Dirsuptive DJing

Unlocking Potential is a newsletter by me, Francisco H. de Mello, founder of Qulture.Rocks (YC W18)

A couple of days ago an investor sent me an interesting Harvard Business School article I now know was written by Clayton Christensen (and/or his staff) titled There is Good Money and There is Bad Money. I was so engrossed with the article - maybe a bit too much - that I asked Google for more info about it and ended up finding out that it was a chapter of a book that was gathering dust in my bookshelf, The Innovator's Solution: Creating and Sustaining Successful Growth, by Clayton Christensen (that's why I only now know - the article had no author name on it).

Clayton Christensen is famous for his earlier The Innovator's Dilemma. In it, the HBS professor articulates an interesting theory to explain a very specific kind of innovation where the incumbent's natural response against said innovation is actually to leave the innovator alone to do its thing.

I think I've written about it before, here. Anyway, the idea can be very well described by the following passage, from the Solution:

“The Innovator's Dilemma identified three critical elements of disruption… first, in every market there is a rate of improvement that customers can utilize or absorb, represented by … [a] line sloping gently upward across … [a] chart. For example, the automobile companies keep giving us new and improved engines, but we can't utilize all the performance that they make available under the hood. Factors such as traffic jams, speed limits, and safety concerns constrain how much performance we can use… Second, in every market there is a distinctly different trajectory of improvement that innovating companies provide as they introduce new and improved products. This pace of technological progress almost always outstrips the ability of consumers in any given tier of the market to use it, as the more steeply sloping [improvement] line suggests. Thus, a company whose products are squarely positioned on mainstream customers’ current needs today will probably overshoot what those same customers are able to utilize in the future. This happens because companies keep striving to make better products that they can sell for higher profit margins to not-yet satisfied customers in more demanding tiers of the market.”

In short retrospect, it doesn't seem that the passage explains the concept as well as I thought it would, so I'll take a stab at explaining it to you, again.

Companies constantly strive to improve their products, charge more for them, and/or make better gross margins in the process. They rarely move in the opposite direction, i.e., selling cheaper products for tighter margins.

Competing companies push their products forward at a continuous pace of improvement that usually entails more features and more performance for higher prices (or for the “right” to not cut prices too much in some cases).

That constant rate of improvement makes part of the market become overserved, as the product's offerings are greater than what customers can absorb. These overserved segments then become ripe for a new entrant that sells a good enough product to them for less (and frequently with tighter margins).

Since the incumbents are frequently owned by short-term oriented public market investors, their seemingly rational decision, in response to the disruptor's move, is to leave it alone doing its thing, and regroup upmarket, where customers aren't overserved and margins are better. Any executive understands how hard it sounds to try to convince a board to do anything that would deteriorate a company's margins. Shouts of “but it will save our company in the long-run” would meet deaf ears as upscale headhunters are retained for a confidential CEO search.

Anyway, disruptors gain a footing within the market and slowly but surely get into the sustaining innovation game, pushing their good enough offerings upmarket until they are competing squarely with earlier incumbents. These same incumbents, on the other hand, look in awe, failing to grasp how they could have let a tiny, insignificant competitor become such a threat to their very existence.

Back to Disruptive DJing

After letting you know how literate I am in all things disruptive innovation (a small stroke to my ego), let's get back to the title of my present article, disruptive DJing, so I can let you know how cool I *was* a bit more than a decade ago.

You probably don't know, but I was a semi-professional DJ back in college.

Before becoming a professional and playing some gigs in some of the coolest clubs in Brazil (to be fair, I only headlined on the off-season; on hotter nights I'd open up for other, better-known DJs) I spent a couple of years playing records (mostly vinyl) in all sorts of parties back in my hometown, Campinas.

How my career got started: the disruptor

When I started out, I would play in any joint that would tolerate my terrible mixing skills.

For free.

If I recall that time well, I'd happily have paid to play anyway. As a twenty-something, the mere idea of arriving at a party with all my friends in tow, having security guards part the crowd for us to get in just like Moses parted the Red Sea for the jews to cross, to the sound of girls shouting “hey, Kiko, it's me, {{girl.name}}. Please help me get in!” or whispering “that's the DJ right there” to each other was just complete and utter glory.

Image: Some rave, circa early 2004. When I started out DJing, I'd play anywhere, in exchange for a few tickets for my friends and free booze. Here, equipment is laid out in a luggage-style container, and protected from the rain (and incoming glasses of vodka RedBull) by umbrellas.

As I played and I played and I played, I became a bit more selective with my gigs. I started charging a small fee to play, on top of the booze and the extra tickets. And that fee slowly but gradually went up, from something like $100 for a three-hour set in early 2004 to maybe $400 for a two-hour set in late 2005 and early 2006.

As I became more selective, other DJs who were frequently people just like I'd been a couple of years earlier, took notice and also decided to become DJs. And just as I was saying no with more frequently, they started filling in and doing just what I used to do: playing for free, at the least interesting parties around.

Months passed and I was playing out less and less in town, while these guys, regardless of the quality of their work, were playing more and more.

I remember feeling that they were lesser DJs than me… they had, I thought to myself, less taste, and played cheesy stuff (the more underground the DJ's aspirations, the more disgust she develops towards all things too popular on the mainstream); they did gigs in dodgy parties I wouldn't even set foot in anymore. They didn't value their work, since they played for free (or in exchange of a few tickets and some free booze). I was in a whole different league, or so I thought.

But they also become gradually better known, and were slowly - then suddenly - playing all around town. That's just when I started an internship at Citi's corporate and investment banking office in São Paulo, doing corporate financial modelling, and became even more selective with my gigs, to the point when I even considered retaining an agent to handle my bookings.

And people that used to hire me stopped paying my ever-increasing fees and went with those new entrants, which were just good enough to get the party going.

Image: the apex of my career, playing at Sirena, a club I revered, in September or October 2005.

I failed to “innovate” and keep evolving as a DJ, deciding to focus my energy on my finance career. And those new entrants become established players, with higher fees, more selective towards their gigs. They soon weeded me out of the market, and I stopped playing for money altogether, just doing amateur sets at my friends’ house parties once a year or so.

Anyway, as I read Christensen's article, and then his book, I started to realise the interesting parallels between my DJing career and disruptive innovation. I called it disruptive DJing, and I hope you'll forgive me :)

Tesla's Cybertruck

Did you see the new Tesla Cybertruck? I found it awful, but I do think it will sell pretty well:

Image result for tesla cybertruck

I just don't understand what people thought how an armored glass window would react to a heavyweight metal object being thrown at it. Maybe coming from Brazil I know too well what the consequences of a projectile hitting armored glass are. I thought the layered shattering that happened was exactly what it was supposed to be. Twitter clearly didn't.

Some noteworthy links

Chamath Palihapitiya (can't say that), from Virgin Galactic, Social Capital, and the Warriors, on another one of his caustic interviews.

An interesting article about open source business models.

Another interesting article about product-market fit (at Paypal in the early days).

A good resource on the role of product marketing within a B2B company.

A cool passage from The Great CEO Within, which I've been rereading, about the impact a CEO's opinion can have on a group within her company (this made me reflect a lot on some feedback I've been getting from one of our awesome product managers at Qulture.Rocks, who tells me to be careful with my words, because they carry outsized weight with the teams I interact with):

That's it for today. I hoped you liked this rant.

I'll try to be more frequent in my writings going forward: parenthood has held be back in the past few weeks.