What is a 10X technology?

I wrote about the four points a company must have to reach a significant value in a previous post. The list comes from Peter Thiel's book "Zero to One".

Thiel points out that is that the use of Proprietary Technology is critical to a company's success. He suggests that the technology backing the offering must exceed rivals by a factor of ten.

What is a 10X technology?

Genrich Altshuller proposes five levels to classify innovation by its impact, an index of sorts.

Apparent solution

A technology that seems new but doesn't offer any enhancement over current solutions. According to Max McKeown's book "The Innovation Book", 68% of new ideas fit into this category.

Improvement

An improvement is the optimization of a current solution. While it doesn't improve the solution's result, it does advance the path to the outcome. An estimated 27% of ideas fit into the improvement category.

Invention

Inventions offer significantly new offerings but from within the same frame of thinking as the alternatives. These ideas account for 4% of all ideas in use.

New Generation

Technologies that enable disruptive innovation fits within the "new generation" category. These systems define new rules for the entire system of interaction rather than a sub-section. 0.24% of ideas fit into this category.

New System

New systems have the same outputs as old systems but delivery those outputs in an entirely new way. 0.05% of all ideas implemented fit into this category.

Altshuller's pyramid gives a suitable means to classify the technologies driving the business to find a 10X technology. A 10X technologies are "New Generations" or "New System" levels of technologies and, as a result, promote the business offering to levels that convert to significant market share.

Building value

Peter Thiel has an excellent lineage for creating value through innovative company's. He co-founded Pay Pal, was the first outside investor in Facebook, and started Palantir Technologies - a big data analytics company valued at $20 billion.

In his book "Zero to One", Thiel classifies value as the sum of the money a business will make in the future. The ability a business has to reach that intended value lies in its ability to dominate the market it operates in.

Thiel suggests four different types of areas to measure your company against when seeking that potential:

1. Proprietory Technology

Proprietory technology is the heart, but not all, of the innovation that sets a company apart. Thiel suggests that the company's technology must enable the company to perform an essential aspect of the offering at least ten times better than the alternative.

2. Network Effects

Network effects are an offering's ability to appeal to a defined market strongly. The principle is that the offering gains strength as more people use/buy the offering. An example of this is a typical market like Apple's app store.

3. Economies of Scale

Profitable businesses should build a limited fixed cost that does not increase at the same rate as growth.

4. Brand

A brand is a promise from a company on its ability to deliver a product or service. For a brand to be valuable, the promise must stand out when compared against the market competition.

Businesses can build value through various paths, but a company on route to building good future value will display all four of these characteristics.

Innovation Discovery

Establishing a sustained practice of innovation can be challenging. There are many areas a company has to perform well in to possess the ability to innovate. A company must explicitly specify what area it plans to innovate within; it needs to be able to formulate a set of goals for the innovation initiative then measure the efforts needed to reach the defined goals. Finally, a company must be able to scale and set a culture of innovation as a practice. According to de Jong, Marston, and Roth who wrote "The eight essentials of innovation", the core of the innovation process, however, is the main ingredient of innovation discovery.

Innovation discovery is the strategic ability to search and identify a differentiated business opportunity in a new market combined with the company's ability to deliver on the new proposition in such a way that the value created is attractively profitable.

For innovation meet his criteria companies needs to:

1. Find a worthwhile problem;

2. Have the relationships necessary to create a technology that solves the problem and;

3. Formulate a business model that empowers it.

4. Iterative testing, analysis and product tweaking in the coalface of market testing.

Innovation is a company-wide, strategically defined process. Without a measured way of discovering the area's of innovation, a company will struggle to reach new market opportunities effectively.