time spent thinking, learning, and watching may ultimately mean you win the race.
