The Goldilocks moment

May 21, 2018

Andy Grove first introduced the concept of strategic inflection points in his 1996 book, Only the Paranoid Survive. He defined such a point as a moment in time when the fundamentals of your business change, requiring a major shift in how your organization operates. An inflection point can lead your business to new heights; it can also precipitate decline. The biggest dilemma for an executive facing an inflection point is when to take action. Move too early and you will waste money and resources. Leave it too late, and you will get buried. The key is, like Goldilocks in the old fairy tale, to find timing that is ‘just right’.

mass retailers confronting the internet inflection point

In traditional retailing, the core constraint is that of having only so much space. The possibility of shopping on the internet relaxes this constraint, meaning that physical space and inventory would no longer be a requirement for selling to consumers.

For instance, in a 1995 Fortune article, Michael H Martin asked, “How can a small player establish a beachhead in industries as entrenched as publishing, insurance, stock trading, and Yellow Pages advertising? Start with the fact that digital businesses need little real estate. Add the power of interactive web pages and email, which provide direct links with customers. The combination is potent…”1 Amazon sold its first book online in July 1995.

Here we are, several decades later. Amazon has extended its reach to capture profits from a dizzying array of retail businesses. Cushman & Wakefield, in their annual survey of mall traffic during November and December, reported 35 billion visits in 2010. By 2013, these had dropped to 17 billion. Some retailers, such as Marshall Fields, Sports Authority, and Circuit City have closed altogether, while others, such as Macy’s and Sears are aggressively shrinking their store footprints.

Meanwhile, on the other side of the digital inflection point, Amazon has posted over 20% annual revenue growth rates since 2006.2 In India, 2017 was called by many observers the year that Indian ecommerce came into its own, with local players such as Flipkart being joined by aggressive global players, such as Amazon.

moving too early

It is very difficult, in the early days of a major shift of some kind, to detect signals that are significant and to differentiate them from those that are simply noise. In those early days, enchanted by the prospect of a whole new market opening up, retailers plunged into opening ecommerce sites and setting up new websites.

In 1995, the same year Amazon made its first sales, researchers did a study of what kinds of companies were using the internet and for what business purpose. They found, upon looking at some 300 companies who had created web pages at that point, that commercial use of the internet was primitive, at best. While some respondents were positioning themselves for a ‘land rush’ as the technology matured, the majority appeared to agree with this sentiment, voiced by one of their study participants: “Sales are dismal and barely cover the cost of maintaining the web page through my internet provider… I do not see the internet being a viable marketing tool for products other than computer products for at least 20 years.”3

In India, what some have called the ‘first wave’ of internet commerce commenced in 1995 with the introduction of dial-up VDSL internet in six cities. B2B commerce, online matrimonial offerings, online classifieds, online banking, the first online department store, and online recruitment businesses were examples of the kinds of businesses opening at that time, to take advantage both of the new technology and of liberalization of economic policies.4 Just as with the American companies, the nascent Indian ecommerce sector experienced disappointment— slow and inefficient connections, little acceptance of spending money on the web, and a very small customer base, all contributed to the problems.

It is important to realize that the internet shopping experience of 1995 was radically different than it is today. Even in 1997, less than 40% of American households even owned a computer (and a far smaller percentage of Indian households did), and fewer than 20% had internet access, provided mostly by slow and glitchy dial-up modems. At that point, ISPs were still charging its users an hourly fee to provide access. Many changed to unlimited flat-rate fees in 1996, which, while lessening the anxiety customers had about running up their internet charges also led to a flood of traffic. Many customers ended up dropping such services, which were plagued by constant busy signals.

Always-on, fast broadband as we know it today really only got started around 2000. The post-2000 shakeout that has come to be called the ‘ bust’ was worldwide— in India, over 1,000 first-wave Indian ecommerce businesses closed.

It took until around 2007 for half of American households to have both computers and broadband connections.5 2007 is also notable, of course, as the year that Apple released the first iPhone, putting the equivalent of a broadband connection in everyone’s pocket.

drawing the wrong conclusions

While the internet was very exciting, from the perspective of a traditional retailer in 1995, it was foolhardy to make significant investments in internet capabilities, given the immaturity of the technology at the time. The conclusion many reached, erroneously, is that this internet phenomenon would lead to no good and was simply another fad.

This illustrates one of the sneakier aspects of inflection points. When they first emerge, although it is possible to speculate about what they could become, in the early stages they are inevitably incomplete in some way, leading most observers to conclude that they will never come to much of anything. To compound this, there are many hyped-up potential inflection points that do indeed amount to absolutely nothing (the paperless office, 3D TV for the home, intelligent appliances—and the list goes on).

At that time, what pre-occupied retailers most, according to the Wall Street Journal, was not speculating about the dismantling of the traditional retail model, but figuring out how to wean customers from continuing to expect bargains amidst a general slowdown of shopping for apparel.6 The imagination required to see the long-term implications of a major shift is not necessarily the defining characteristic of an organization’s senior leadership, who are generally rewarded for execution against the goals of the present.

This is compounded by a phenomenon that was captured by Bill Gates, who in his book The Road Ahead, observed, “we always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” The dilemma is something the Gartner Group calls the ‘hype cycle’ in which some kind of shiny new object captures the public imagination and creates a lot of buzz, but then fails to deliver any near-term change in anything. This in turn leads people to dismiss the emerging shift, discounting its importance. Ironically, while Gates did anticipate an ‘information superhighway,’ Microsoft ended up being surprised by an internet that eventually put them on the defensive.

moving too late

Given the early disappointments of the initial internet buzz, a good many retail leaders went back to conducting business ‘as usual’. According to Steve Denning, an observer of leadership practices, “In effect, they (retail executives) are still living in the world of traditional management, with the vertical mindset of shareholder value and command-and-control. The more agile, horizontal mindset with a total focus on delighting customers through continuous innovation has yet to take a hold in an industry that is crying out for it.”7

There are many reasons why a command-and-control style of leadership makes an organization particularly vulnerable to missing an inflection point. By the time critical information makes its way to such a leader, it has been stripped of a great deal of hugely important information. This information is often only possessed by those who are right up against the phenomenon. As Andy Grove had said, “snow starts to melt at the edges.”

Important new developments do not announce themselves, fully formed, in the boardroom. They appear first at the edges of what organizational members might consider to be central—with a new customer segment, in a setting that is remote, or with a very weak signal. When the signal gets stronger, command-and-control leaders often either intentionally or unintentionally discourage those who have the information from raising it. Instead, it is hidden to protect the messenger or keep the peace for just a little longer.

questions for the senior executive 

As we have seen, the challenge for senior executives is not so often recognizing that a strategic inflection point is in the works. Indeed, just as we saw with the internet, there are often plenty of people who see the potential change and are strongly articulating its potential to radically alter existing ways of doing things. Yesterday, it was the internet. Today, it is AI and robotics. The much trickier question is at what point a senior leader should be investing serious resources in doing something to change their business as the inflection point unfolds? I suggest three core questions:

01 Will an investment at this point create a complete customer ‘job to be done’ solution?

Clayton Christensen and his colleagues have famously suggested that customers do not buy products; rather they hire them to get certain jobs done in their lives. The nature of the job to be done is remarkably stable, and customers are demanding with respect to having a complete job done. Despite the potential of the internet (and AI, and robotics, and whatever else is on your mind), new technologies are often incomplete with respect to getting a job done. It is not until a completely new ecosystem becomes possible that mainstream adoption can occur. While it is fine to take out options on the new technology at this stage, it would be foolhardy to make a bet-the-company investment.

02 Is there a complete business model to justify making a big investment?

Sad, but true—even innovations which are beloved by customers and therefore become extremely popular do not necessarily deliver attractive returns to the companies making them. Consider the impact which ride-hailing companies have had on disrupting the taxi business. They have created enormous customer benefits in terms of price, flexibility, and service. The dilemma is that while they have chased rapid growth by subsidizing customers and drivers via invested capital, there is no indication that this model will be profitable over the long run.8

03 Is the inflection point likely to destroy established markets, or open new markets that will co-exist with them?

Many inflection points have the effect not so much of destroying existing markets as of expanding the pool of people who can be served with a new solution, while leaving the existing solution more or less intact. This is one potential scenario, for instance, in the emerging market for over-the-counter hearing aids. While the established, expensive, and highly customized market for traditional hearing aids is likely to continue in some form or other, the newer market is likely to enjoy explosive growth as new technologies from the world of noise-cancelling headphones and music players begin to offer the same functionality at a fraction of the cost. As an incumbent, the question is then whether you protect a defensible, but slow-growth niche, or move to capture the higher margins and growth that a newer business might bring.


As the pace of technological change hastens with each passing year, strategic inflection points seem to be everywhere. Being conscious of their potential impact and taking action at the right time is possible when executives establish a sense of perspective.