Hi there 👋
Happy Monday! This week, I wanted to write about “hard-tech”. Hard-tech is the use of technology (hardware and software) in order to pursue breakthroughs our society needs.
Since the Starship explosion, I feel like the media are rough against hard-tech. They point out the failures, the uselessness, the cost, and the inability of SpaceX to bring humanity into space. It reminds me of my old economics teacher in my first year of business school trying to deter us from taking any entrepreneurship risk "Don't do hardware, build a Saas!".
It’s not just SpaceX. It's our relationship with innovation which is often put under question.
It doesn't have to be that way.
What if we had a framework to build enduring hard-tech companies? A magic sauce that could lower the risk to pursue a breakthrough when no one trusts us? A step-by-step strategy to navigate into business uncertainty?
So I came up with an idea : the umbrella strategy.
Let’s dive in.
The Umbrella strategy.
I’ll explain the umbrella strategy, but first, I want to tell you the story of the gaming studio King.com.
The inside story behind Candy Crush.
In 2014, King.com completed its IPO with a valuation of $7 billion. But 5 years before, the company was on the brink of bankruptcy.
The story starts in 2003 when 6 guys - Riccardo Zacconi, Toby Rowland, Thomas Hartwig, Sebastian Knutsson, Lars Markgren and Patrik Stymne - join to create Midasplayer.com a small gaming website of web-based-browser games. The cofounders specialized in web portals games, which they distributed on AOL, MSN, and Yahoo. But after a few years, the market was dying.
In 2009, a new entrant, unknown in the gaming industry, just launched funnier, and more addictive mobile games: Facebook. In a couple of months, King.com saw a significant drop in its portal users. It became a survival threat. So King’s co-founders came up with 3 innovations.
A distribution shift. From now on, King would create its own Facebook-based games. But they would still use web portals to test ideas, improve and choose which games would be ready to move to the social network.
A new gameplay, called “Saga”. King would divide its games into levels that would require the players to complete certain goals to move to the next stage. Unlike other titles where advancement in the game was time-consuming, players could play a few minutes per day to jump to the next level.
A refounded business model. King would remove all in-game advertising to provide an uninterrupted and smooth experience. They would rely only on micro-transactions and in-app purchases.
That was a risky strategy. It took three years of experiments, but it paid off. In April 2012, King released Candy Crush Saga.
In less than one year, Candy Crush had been downloaded more than 500 million times. One year later, it accumulated 245 million monthly active players. At the end of 2014, it had generated $1.33 billion in-app purchases. It became the most successful game of all time. Most importantly, 10 years later, King games are still played by 300 millions monthly active users, while other hyper-casual games usually shut down in a few weeks.
And the success of Candy Crush went beyond its own life. King reused the “Saga” model into various titles over the years : Candy Crush Saga Saga, Candy Crush Friends Saga, Farm Heroes Saga… All of them dominate their game category.
What lessons can we learn from this story?
The umbrella strategy.
The story of Candy Crush sets the basis of the Umbrella strategy, a method to navigate uncertainties and build great companies in tumultuous times.
So how does the umbrella strategy work?
On the top, the umbrella canopy : an innovative product, truly different and reframed after years of experiments. This product needs to generate enough profits to reassure investors of the company's future - in our example, Candy Crush and its $1B annual revenue. This way, it will act as a canopy, to protect new and riskier innovations underneath.
In the center, the umbrella shaft. Smart companies reuse an element of their most successful product for expansions over the years. That’s the “Saga” gameplay in the Candy Crush example. The umbrella shaft brings new product lines that will lead the company in the future.
On the bottom, experimentations lead the company strategy like an umbrella handle. The company can pursue breakthroughs and make crazier bets without risk. King released two not-so-successful games in 2011 - Miner Speed and Bubble Witch Saga - and used the data to bring to life Candy Crush.
Because each step of the umbrella protect each others, we can pursue innovations and breakthroughs even when the odds are against us.
It’s not just King. All the best companies like Google, Apple, Facebook, Amazon, Netflix organised their strategy like an umbrella.
How do the best companies use the umbrella strategy?
One company really nailed it : Apple.
It’s fascinating to break down the history of Apple since the release of the Macintosh in 1984 and understand the different umbrella strategies over the years. I can split into 3 main eras, each led by top Apple products : The Macintosh era (1984-2001), the iPod era (2001-2007) and the iPhone era since it was introduced in 2007.
Each umbrella is designed to prepare the next one. Apple embraces a flow of continuous innovation, both for each product line (there are 14 iPhone versions!) and by creating new product lines that will replace the previous one. This strategy enabled Apple to always surf the next wave of technology, and guarantee consistent financial returns to investors, over decades, whatever the top product is.
Another key lesson : innovation compounds! It took 17 years to get from the Macintosh to the iPod, 6 years from the iPod to the iPhone and only 36 months from the iPhone to the iPad. While technology made significant progress in 40 years, it’s also due to Apple internal innovation processes. In Creative Selection: Inside Apple's Design Process During the Golden Age of Steve Jobs, Ken Kocienda, the engineer who created the iPhone and iPad Keyboard, described the Apple design secrets. Apple systematically reused its former products to make new ones - the iPad keyboard is inspired from the iPhone one, crafted by Ken and designed after dozens of demos to Steve Jobs. That is part of the umbrella strategy.
Of course, some experiments failed (even for Apple). You may not remember the Newton Message Pad, or the Powerbook. But those innovations were necessary to give birth to the iPad or the MacBook.
Now that we explained the umbrella strategy, let’s move back to SpaceX and see how it’s relevant for hard-tech.
SpaceX and the umbrella strategy.
Let’s break down the SpaceX strategy into the three umbrella components.
Falcon9: The reusable launcher (the canopy). SpaceX's long-term mission is bringing humanity to Mars, but they didn’t start with that. We are still far away from spaceships and interplanetary travel. Where did they start? They needed a strategic niche they could exploit to build a canopy for their business: the satellite market.
Dragon, Starlink…and so on (the shaft). The reusable launcher enables SpaceX to become a platform for sending all sorts of things into space. Satellites with Starlink, astronauts with the Dragon capsule. SpaceX used its technology to expand its product lines and become a “one-shop for space”.
Starship and the future (the handle). Thanks to Falcon9 and the other products we mentioned, SpaceX can now make riskier bets toward its mission to colonize Mars. Starship is a key piece of this plan - it will carry up to 100 people on long-duration, interplanetary flights. In the short term, Starship will serve as cargo to build a Moon Base.
The umbrella strategy helps understand why Elon Musk is so confident after the Starship explosion a few weeks ago.
That’s all for me!
See you next Monday!
This is really interesting! Are there any failed examples of this strategy?