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6. Make sure a solution to this problem will be defensible
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- Note that castles don't just rely on constructed defenses; they also make use of natural / existing terrain features, like being on top of a hill or next to a cliff or next to a river or being in a valley. All of these things make it more difficult to attack the castle.
- I should have a page in which I discuss how you can know if a particular technology can be safely built on or not.
- Examples:
- Woz built the APple on / with components from various manufacturers...
- ...whereas I don't know that I would feel comfortable building on top of Confluence or craigslist or YouTube.
- DayZ was built on top of Arma and I wouldn't have guess that would be possible.
- Maybe it depends on whether the creator of the technology you want to build on is a willing participant or not.
- Examples:
If building on a platform, consider whether the owner of the platform will try to release a competing product
- Examples
- "apparently apple are about to finally release their own library-manager-thingy (putting cocoapods and carthage out of business, as it were)" - JP
- IIRC Joel Spolsky talks about this in Joel on Software; he says Microsoft was doing this to companies writing software for Windows.
Consider strict controls on access to your product to prevent it from getting into the hands of competitors
2015.09.21 - NYT - Drug Goes From $13.50 a Tablet to $750, Overnight
With the price now high, other companies could conceivably make generic copies, since patents have long expired. One factor that could discourage that option is that Daraprim’s distribution is now tightly controlled, making it harder for generic companies to get the samples they need for the required testing.
The switch from drugstores to controlled distribution was made in June by Impax, not by Turing. Still, controlled distribution was a strategy Mr. Shkreli talked about at his previous company as a way to thwart generics.
https://www.youtube.com/watch?v=pL3DW6-xzLc&t=38m50s
Write about how some problems need to have basic research conducted, and then at a certain point it becomes feasible for private companies to pick up where the basic research has left off. This should be a major thing to understand.
There are some things where it's not ready for prime-time yet and the private sector.
TechCrunch - Search Is Google's Castle, Everything Else Is A Moat
- This is an excellent article.
"Can you take the market?" Get the quote from Ben Horowitz.
2015.08.25 - Fortune - This startup can grow metal like a tree, and it's about to hit the big time
Despite the company’s ambition and promise, the startup world can be extraordinarily difficult. Expanding factory production can be particularly hard for a small company. Large scale manufacturing requires production to be precisely repeated over and over again, with little variation, which can be challenging with new technologies.
In addition the company is selling into long established and sometimes slow moving industries. While the company seems to have won over oil companies early on, big metal makers, car companies, aviation firms and construction companies can be notoriously risk averse and tend to shy away from partnering with young venture-capital backed startups.
Some of the biggest materials and metals companies around the world, which have some of the deepest pockets, and also are likely working on competitive technologies. The company will need to aggressively protect its patents —the core of its business—through both acquisition and legal action.
Can you take the market?
How easy would it be for people to switch to a solution to this problem? If the rate of adoption is too slow, you may not be able to take the market.
A big example of this is Dvorak vs. QWERTY, where many people think that Dvorak is better than QWERTY for typing lots of prose, but so many computer programs now use shortcuts that assume a QWERTY layout that it's really hard to switch.
https://en.wikipedia.org/wiki/Path_dependence
- In economic development, it is said (initially by Paul David in 1985)[6] that a standard that is first-to-market can become entrenched (like the QWERTY layout in typewriters still used in computer keyboards). He called this "path dependence",[7] and said that inferior standards can persist simply because of the legacy they have built up. That QWERTY vs. Dvorak is an example of this phenomenon has been re-asserted,[8] questioned,[9] and continues to be argued.[10] Economic debate continues on the significance of path dependence in determining how standards form.[11]
- Economists from Adam Smith to Paul Krugman have noted that similar businesses tend to congregate geographically ("agglomerate"); opening near similar companies attracts workers with skills in that business, which draws in more businesses seeking experienced employees. There may have been no reason to prefer one place to another before the industry developed, but as it concentrates geographically participants elsewhere are at a disadvantage, and will tend to move into the hub, further increasing its relative efficiency. This network effect follows a statistical power law in the idealized case,[12] though negative feedback can occur (through rising local costs).[13]
- Buyers often cluster around sellers, and related businesses frequently form Business clusters, so a concentration of producers (initially formed by accident and agglomeration) can trigger the emergence of many dependent businesses in the same region.[14]
- In the 1980s, the US dollar exchange rate appreciated, lowering the world price of tradable goods below the cost of production in many (previously successful) U.S. manufacturers. Some of the factories that closed as a result could later have been operated at a (cash-flow) profit, after dollar depreciation, but reopening would have been too expensive. This is an example of hysteresis, switching barriers, and irreversibility.
- If the economy follows adaptive expectations, future inflation is partly determined by past experience with inflation, since experience determines expected inflation and this is a major determinant of realized inflation.
- A transitory high rate of unemployment during a recession can lead to a permanently higher unemployment rate because of the skills loss (or skill obsolescence) by the unemployed along with a deterioration of work attitudes. In other words, cyclical unemployment may generate structural unemployment. This structural hysteresis model of the labour market differs from the prediction of a "natural" unemployment rate or NAIRU, around which 'cyclical' unemployment is said to move without influencing the "natural" rate itself.
Go after a fragmented market
- Chobani came out with a better type of yogurt, but not these other yogurt companies are coming out with clones.
- This did not happen (yet) to Zenefits because they went after a market where the existing solution was lots of independent brokers.
Examples of businesses that were not defensible
Dropbox
BusinessInsider - Here's The $8 Billion Ending To Steve Jobs' Failed Attempt To Kill Dropbox
Business Insider previously noted some other details from this meeting, as recounted by Houston:
"He comes in, his assistant hands him a cup of tea, he cups it in both hands, sits down, rocks back and forth. And says 'where do we begin?'"
"We didn't get into specifics, but he floated the idea [of Dropbox joining Apple]."
"It was an interesting conversation because he said he liked our products. I can't think of much higher praise than that."
Steve Jobs made the pitch himself, telling Dropbox it was just a feature, not a product. Dropbox founder Drew Houston says he told Jobs he didn't want to sell. He wanted to build a big company.
We originally reported that the Jobs-Houston approach was made back in 2011.
- For a while I wasn't sure what Steve Jobs meant by saying that Dropbox was just a feature, and not a product. But now I think I understand: a product should be something defensible. The product is like Warren Buffett's castle. A feature is something you use to entice people to purchase your product. A feature is like the fertile land outside the castle.
TinEye
Group-based fitness classes
Pilates has not quite managed to benefit from the boutique-fitness boom that it is in part responsible for starting. Interest in the method seems to have peaked last decade, dwindling just as spinning, barre, boot camp, CrossFit, pole dancing, and a million other niches started to bloom, and as yoga continued its Zen march to omnipresence. Across the country, attendance is down. Studios are struggling, and some are closing. Teachers are seeking additional certifications. Pilates centers are adding non-Pilates classes.
(...)
Indeed, the downturn has been so sharp that an American College of Sports Medicine survey floated the theory that Pilates was a fad, not a trend. “Without reinventing themselves (as Yoga seems to do), these forms of exercise will not survive in the fitness markets of today,” Yves Vanlandewijck of the University of Leuven wrote about Pilates, lumping it in with — gulp — Zumba.
To explain what might have happened to fitness’s onetime boutique darling, Pilates instructors and market experts identified a few factors — the biggest one being that the method became a victim of its own success, inviting competition that then firmly, flexibly, leanly muscled it out.“Pilates was way ahead of the curve in terms of recognizing the appeal of group-based fitness,” said Aarti Kapoor of Moelis & Co., the investment bank. “The new factor to consider today, however, is that there is so much more choice – and in many cases, the alternatives provide an edgier experience and a stronger community vibe to the consumer. Given these factors alongside the capital intensity of Pilates as a business, the growth in Pilates studios has meaningfully lagged the growth of other studio-based fitness alternatives.”
- The rest of the article is also very interesting, but it's information along roughly the same line as the quote above.