The importance of studying historical events has often been discussed. Some say: “He who does not know his history is condemned to repeat it”, this phrase has been attributed to relevant figures such as Cicero and Napoleon.
In the corporate world, there are always comparisons between management styles and the effects of technological changes. Recent history evokes examples of entire industries that have been disrupted by the entrance of little giants.
With the arrival of new technologies, and a new wave of leaders and entrepreneurs, the battle between David and Goliath is often recalled, where a new participant seeks to lure customers from established entities that usually hold a large market share, economies of scale, and financial strength.
The truth is that these disruptions, where the incumbents perish or lose their stronghold, are not always the result of existing participants ignoring the new trends or not investing in research and development. It is obvious that sunk costs can play a strong role in the decision of not following the newfound path, or procrastinating a detour from their well proven strategies. Sometimes it is just plain luck.
It is worth recalling the case of Kodak, who, despite being a pioneer and inventor of the digital camera, failed to rip the benefits of that early advantage and succumbed to competition and newcomers declaring bankruptcy in January 2012.
Not only have established companies succumbed, also new entrants who fail to consolidate on new business models end up leaving their place to players who came just a few steps behind, such as in the case of MySpace and Facebook.
It seems that once these changes take place “we all saw it coming” — a cognitive bias that disguises as obvious something that could or could not have happened — and we focus on how obsolete those industries became and forget how disruptive they actually used to be.
Looking at the not so recent history, the automotive revolution was led by amazing entrepreneurs which were strongly driven by the need for a change, a change for the better. Henry Ford is credited with the phrase: “If I had asked people what they wanted, they would have said: faster horses….”
On April 2017, Tesla’s valuation surpassed both, the $50 billion threshold and Ford’s market capitalization. While the former managed to exceed the 76,000 units sold in 2016, Ford produced more than 6.5 million in the same period, about 88 times more.
The comparison I would like to stress here is how these two companies performed in their early years and give fair recognition to Ford.
On the one hand, I would highlight Ford’s production growth rate at the beginning of last century, a compound annual growth of 53 percent (1903 to 1912) sounds quite disruptive and exponential, considering also that the industry and consumers were on an early stage of adoption, and that the following year its production doubled to 168 thousand units.
Now, on its first six years, Tesla’s sales went up from 1,500 to 76,000 units with a compound annual growth of 92 percent, while the industry did so at a 6.9 percent pace. Likewise, it is fair to bear in mind that it took Ford nine years to reach 76,000 units while Tesla has managed to surpass them in just six.