We are grounded by working in a user-oriented Change Framework model as opposed to a vendor-driven supplier model
Having established that identifying change is the way we will seek out investment opportunities, the next question is …
Why – and when – does change happen?
We have written thousands of pages on what we have termed The Change Framework, and that writing has helped ground us inside the world of Change.
So …while most investors fail to trust a single investment philosophy, we have become grounded in the one we have chosen: “change.” We have studied Change vigorously and have developed our own philosophy on why change does and does not happen. In doing so, we have not only grounded ourselves at the investment philosophy level but we have also burrowed deeper and deeper into change — to more deeply gain an understanding of the roots of our philosophy.
The Change Framework —» Why CHANGE does and does not happen.
We will get at a bit of it here. Hopefully we generate clarity and simplicity as opposed to confusion and complexity.
What The Change Framework says is that we need to examine the potential users of a new technology when determining the likelihood of adoption. Sounds obvious but unfortunately The Change Framework is fairly radical relative to the implicit mindset that has permeated the technology industry across the past 50-60 years.
Our View of Change vs The Implicit View of Change in Tech
The implicit view of change in tech = Moore’s Law x Grove’s Law or in English: build way cool disruptive technologies and watch the price come down as it always does in tech and watch the market take off… this think came to be known as “build it and they will come” during the Internet Bubble… the supplier-oriented thinking is limited… it is necessary to supply technology but not sufficient…
The Change Framework says change occurs based on a user’s current crisis on a scale of indifference to crisis as compared with the user’s total perceived pain of adoption. If the crisis is greater than the total perceived pain of adoption, then change occurs. That’s it.
More on CHANGE and history of “tech”…
The transistor was developed at Bell Labs in 1947. Ever since, technologists seemed to grow more and more of the opinion that if they were given sufficient time and money, they would create “magic,” to paraphrase Arthur C. Clarke who brought us 2001: A Space Odyssey. And further, this “magic” would be irresistible to humans as they realized these new solutions were waaayyy better than the old ones and that as prices dropped in accordance with something deemed “Moore’s Law” that, well, folks would buy.
We don’t subscribe to this notion.
This entire notion was derided as “build it and they will come.” It was very popular – especially with the dot-coms – until it wasn’t… as the Internet Stock Bubble burst. That ended that… well, kinda. Technologists kept at changing life in the same fashion as they always had. Build something better and folks would beat a path to your door.
However, a key problem – for starters – is that most potential users of technology products are quite afraid of new technologies. The creators are not afraid, but the users are, and it is the users who matter. SO it seems obvious to creators that this new thing will sell, and then, it doesn’t. Even during the fabulous 90s when nine or 10 technologies finally hit a major commercial inflection, most of the emerging technologies failed to get anything resembling lift off. We have written extensively on 10 failures of the last decade and in no case was technology the problem. All the technologies worked. The engineers indeed developed a cool massive disruptive so-called 10x change in technological capability.
So what went wrong?
Well… we think the implicit thinking – build cool technologies and watch price reduction contribute to generate lift-off for the market – is limited. Creating cool technology is a necessary condition but not sufficient. To consider what is “sufficient” we must bring the user into the equation.
“The significant problems we face cannot be solved at the same level of thinking we were at when we created them…”
Creating cool technology is a necessary condition but not sufficient.
The industry by way of its success has become very supplier-focused while the world is always user-focused at its core. There is never a sale consummated until the user hands over money. This is the disconnect between the implicit belief in a supplier-oriented model and the reality that users have final say.
We care more about what goes on with the users.
What The Change Framework says is that we only really need to care about what goes on with the users prior to their handing over money for this new thing. Technology demands a change in habits. So… we want to consider why someone would change habits – something I have observed as veeerrrryyyy difficult but that the technology industry implicitly considers rather easy to pull-off.
So… when does a person change a habit?
When the pain from being in a certain state today is greater than the total perceived pain of adopting a solution to today’s pain. If today’s crisis is greater than the total perceived pain of adoption change will occur.
Change = f (user’s crisis v user’s total perceived pain of adoption)
So… to demonstrate…
My 14-year-old nephew Dylan may have a desire to have all his music with him at all times. He may be a candidate for an iPod. If he views the total pain of adopting an iPod into his life as higher than his crisis of not having all his music with him at all times, then no change will happen. But, if the crisis is greater than the total perceived pain of adoption, then Apple will be able to sell Dylan an iPod.
The experience of the user is very personal. Although tech companies like to think there is one “the user” every user is slightly different in what qualifies as crisis and their perception of the total pain of adoption.
So… let’s suppose Dylan and my 78-year-old Uncle Jerry have precisely the same desire to have their music with them at all times. Then let’s suppose I offer to help them set up an iPod. I first tell them to go get all their CDs cuz they will need to load them on their computer. Dylan scurries off to get his vast collection. Uncle Jerry says no thanks. He is far more terrified of interfacing with a computer than Dylan. Dylan adopts. Uncle Jerry doesn’t. Uncle Jerry’s total perceived pain of adoption is higher.
In most cases, incidentally, we see price as being less than 10% of the total perceived pain of adoption although folks in the technology world have it burned into their brains that if it is a good idea, all the hold up will be about cost. But, we have been reminded that there is no low enough price for an ugly shirt.
That is a quick 2-page primer on The Change Framework mental model that sits at the core of all of our activities providing grounding at all times.