The Danger of Chasing Margins (Clayton Christensen)

I’ve always been leery of focusing on margins. I think because I would look at other successful companies and see they did not necessarily chase the high margin business. The ticket size matters. The CAC matters. The long term market stability matters.

I was just reminded of this by this anecdote about large enterprises leaving the low margin segment. The competing companies in that segment eventually moved into the high margin segments as well. Point being that based on profit analysis, it was rational.

Clayton Christensen: Disruptive innovation

Or maybe there are just too many factors to generalize.

Another main point of the article is that Innovation/Disruption takes the complex and replaces it with Simple and Affordable. Mainframe > PC > Laptop > Cell Phone.

As an aside, what will replace the cell phone? Pencil and Paper? Worked well for me.

Here, Prof. Christensen makes a clearer statement of his theory (around 12 min mark).

Creative Disruption & The Innovator’s Dilemma | Clayton Christensen (HBS & Author) @ Startup Grind

If you try to make a better product than incumbents, they will kill you. The successful disruptors always enter at “the bottom” of the market. I believe he means the least expensive end of the market.

Also includes the milkshake story; the customer is not the right unit of analysis, it’s the job that needs to be done. In the case of the milkshake, it works as something to eat on a commute. The characteristics of the person matter little.

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