innovation

Why Are There No Unicorns In Energy Technology?

Opower, the shining light of energy usage management and behavior modification, is being bought by Oracle for (what would otherwise be) a whopping sum of $532M. Under normal circumstances this would be a great thing for the energy technology industry. But it's not.

See until this morning Opower was a public company with a market cap of $556M. Yes, it's being bought by Oracle for slightly less than its market cap. For technology companies delivering products to some of the biggest companies in the world - there are ~27 publicly traded utilities with over $5Bn market cap - it is rather disheartening to see one of the flag bearers end up this way. Especially when the Snapchats and Pinterests of the world command multi-billion dollar valuations.

For technology companies delivering products to some of the biggest companies in the world - there are ~27 publicly traded utilities with over $5Bn market cap - it is rather disheartening to see one of the flag bearers end up this way. Especially when the Snapchats and Pinterests of the world are commanding multi-billion dollar valuations.

So why is it difficult for energy technology startup companies to grow as big or as fast as their social media counterparts? Why are there no unicorns (companies with billion dollar valuations) in energy technology? 3 main reasons (amongst many) for this:

  1. Policy resistanceThis is a system concept where actors all work hard towards their best interests and consequently diminish the value to every actor in the system. The publicly traded utility is focused on maximising shareholder value, the consumer is focused on paying the least possible for secure and stable power, the regulator is focused on protecting the consumer and the technology providers have focused on serving the utility without disrupting business-as-usual. The outcome is a state of resistance where no one's goals are achieved, a suboptimal outcome. For technology startups' innovative efforts end up being stifled and this puts a cap on how much growth is possible in this market.
  2. Regulation and lobbying: The utility industry is, for the most part, heavily regulated. In an odd twist of business logic, the heightened regulation also provides a barrier to entry for smaller entities thereby entrenching the utilities even more. For example an average utility is required to have cash reserves that most technology startups can only dream of. Like pharma and insurance, also heavily regulated sectors, the utility industry spends a lot of money lobbying to maintain this status quo (image below shows the the top lobbying industries)Source: opensecrets.org). To bring to market a technology that would disrupt the utility business model would require a lot of money and a lot of time. Two things most early stage technology companies do not have are a lot of money or a lot of time. 
  3. Behavioural EconomicsAccenture (and anecdotally Google) carried out some research in 2010 that showed consumers only spend 6-9 minutes a year, outside of paying bills, thinking about their energy. The research also found that most of the interactions with the utility was negative. Opower was early in using social pressure to get consumers to pay enough attention to their bills to reduce their energy usage. But when you are working with just 6 minutes a year of negative interaction you have a long long way to go. Especially considering the number of minutes you and I spend reading memes, watching cat videos and dream boards with pictures of furniture we might never actually buy. The normal rules and expectations for user engagement do not apply when it comes to energy technology and stifles growth for companies in this space.

 

Combine the three conditions above and you see why there are fewer energy technology companies that have achieved unicorn status (1 and that company is Nest) than there are Women CEOs at Fortune 500 companies (20). 

Will this change? Thankfully the answer to this question of whether there will be unicorns in the energy technology space is a resounding 'Yes'. As the utility industry moves to data as the value and energy as the commodity, a distributed structure, where every device is connected/controllable and becomes an industry with empowered and mobile phone enabled consumers, new companies will sprout up across the value chain to provide what the consumer demands and enable what technology wants (progress). Steve Case calls these sorts of businesses and entrepreneurs Third Wave Businesses. It will require entrepreneurs that see the future of technology, are in tune with consumer needs and are savvy in dealing with regulation and government. It will demand a new approach to thinking about the utility industry.

That work has already started.

3 Ways Blockchain is Fundamentally Changing The Power Industry

I attended a TED style energy conference about a week ago and the consensus was that the future utility is here regardless of how reluctant the industry is. With impending delivery of Tesla Powerwalls and continued reduction in solar panel prices (with science now able to facilitate solar power generation even in rainy conditions [PDF]) fundamental change is not just imminent, it is here.

I wrote a future utility post a year ago and in it I suggested a scenario where

'Sam is considered as a 'node' on the future electricity grid (with a card and a mobile app to measure how much energy she uses or produces)... Sam’s home is powered by a rooftop solar panel and has a neighbor, Jo (with his own + or -), who doesn’t drive, doesn’t own a solar panel but trades stocks for a living, using a lot more electricity than Sam by running servers at home. Some days Jo (conceptually) ‘gets’ electricity from Sam's 'home battery' or the Walgreens or the wind farm depending on whether Jo 'wants' renewable energy. Because Jo is another node on the grid'.

That scenario is closer than I projected all because of Blockchain. As I share in my ebook Managing Technological Change In The Utility Industry I see 3 areas of fundamental change

  1. Consumer data management: The ledger function that the Blockchain provides will allow 3rd party technology and service providers to safely interact with the end consumer in a relationship that up until now didn't exist; the utility acted as the gatekeeper of consumer data preventing access to the services that we now take for granted in other industries for example the ability to get contracts based on your customized usage profile.
  2. Retail trading between consumers: the contract between the utility and you is for the utility to generate and deliver electricity to the your home. Smart contracts, enabled by blockchain, will enable a solar panel and Powerwall owner to sell electricity to their neighbors, effectively cutting out the utility. It's already being piloted in NY and will be an area of huge impact. Yes, the future is now.
  3. Utility security: data transmission, and consequently data security, at the scale the utility has never known is currently at the top of industry concerns. Secure data transmission, using the blockchain and its public/private key cryptography and cryptographic signatures (amongst other cryptographic techniques), takes away the pain of the utility CIO. 

The industry is not prepared for these changes and in some cases is actively resisting it. Blockchain as an infrastructure platform is not a fad, even if Bitcoin may be, and Goldman Sachs is spending heavily to disrupt itself [PDF].

As Nobel prize winning physicist Max Planck suggested 'a new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents finally die'. Time for the industry to wake up.

Polymathic Weekly #1

Between 2005-2007 I curated a weekly email of books, music, pictures and a pithy quote. It got folk over hump day and became a thing with ~10k views/month*. Life happened, I stopped sending the newsletter and managing the site but kept curating interesting links for friends/colleagues.

It's 2016 and it's back! Every week (if you let me) I'll share great articles, a couple of books and lifehacking products. The goal is to that you get something new and career advancing every week.

This week's picks

Product

  • Boomerang for Gmail - They say 'teach people how to treat you', if that's the case stop sending work emails late on Sunday night and refuel your tank instead. Use Boomerang and schedule that email for Monday morning :) Also never miss sending a follow up email.
  • Bonus: x.ai: Most of my meetings last year were scheduled by Andrew or Amy. Not real people, artificial intelligence. Apart from a few glitches most people couldn't tell they weren't human. Welcome to the future.

Articles

  • Robots Will Take Your Job - Continuing the AI theme, the Boston Globe has a fantastic take on AI/Deep Learning and the impact it will have on our jobs. Read for why "we must seriously start talking about decoupling income from work".
  • 13 Urban Trends: As cities change before our eyes what can we expect and how can we, as individuals, position to benefit. Some of these are playing out in Austin (my new home) now.

Book

  • Your Flying Car Awaits - At $0.99 this book is a steal! There was a time when predictions were the remit of researchers/true experts. They still got a lot wrong. This book is a fascinating look at many of those wrong predictions and some that are no longer fantasy.

Enjoy! Share your thoughts, feedback, send to friends or just say hello...

I'll be at SXSW in two weeks so let me know if you have any particular innovation you are interested in scouting/learning more about.

Till next Sunday, have a fantastic week!

'Seyi 

You can get my Ebooks on Amazon (same price as your daily coffee but with a longer lasting boost) or here at www.asha-labs.com/book/


Systems Thinking (Business) | One Stamp (Novel) | Startups | Alien #2102 (Novel)

 

 

*The image above (circa 2006) is from wayback machine.

 

 

Zenefits, Uber and Facebook: Who Loses When Innovation & Regulation Collide?

ZenefitsUberFacebook or Internet.org. These companies have dominated tech headlines in the past few days for the issues they are dealing with regarding policy and regulation. In the case of Uber it's been the case pretty much since inception. Some of the coverage positions the regulators as the bad guys stifling innovation: 'Damn those luddites!'. Some paint the technology companies as the villains; 'Travis Kalanick is the evil baron of our time!'. In the case of Zenefits it does seem like there was a lot of negligence and disregard for regulation.

The more thoughtful commentary cuts to the fundamental issue here and that is the conflict between the purpose of government and the purpose of business. The most crucial determinant of a system's behavior (the government or the business in this case) is the system's purpose. I talk more about this in my ebook which is currently free on Amazon. Fundamentally, both sides of regulation (government) and technology (business) pursue their own separate goals. There will always be friction between what was (and how regulation dealt with that) and what is about to be (and the inadequacy of old regulations to deal with this). That will never not be the case. Another example is the inadequacy of utility industry regulation in dealing with consumer energy data in a time when every device captures and stores data.

In all these cases what needs to happen is a shift from the ‘all regulations are constraining’ trope towards helping create enabling regulations. What gets missed in the conversation is the nature of regulation; some are enabling and help to bring the innovation or benefit to life while some are constraining by putting bounds around how much can be impacted as a result of the innovation or technology. The goal is to help inform more enabling regulations, with emphasis on the word inform not influence, and also foster an acceptance that some constraining regulations are actually for our own good! The simplest examples of constraining regulations that have been hugely beneficial that I can think of is traffic control through lane demarcations. Imagine a world where there were no lane markers on the roads because car manufacturers felt it would limit how much driving people could do...

Enabling regulation comes about by utilizing a framework where regulators

  • look at the macro system,
  • make projections about where things are going at the subsystem level (and this is where the technologists or innovators can help)
  • Engage with the citizens they are trying to serve
  • futurecast about what technology wants

and factor in all this information to create policies that enable the government achieve its ultimate aim of creating a thriving citizenry that benefits from the  innovative/new technology that the other side of this conversation is selling.

It starts from working towards the same goal or shared purpose. A greater goal When goals are at odds (as is the case in the 3 examples above) the only real losers are the consumers; they miss out on the benefits the technology can provide while the regulators and businesses are distracted. During these regulation battles the businesses keep figuring out ways to run outside of the regulations (a systems trap called 'Rule Beating') to continue growing while the regulators keep regulating.

A shared goal that will yield benefits for all the subsystems involved, especially the most important element ; you and I.

One can always dream...

Why LinkedIn Needs To Pull A Netflix (And Why Amazon Is Doing So).

Netflix has been a darling of the stock market with a market cap that has grown to ~$40Bn over the last 5yrs (image below). The company did this by disrupting the movie rental industry (biggest victim being Blockbuster Movies along a few thousand mom and pop movie rental stores) with its watch and return all you can/pay a flat fee business model. 

 

Netflix stepped up its game (and better served existing customers with improved technology in the form of algorithmic filtering/selection and the move to streaming. This was great for us but was just a sustaining innovation. Not much happened to the stock price but these innovations, which weren't internally developed but were as a result of overall technological improvements, kept Netflix at the top of the game capturing more and more customers.

And then along came ‘House of Cards’ and the era of data driven original content. Using data/intent and interest algorithms, Netflix green-lighted a series that a lot of people actually doubted would succeed. Competitors missed the shift that was happening because the competition (Netflix) did not look like whom they'd competed with all along. "There's no formula...there's no textbook on the shelf that you pull down and say, 'How do you run an Internet movie distribution company?' We're writing that textbook."Even when Steve Swasey (Netflix VP of Communication) said this  in 2012 talking about the show competitors missed Netflix's bigger ambition to be a full production and distribution house.

Binge watching sessions, Emmy wins by several original shows created using this mix of data/intent/interest (by Netflix and Amazon) and, most recently, the movie rights bidding wars at the last Sundance festival (with the movie writers as benefits) finally signaled to movie houses and the TV/movie establishment that they’d been disrupted by Netflix. Similar to how Blockbuster (and even Redbox) did not know what hit them...

Which brings me to LinkedIn.

LinkedIn came into the market as the network of people; people get jobs through the people they know riding on the wave of social networks and greater internet access (technology not created by LinkedIn but key to its success). People could brand themselves and very soon companies could as well.

LinkedIn knocked companies like Monster out of the game; Monster’s stock price crater coincides with Linkedin’s IPO and it currently has a market cap that is 1.8% of LinkedIn's market cap. Since then Linkedin has added more engaging content through the acquisition of Pulse (where you are reading this now) & Slideshare, mobile apps for recruitment and career training (through the acquisition of Lynda). But these are all sustaining innovations.


LinkedIn needs to disrupt another industry and I believe it should pull a Netflix and get into publishing original career development booksEspecially as we all wonder about the future of work and our roles in the New Economy (if the robots don’t take over). Think about it; LinkedIn has data on the job vacancies, talent pool and their interests/skills gaps and a huge market opportunity. Data, interest, intent and predictive capability. Despite the wrong declarations on the death of books, the global book publishing industry will grow to $128.3Bn in 2019 from $120Bn in 2014. The ability to target career needs using advanced analytics and provide the books/content to bridge the skills gap will enable entrants  to capture market share from (and dare I say disrupt) the incumbents.

It’s a great opportunity for Linkedin to utilize its strength and get into adjacent markets where innovation is lacking and much required.

I’ve read 4 books this year, all based on personal recommendations and I even walked into a store to buy one. Like a lot of people, I will always buy more books than I can possibly read and recommending books that meet me at my point of need will always make me open my wallet. Why else do you think Amazon is opening over 300 stores? Because Amazon knows the market is huge, technology is ripe and it's time to disrupt the book publishing industry.

Berkshire Hathaway, Alphabet & Why Warren Buffett Should Be Worried

Warren Buffett (through NV Energy) and Elon Musk (through Solarcity) are currently battling in Arizona; one wants status quo and the other wants the government to continue providing subsidies to homeowners with solar panels who want to sell their power back to the grid (it’s known as net-metering). NV Energy has fought the subsidies using lobbyists, and won this round by getting the laws rewritten making solar cost prohibitive  for new customers and uneconomical for current solar panel owners. Apart from the creepy image of half naked Buffett and half naked Musk, Bloomberg Business magazine shows a myopia that I doubt Warren Buffett himself has. 

Sidenote: The battle actually highlights a systems thinking trap that actors fall into called Policy resistance; various actors try to pull a system towards various goals (most of the time conflicting as in this case), the result is an outcome no one likes but everyone spends considerable time and money maintaining. Point is, no one benefits from this war.

See, this battle might be between Warren Buffett (Berkshire Hathaway or BRK) and Musk (Solarcity, Powerwall) but the real war is actually between Berkshire Hathaway and Alphabet (formerly known as Google).

A simple look at Berkshire Hathaway’s portfolio of companies shows a heavy tilt towards companies that provide (according to Maslow's Hierarchy) safety, physiological needs and a huge dose of self esteem. The graph below shows how BRK companies are heavily skewed towards these needs we have - the desire to house, clothe, feed and affirm our families; in the form of home construction/ownership, protecting those homes and our livelihoods in the form of insurance and the things we do when we have security and comfort, boating/jewelry and the like.


Crazy thing is Alphabet is not just borrowing the holding company model from BRK, Alphabet is competing directly. Here are the 3 segments of competition below. Some clear areas of overlap and competition: 

  1. Energy (safety and security): Apart from NV energy (the entity battling with Solarcity above), Berkshire Hathaway has made a lot of investments in traditional energy (coal, natural gas etc). As I mentioned in an earlier post about Alphabet/Google’s ambitions in the utility space, is fully focused on where the industry is going. Point is, for Alphabets bet to succeed to the heights we expect of Alphabet/Google bets, BRKs bet on NV Energy etc has to fail. 
  2. Infrastructure~40% of the manufactured homes in the US are owned by Marmon  a BRK portfolio company but these are traditional homes. According to Zillow more people are renting longer and less consumers are buying. What BRK has done is ‘own’ the resources required to give consumers the sense of ownership of a home, that’s the bet BRK has made. On the flip side Alphabet has made a bet on the new definition of a home not being the four walls; Nest and it’s suite of products, combined with the energy story above, enables Alphabet to own ‘inside’ the home. Again, opposite sides of a bet with the changing demographics and behavior trends giving an indication of who might win these bets. 
  3. Esteem (and maybe even self-actualization): The ‘vanity’ bucket of BRK’s investments are expressions of wealth from a time fast fading; jewelry, luxury boats and jets. While some of these might still be signs of affluence the demographic trends point to a move towards experiences. I’ll also suggest that as much as Calico is about extending life, it is the new ‘vanity’ desire, with the goal being to live long to enable us continue to have more experiences.

Larry Page has taken Warren Buffett’s playbook and modified it for the next century. Alphabet is a Berkshire Hathaway for the next 20 years, with a focus on advanced technology to satisfy our basic needs. 

I’m not a fan of trite general statements but ‘Software is eating the world’ by Andreessen Horowitz, might be apt here; the software guys are eating Warren Buffet’s world. Alphabet will be sharing their numbers for Q4 2015 today but Larry and Sergey are about to be even more embedded in our lives (and a lot richer) than we can imagine at this point.

Don't Plan Your Career, Lay Out Scenarios Instead

I won't bury the lede on this one; don't plan your career, a better approach is to develop a few scenarios of where you believe your industry is going and acquire the knowledge and skills that will be required to thrive in these scenarios. I'll explain how to do this.

I wrote a few articles in 2015 (OK, a lot) and the ones that got the most views/responses were focused on the future of an industry or company. Unsurprisingly, I got questioned on my ability to predict the future, people disagreed in a few cases. That's fine. My response was the same every time; I'm not actually predicting the future, I'm just laying out strategic scenarios. Second most recurring question was why I felt comfortable sharing my views on where the future lies for industries that I know little about? My response; it's easy when you apply systems thinking because one should be wary of folk who predict the future with certainty.

It’s all about systems thinking. Looking at the industry through the lens of some immutable systems truths and not placing too much weight on the short term beyond where we are in market cycles. It’s the crux of my ebook as I apply it to two industries (education and energy). 

Understanding the fundamental drivers and where your industry is going will enable you acquire the skills you need to thrive in your industry whatever the outcome of your  situation with your current company or with the company itself. It's a simple process

  1. Read and gather information on the game changing technologies within and outside your industry.
  2. Apply some Systems Thinking to the information you've gathered (I give some examples below)
  3. Lay out 2-3 scenarios for where things might go
  4. Research to gain better understanding of what skills you need to acquire  to play a leadership role in the scenarios you've laid out (#SkillsGap)
  5. Go about acquiring those skills.
  6. Stay learning

Systems Thinking Concepts to Apply for Scenario building

In the Fifth Discipline, Peter Senge advocates for the value of learning organizations. The same learning mentality applies in your acquisition of knowledge about technological advancements and the skills that will be required. Some things will always hold true, regardless of whether some of the technological advances come to be, because some systems concepts (I borrow from Donella Meadows here) will always be true. Here a few that you can use to develop your scenarios

  • Honor, respect and distribute information: the business model for some industries (e.g. insurance or credit ratings) is based on lack of transparency and hiding information from customers. Such industries, and companies that are thriving in such industries, can only do so for so long because information will always seek a way 'out'. For example the healthcare industry will end up with our individual health records belonging to us and not the insurance companies or the healthcare systems. Develop scenarios that respect this systems concept.
  • Listen to the wisdom of the systems: similar to the concept above, analog industries to yours that are further along in the system cycle will provide you a sense for possible scenarios in your industry. For example; the utility industry is moving from a centralized to a distributed generation and supply structure, similar to what happened to the telecommunications industry about 15 years ago. Listen to the systems. This concept also suggests that cross industry expertise is going to be critical in any scenario you come up with as competition will come not just from within your industry but from outsiders as well. An example is Myfitnesspal (acquired by UnderArmour) which has data on the food habits of ~80M users, expect this company to compete with insurance or health care data companies in the not so distant future . The future of companies and careers will be ruled by those who combine skills from several areas of expertise and augment it with technology to achieve their goals. Develop scenarios that recognize this.
  • Expand the time horizons: In 2013 there was a lot of talk about drones. In 2014 there was a lot of talk about drones. In 2015 there was a lot of talk about drones. In 2016.. you guessed it, there will be a lot of talk about drones. This is not because people don’t have things to talk about, it’s because until a technology becomes ubiquitous we continue to be fascinated by the possibilities. When developing scenarios, extend your time horizons to include a timeframe when the fascinating technologies of today become regular parts of our lives and work. 

Using some of these concepts you will be able to futurecast, develop scenarios and define what you need to learn to cover your #SkillsGaps and it also helps you develop a learning mentality (due to the amount of research you will have to do).  Even if none of your scenarios come to be you would have learned a lot and gained skills. You’ll need it to thrive regardless of the changes that happen around you…

Get my ebook on Systems Thinking and Scenarios here or for the interactive version check out Amazon.

How Google Is Cleverly Becoming Your Power Utility

It’s quite fitting that while COP21 is going on in the background, with leaders and governments talking about climate change, Google announces 842MW of renewable energy purchased. While world leaders plan to make the world greener and promise money towards future research, Google is actually doing the work of moving us towards a greener more sustainable future. 

What you might not know is that Google's current renewable energy portfolio of~$3Bn (investments and assets) makes it one of the largest renewable energy owning utilities in the world. Google has invested in Solarcity, Sunpower, Wind Farms in Carson County Texas, Jasper Power in South Africa, Clean Power Finance (a residential solar financing company) and runs several locations on hundreds of megawatts of clean energy with plans to run all it’s facilities on renewables by 2025. That's more investments in renewables than even the most progressive US utility (in a glacial industry like the utility industry it’s not quite hard to be called progressive)!!

As with dinosaurs, what will kill you is not a bigger dinosaur. It is the meteorites you didn’t even know were coming your way.

Remember how Google powered Yahoo search? Guess who’s wondering where the internet went now? What the utilities signing solar participation deals with Google don't seem to realize is that they have a powerful competitor on their hands. The industry forgets that Google had Powermeter (a dashboard for residential energy use management) that was shut down after 2 years it launched in 2010. What they don't know is that Powermeter was not a failed experiment, Powermeter was a 2 year beta test to learn things like how consumers only spend 6mins a year thinking about their energy (outside of paying their bills)! Sidenote: when Powermeter was shut down I sent an email to someone at Google trying to buy it for $10 or something ridiculous like that, I thought it would be a great ‘win’ for the company I’d founded then! Unsurprisingly I never got a response..

Still don't think Google is planning on becoming your utility? A few more indicators of intent:

  • Nest: Unlike most analysts suggested, the Nest acquisition was not for data. It was the PowerMeter replacement with a product that actuallymanages the energy in your home rather than just measure and monitor the ~$1400/year the average consumer spends. Most utilities are spending millions of dollars to own the connected home to hedge their future. While the utilities are trying to figure this out Googlethrough Nest and it’s Google Fiber product in cities like Austin and Kansas City, already owns the Connected Home infrastructure layer...power over ethernet will get better.
  • Toothpaste Test: Power (and energy) usage passes Larry Page’s toothpaste test; Other than energy, I can't think of too many other things that you and I use all day and makes our lives better. Energy is probably the only thing left that passes this test that Google isn’t currently involved in at scale.
  • Power (the other one): What is more important than access to the internet for most of us? If you’ve read this far, you already guessed it; it’s the energy that we use to power the devices that give us access to the internet. From Google's perspective why not control that too? From a systems perspective, one of the input flows for what makes our use of the internet possible is energy. Own the energy and you own another critical element in how you and I survive in this technology driven world we live in.
  • Smart Cities/Infrastructure: Google is doing serious work, through Sidewalk (one of the few startups to have been spun out of Google), on smart city development and understanding. Energy is one of the 4 core elements of a smart city. The other three are policy, infrastructure and people. Google is making big and bold statements through investments in both energy and city infrastructure.
  • Market Size: The global energy industry is one of the few Trillion Dollar opportunities left. It also just so happens that the product does not need customization in every new market you go into...

These investments, these steps, are the elements of the long game where losses are incurred in the short-term (something the utility competitors cannot afford due to shareholder pressure) to lay the ground for long term competitiveness and outsize returns based on learnings from in-house experiments and external bets. It’s the typical strategy for innovative companies.

What would complete Google’s move towards this inevitable future? It would be actually purchasing renewable energy and connected home assets of a utility. Or even the utility itself. One big one did just come up for sale...

Now that's a #BigIdea...

Why Tesla Is Not Disruptive; A Systems Thinking Assessment.

Watch Bloomberg West and you would be forgiven if you came away with the impression that Tesla recalling all 90,000 Model S cars is good news. It is quite interesting to watch how commentators fawn over Elon Musk and all thedisruption he's causing. Don't get me wrong I’m not suggesting we all pile on, I know it is terribly difficult to build a business (or 3), but let’s stop calling Tesla disruptive.

Tesla is impressively innovative (with a CTO at the top of his game) but the company is not disrupting the automobile industry. Disruptive innovation is not what we think it is. Tesla’s innovation is in bringing a beautifully designed electric car to the market but for the company to be disruptive it would have to have entered the automobile market one of two ways.

  1. 'Low-end footholds that occur because of the incumbents focus on their most profitable and demanding customers with ever improving products and services'. Tesla is selling products that are well above the annual wage of the average American. There is no low-end foothold in a product that only the 1% can afford. Even moving into the low-end of the market with new cheaper products does not make this count as a disruption to the status quo, it’s just the natural trajectory of any competitor in a market like this.
  2. 'New market footholds of creating a market where none existed before': in this entry mode Tesla also fails to disrupt. Wealthy consumers were going to buy expensive cars regardless of the fuel source. Fantastic design and great marketing doth not a disruptive product make (even thought it maketh a more sustainable world). Tesla captures market share, making it competitive, but I’ll suggest it has not created a market where none existed before as people were buying electric cars before Tesla came along. The majority of consumers who were not thinking of buying an electric car (or able to afford one) are not about to buy or lease a Tesla.

Assessing Tesla through a simple Systems Thinking lens

From an innovation frame Tesla is not disruptive. What about from a systems thinking perspective? A method we can use is what I call zooming (in and out). Through this lens we also see that Tesla, while innovative, is not disruptive.

    • If we zoom into the company (squint) and pick one of the component parts - let’s go with manufacturing - we see a company that is using new technology, robots and humans to build an electric car (video below). For most people who haven’t visited a car manufacturing plant this all looks cool and great. I almost ended up working in one of these manufacturing plants in 2001 and I can assure you the plants in the midlands of the UK that I visited had technology, robots and humans building their cars too. A state of the art car manufacturing plant, as evidenced below, is innovative but it is not disruptive. 


  • Zooming out of the company and putting on a systems lens you see that Tesla's supply chain (sourcing parts from 200 global partners), distribution channels (company owned stores), service coverage (high quality no questions asked) and type of vehicle (electric) all differ from that of traditional auto manufacturers. But the elements of the business model are basically the same as that of said traditional auto manufacturers. Most engineers would look at a Tesla manufacturing plant and recognize every element of the plant. What might be new is the level of technology applied to what is a traditional plant. Again, innovative but not disruptive.

Like Clayton Christensen (an innovation sage), in his HBR article that fueled this post, I’m not suggesting that Tesla isn't doing amazing work. As a systems thinker what I worry about is how we devalue words (and the work that underlies the work) by ascribing it where it is not applicable. There are people doing truly disruptive works across all industries and you yourself might have an idea and can use the framework above to assess whether your product or service is truly disruptive.

Innovation abounds around us. But disruption? It’s actually pretty hard..