In 2005, I read a book called The Innovator's Dilemma, by Clayton Christensen. It blew my mind, because it seemed to describe my business perfectly. 37signals had just released Basecamp, our Web-based project-management app. Aimed at small-business owners, Basecamp was designed to be affordable and easy to use. It did only a few things, but we made sure it did them well.
Our major competition at the time was Microsoft Project, which was expensive, complex, packed with features, and aimed at large organizations. It wasn't particularly pleasant to use. I've yet to meet someone who is excited about Microsoft Project.
In The Innovator's Dilemma, Christensen explains how successful companies with well-established products are constantly being threatened by newcomers. Winners, he argues, don't lose when new rivals attack from the high end of market. They lose when start-ups attack from below. This, of course, was precisely what 37signals was trying to do to Microsoft. And it was working. Needless to say, I became a passionate fan.
Fast-forward to 2012. Through a series of seemingly unrelated connections, I was invited to join a small group to spend a few hours with Christensen at Harvard Business School, where he teaches. I was thrilled. It's not every day you get to sit down with one of your heroes. The group met for about three hours. Sometimes, a chat with the right person makes all the difference, and that's what happened with Christensen. I'd like to share three insights in particular.
At one point in our talk, Christensen quoted Theodore Levitt, a legendary professor of marketing at Harvard: "People don't want to buy a quarter-inch drill," Levitt argued. "They want a quarter-inch hole."
I understood what he was getting at. To most consumers, the hole matters a lot more than the drill. Yet the people who manufacture drills generally do not think this way. They can't say enough about their drills, about features, technology, why this drill is "drillier" than that one. That's the standard approach to marketing most products, and it's myopic. It made me think about our own marketing. Do we talk too much about features and technology? Do we use the right words to describe what our product actually does? Or do we talk too much about the drill rather than the hole?
Later, Christensen discussed something he calls the trap of marginal thinking. Again, he began with a quote, this one by Henry Ford: "If you need a machine and don't buy it, you will ultimately find that you have paid for it and don't have it."
The point is that when an established company weighs the cost of new technology or talent against what it already has, it usually sticks with what's familiar. Why? Because the marginal costs of using what you have are almost always lower than the full costs of investing in something new.
But that's a trap--and one that companies that are young and hungry don't get caught in, because they don't think in terms of marginal costs. Rather than basing such selection on costs, start-ups tend to pick what's best for the job. It's a key reason newbies displace the old guard: They have better tools.
Christensen said one last thing that has really stuck in my head. It's often said that someone can't be taught until he or she is ready to learn. He put it differently: "Questions are places in your mind where answers fit," he said. "If you haven't asked the question, the answer has nowhere to go. It hits your mind and bounces right off."
Whoa, I thought. It's like Velcro. The loop side of the Velcro can't stick to itself; it needs the hook side to latch on to. Questions are hooks; answers are loops. Thanks, Clay. I needed that.