February 9 2011
by Thanasis Delistathis

Watch out for those “Groundhog Days”

Last week on February 2nd, Groundhog Day, Punxsutawney Phil came out of his hole on Gobbler’s Knob and failed to see his shaddow, heralding an early arrival of spring.  Phil is only 39% accurate however, so I wouldn’t hold my breath.  Of course we could all use some spring weather, but alas, more storms are predicted for the north east.

Whenever I hear of Groundhog Day, what comes to mind is the synonymous classic cult movie, circa 1993, in which Bill Murray’s character wakes up every morning to discover he is having the same day, over and over again, and it happens to be Groundhog Day.

For me, the movie is a perfect metaphor for all things stagnant, lacking change, morass, lacking innovation, lacking  personalization, and lacking service.  My favorite story is back from my consulting days.  For eight months, every week, we had to travel to the same city and stay in the same hotel.  Because we were always checking in on Monday nights, I would always get the same front desk person that would check me in.  Having stayed in the place several times I had a preference to a specific type of room.  Every week, for eight months, upon showing up I would always get asked what type of room I liked.  She knew who I was, but she would ask me every time, as if never having seen me before: “what type of room would you like?”.  I felt like Bill Murray.  “Groundhog Day!!!”

As technology investors, we look for corporate “Groundhog Days.”  That is we look for markets where sleepy dynosaur companies don’t innovate and don’t change; even in the face of evolving technology.  New ways to deliver information or to distribute goods have allowed us to take bets that improve the odds of a new startup going up against established, but set in their ways, old media incumbents.

But it’s not just old media companies that need to watch out and keep up with constant change.  The dictum equally applies to small companies.  Most of our companies operate at the cutting edge of market evolution and technology.  Moreover, they frequently have to contend with other small companies that have similar insights about the market.  So things are shifting fast.  I always remind them to stay on top of market changes, lest they become another dynosaur.

What does that practically mean?  The CEO typically has a vision for the market and the positioning for his company.  He needs to always keep testing that vision against the market.  For example, before Apple came out with the iphone, the mobile market was very different.  Mobile carriers were kings, and a company selling services in the market had to bend to their demands.  Phones had precious little screen real estate and being listed on the first screen for services was a ticket to success.  Apple changed all of that.  One can argue that they now became kings, but the distribution strategy and even product and services vision of the future now looks very different.  Consumers can use the iphone to do things that one couldn’t do before.

A couple of our companies had to make significant strategic shifts in their business as a result of these changes in the market.  Other companies, that didn’t change or didn’t change fast enought are quickly disappearing.  Even large companies are struggling.  Read this incredible story from today’s Wall Street Journal about a memo from Nokia’s new CEO about how the company failed to respond to the challenges from Apple and Google to its previously dominant position in the mobile market. More than a decade after Clayton Christiansen wrote The Innovator’s Dilemma, it is amazing that large companies are not more introspective.

Some companies that were successful at transitioning became wildly successful.  Back in 1983, Intel was a dominant player in the memory chip market.  Andy Grove was sitting in his office with founder Gordon Moore trying to figure out how to respond to the cheaper offerings from Japanese competitors.  They imagined what they would do if they were sitting outside the executive office looking in as outsiders.  And the answer was obvious, move out of the memory business and concentrate on the processor business.  Grove ended up taking Intel from a $4BN market cap company to a $197BN market cap during his career at Intel.

Even on a personal level, change and new experiences makes life a lot more interesting.  So go ahead, and avoid those “Groundhog Days.”

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