Entrepreneurs Thrive on Pringles Chips
The Pringles potato chip is an example of a hyperbolic paraboloid shape. That particular shape in two dimensions is a surface that curves up in one direction and curves down in a different direction, resembling a saddle.
Saddle Point
In two dimensions, a saddle gives rise to a contour that appears to intersect itself. A saddle point is a point that is both the largest element (maxima of a Hyperbola) in one direction and at the same time the smallest element (minima of a parabola) in a direction at 90 degrees (orthogonal).
Saddle point presents a stable and unstable property at the same time. On one dimension, the stationary points are the ultimate stability, where things finally settle down. On the other dimension, they are by their very nature the most unstable. Even a minor change will destabilize the equilibrium.
Interestingly, a drop of water dropped on the curved up axis will always flow towards the saddle point. When it gets to the saddle point, it is not clear which direction it will flow. However, even a small blow in any direction of the curved down axis can sway that drop of water to flow exactly that direction. Every subsequent drop of water will follow the initial path and flow in that same direction, even if the original blow is withdrawn.
So is the model for an industry a parabola, where things get to stability, or a hyperbola, the ultimate in instability?
It depends on the specific axis that a player in the economy is focused on. That focus determines whether the situation is considered stable or unstable.
Manager’s View: Economy is Lots of Cups
For established players, “rational expectations” make them act as if the competitive factors are a parabola like a curve. After a long period of competitive maneuvers, all players arrive at the common stable point at the bottom. At a different higher point, new entrants are either uncompetitive or settle down to this stationary point.
The acting assumption is that this is how things work and will continue to work. Any movement or changes by any player in the group are quickly matched, and the equilibrium is restored. You hear, “We have been doing it for a long time, and we have perfected the system.” Our job is to “continue to block and tackle.”
If it were true that various factors, in 360 degrees, all curved up like a parabola, the competitive model in a particular industry would look like a cup (think of a parabola in rotation).
In this scenario, the competitive landscape of that industry would ultimately bring all the players to the same stable point at the bottom of that cup.
Wherever they start, all newcomers and all innovative initiatives would end up spiraling down to the bottom where the stationary point would be, in the relatively short term, that is exactly how things work. New technology is adopted at their convenience, and rapid innovation progress is stagnated.
The manager’s view of the overall economy is one of many different cups. Their job is to protect their own special industry cup.
If the world were truly a cup, there would be no opportunity or incentives for a new entity to enter the fray in an equilibrium. They would always lose out to the well established, more resourceful players. This scenario implies that even in a “best case” situation, the new entrant is only likely to break-even and reach the existing stable point.
Entrepreneur’s View: Economy is Lots of Chips
Established institutions would like the competitive model to resemble a cup, where they control factors all around and continue to dominate the circumstances at the stable point.
On the other hand, the entrepreneur has to believe that the industry model is a chip. Despite the many factors where the situation has reached stability, some (emerging) factors are causing instability at the apex point.
They do acknowledge the dominance of the existing players in several dimensions. However, they wish to focus instead on that dimension where things are most unstable. These are the factors that allow them to compete even against well established dominant players.
Both are right in their own outlook. However, the difference in their worldview matters and makes a huge difference.
Technology and other factors, like the business environment, are constantly evolving. Fortunately, there are always new emerging factors with new information and emerging technologies.
In reality, while the previous factors have a curved up feel with an existing stable point; the new factors are also emerging and create an apex point with possible instability. A more realistic industry model is closer to a chip rather than a cup.
Hyper change continues to throw off new factors and issues. This ensures that things will never settle down in a cup. The real world will always be full of Pringles chips.
Entrepreneur’s Belief: Blow at the Right Place and Time
We saw earlier that even a small blow, just before the first drop of water hits the saddle point, is enough in changing the subsequent flow of water.
The implication is that even with small resources (blow) if applied at the right spot and time (saddle point), an entrepreneur can totally upset the equilibrium of the established order. Once achieved, the world changes, and events flow in their chosen direction.
There are numerous opportunities for an entrepreneur, all around the saddle, even in an established economy.
The Real World
In reality, as the rate of improvement of the dominant business practices slows down, the incentives to search for and find new methods grow simultaneously.
If the demand for that improvement is powerful enough, there are enough opportunities to have a radical departure and seek a breakthrough. Established players may be slow to pick up on these opportunities, and they have the status quo to protect. That provides opportunities for the entrepreneur.
The entrepreneur still has to consider a lot of uncertainty that includes the future states of industry and the available alternatives. They select a course of action that accommodates flexibility in their plan, such as tailoring products and services to a range of customer needs that are not being served presently to their satisfaction or at a high cost.
The entrepreneurial model competes against well-established players, so it has an uneven adoption rate. For every big winner, there may be many losers.
The winner is either by careful research, trial and error, or by sheer luck, finds the right orthogonal factor and blows that right gentle puff.
Suddenly the events, like the drop of water, flow effortlessly in their direction, and then every other following drop follows that path without an inordinate effort. The world changes. Schumpeter called it “creative destruction,” and Christiansen calls it “ disruptive innovation.”
Entrepreneurs Thrive on Pringles Chips
The reality is that in an era of hyper change, Saddle points will exist all around us. Entrepreneurs are the ones who survive and thrive by eating those Pringles chips.
The Pringles Puff
After exhaustive efforts, when the entrepreneur finally finds the right axis and makes the critical blow, the world changes seemingly without effort. They are in the zone. When that happens, it is a magical moment. I wish to call it the “Pringles Puff.”
Key Lesson for Entrepreneurs
There are many things to consider. However, some of the things that emerge from this analysis before you launch your boat are:
Forget looking at copying the established order. No more needs to be said. You copy, you lose. The bottom of the cup is for coffee grinds.
Identify environmental changes. Do a careful focus on the present and potential environmental changes confronting the industry. They may include competitor entrenchment, technological breakthroughs, political events, changes in cultural values and behaviors, customer dissatisfaction, or so many other developments. These may provide the unstable factors that, in turn, provide your opportunity.
Don’t jump without adequate preparation: It is risky enough. Prepare. Appraise the likely impact of environmental changes. Consider the size, likelihood, and nature of each environmental change's effect upon the customers and existing firms. Reduce to a manageable number of high priority changes. You only have small puffs available to you. Use them sparingly.
Generate Lots of Ideas: Many will fail. So what! The only way to get good ideas is to generate lots of good ideas and throw away those that are not opportunities for you today. Many puffs may not do the trick, but one of them may be the magical one if you keep trying.
Find a Niche: Market leaders, in their wake, leave niches that provide an effective and lucrative entry strategy for a smart entrepreneur. This provides a direction where things are unstable. Ripe for your Pringles Puff!
Innovation: Can come from creating new techniques, procedures, services, products, marketing strategies, or even an unorthodox structure to execute.
Proactiveness: Proactively search rather than passively wait for market opportunities given the changing environment. Please don’t wait till the leaders adapt it in their cup.
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Dr. Rajiv Tandon is an Entrepreneur, Educator, and Mentor. He facilitates peer groups for CEOs of fast-growing companies in Minnesota.
