I had the opportunity to attend the State Fair of Virginia two weekends ago. While I enjoyed the festivities, the greatest spectacle was the Demolition Derby. The premise is simple: drivers in barely functional cars smash into one another until only one car is left driving. I had heard of the Demolition Derby before attending the fair, but I was surprised by how much I enjoyed watching it. I, along with several hundred fans, sat in the bleachers watching and hoping for a spectacular crash while at the same time praying that none of the drivers would be injured. This paradoxical thinking only heightened the experience. As each car came close to smashing another, the crowd held its breath. After every near miss, you could hear the person next to you sigh in relief. But when the vehicles collided, a burst of raw emotion shone through. I caught myself cheering as if I were at any other sporting event.
Throughout the event, I wondered whether Demolition Derby's appeal came from igniting these deeply emotional reactions. How does smashing cars makes happy customers? There are several other ways that the Derby creates values for customers:
- Thrill - the possibility of danger
- Simplicity - the rules are easy to understand
- Uniqueness - you cannot legitimately experience the event in other areas of life
- Speed - the event proceeds quickly without delay
Like any other product or service, the derby must compete for the audience's attention. Achieving this requires an understanding of the core consumer. As I looked around, I saw that the target audience included small children to senior citizens. The derby's popular appeal stands in contrast to what may be considered normal behavior by society; we certainly drive our cars in a fashion to avoid colliding with others! Yet, the event's popularity demonstrates the existence of a market.
Why, you might ask, have I spent over 300 words on the Demolition Derby? As a business school student, I am often thinking about markets that do not yet exist. What was the market for smartphones in 1980? Zero. What was the market for smartphones in 2014? 1.2 billlion. How was either market created? For the derby there are several factors that "drove" an idea into a market:
There are certainly more reasons that explain the market. But what about all the destruction? What comes of an event that destroys cars? You might want to call it "creative destruction". While that sounds like a fit, the term has a very different meaning.
- Creativity - seeing value from using junk cars to draw fans
- Unorthodoxy - inverting the common approach to motorcar racing
- Connectivity - tying the unorthodox rules back to the accepted selection of winners and losers
There are certainly more reasons that explain the market. But what about all the destruction? What comes of an event that destroys cars? You might want to call it "creative destruction". While that sounds like a fit, the term has a very different meaning.
Creative Destruction
Creative destruction, a term coined by Joseph Schumpeter, posits that new technological advancements displace existing technology. During this process there are winners and losers. This is especially true in the software industry. Here are a few examples:
The displacement that occurs during creative destruction can have both positive and negative consequences (1). In short, most often, you want to be on the side of the displacing technology! In my career, I have been fortunate enough to be on the displacing side.
Creative Destruction is often a big movement. As an aspiring product manager (PM), I have worked with PMs who are often consumed with the small changes. These incremental improvements are as crucial as the ability to deploy new software faster through SaaS makes the new features or options even more important. At the same time, the amount of information available to managers has grown considerably. How do you strike a balance? A recipe for success must include creativity, flexibility, and the assumption that there are markets yet unseen.
Post note: While I am sure there are many other papers on the subject, this one on organizational structure and creative destruction highlights the challenge that companies face in highly innovative ("unstable") product markets (David Thesmar and Mathias Thoenig, 2000)
- Companies are choosing to use Software as a Service (SaaS) also know as Cloud Software as a replacement to on premise (installed) software
- Mobile applications have displaced desktop applications
- Large social networks such as Facebook and LinkedIn have altered the pre-existing social networks (your neighborhood, the office water cooler, and the yearbook)
The displacement that occurs during creative destruction can have both positive and negative consequences (1). In short, most often, you want to be on the side of the displacing technology! In my career, I have been fortunate enough to be on the displacing side.
Creative Destruction is often a big movement. As an aspiring product manager (PM), I have worked with PMs who are often consumed with the small changes. These incremental improvements are as crucial as the ability to deploy new software faster through SaaS makes the new features or options even more important. At the same time, the amount of information available to managers has grown considerably. How do you strike a balance? A recipe for success must include creativity, flexibility, and the assumption that there are markets yet unseen.
Post note: While I am sure there are many other papers on the subject, this one on organizational structure and creative destruction highlights the challenge that companies face in highly innovative ("unstable") product markets (David Thesmar and Mathias Thoenig, 2000)