You’ve developed the products and the ability to serve your customers well. You’ve got the competition sorted out too. You know where they are strong, where they are weak, and what to do about it.
Your reward has been a growing profitable business that has attracted the lion’s share of customers, plus high quality employees and investors. Life is good. If only it could stay like this.
Odds are that it won’t. In the high-tech capital equipment world, the one thing that is guaranteed is that things will change. Whether it’s market requirements, technology, geographical demand patterns, or government policy, you can count on change. Sometimes that change is so disruptive that it can render your business obsolete. That change is called the “Deadly Inflection.”
The Deadly Inflection
A deadly inflection usually comes in one of two forms:
- Disruptions to your end market that affect its size or existence
- Disruptions in the technology that serves your market
These disruptions, if you are not prepared for them, can take a market leader and turn them into a marginal player in what can seem like overnight.
The high-tech capital equipment universe has its share of examples. Just check out the semiconductor equipment leader board before and after the transition to 300mm wafers.If you’re still not convinced, compare the fortunes of thin film solar equipment makers when polysilicon sells for more than $250 per kilogram verses when it sells for less than $50.
Market Leaders are Most Vulnerable
When you’re a market leader you are fully vested in the idea of having things stay as they are. Your leadership position in a stable world means that your customers are likely to keep buying from you. After all, there’s no compelling reason to deal with the hassle of changing suppliers.
A deadly inflection changes all that.
As a market leader you have two key vulnerabilities. The first is obvious. If you are not ready to address the change, your business will become obsolete. The second is a little less obvious. The protection that repeat-buys has given you from your competition evaporates. You will face competitors in an open selection process where nobody has tool-of-record advantage. Change represents a potential deadly inflection for you, but for the guy scratching to get in the game, it represents a golden opportunity.
What to Do
The first step is to identify the potential sources of inflections. Analyze each to determine your best estimate for:
- Potential impact on your business
Identify those that appear most likely to occur and if they did would have a major impact on your business. For each of these, you’ll need to develop strategic options.
The concept of a “strategic option” is fairly simple. It’s a hedge in case a potential deadly inflection becomes a reality. It’s an insurance policy against a standing start when a market response is needed. All of the following count as actions you can take towards creating strategic options:
- Maintaining market intelligence
- Partnerships with universities
- Developing a technology prototype
- Joint development with a customer
- Securing intellectual property
- Starting pilot production
- Making an equity investment in a pioneering company
Of course insurance is not free. So the extent to which you can develop strategic options is a function of your business size and profitability. The smallest units may only be able to afford to maintain market intelligence on potential disruptions. Large businesses with a concentrated product portfolio may be able to take an option all the way to a pilot product offering.
Make the identification of potential disruptions and the evaluation of strategic options a formal part of your strategy development process.
The pay-off? You’ll reduce the chance that you come down with a deadly inflection.