In Rules of Thumb, Alan Weber quotes legendary venture capitalist John Doerr discussing the original business plans for companies he invested in such as Google, Intuit, and Amazon:
In every case you can find the one sentence or paragraph that describes their unique business model advantage. It could be their unique distribution system or the retailing model. It’s the factor that accounts for their success. It turns out the factor that explains their success at the beginning is what accounts for their failure later.
As a former philosophy student, I was reminded of Aristotle’s concept of “hamartia,” sometimes known as a “fatal flaw”:
In Aristotle’s understanding, all tragic heroes have a “hamartia,” but this is not inherent in their characters, for then the audience would lose respect for them and be unable to pity them; likewise, if the hero’s failing were entirely accidental and involuntary, the audience would not fear for the hero. Instead, the character’s flaw must result from something that is also a central part of their virtue, which goes somewhat awry, usually due to a lack of knowledge.
It’s an interesting exercise to apply this principle to technology companies:
1) Google’s strength is its uber-engineering mindset. This seems to increasingly be a liability as the web becomes ever more social.
2) Yahoo’s strength was its breadth. Now they call it the “peanut butter” problem.
3) AOL’s strength was being a closed garden. As users became internet savvy, they were no longer afraid of venturing outside of it.
4) Apple’s strength lies in its genius, authoritarian leader. Apple’s decline will begin when he leaves (sadly).
5) Facebook’s strength is authenticity and privacy – your friends are (mostly) your real friends, and only they see your activity. Facebook has been trying to respond to Twitter’s rise with “open” features like the public micro-messaging. It remains to be seen whether they can successfully go against their own core strengths. I’m sceptical, but give them credit for trying.
6) Twitter’s strength is its simplicity and openness. Will its openness be its downfall? For example, will Twitter end up fighting its apps? Or will it be its simplicity?
This principle also implies how to use incumbents’ strengths against them (sometimes called the “Judo Strategy”). In the chess game of competitive strategy, you can usually bet that incumbents won’t make moves that undermine their core strengths – until it’s too late.
Chris Dixon is Cofounder of Hunch. He’s also an investor in early-stage technology companies, including Skype (acquired by eBay), Postini (acquired by Google), Flarion (acquired by Qualcomm), Gracenote (acquired by Sony), P.A. Semi (acquired by Apple), Celtel (IPO), BladeLogic (acquired by BMC), TrialPay, Gerson Lehrman Group, ScanScout, OMGPOP, BillShrink, Oddcast, Panjiva, Knewton, and a handful of other startups that are still in stealth mode.
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