What do Blockbuster, Kodak, and Nokia have in common? They had the smartest people, unlimited money, and ruled their industries. Blockbuster made $5.9 billion per year. Kodak was the king of cameras for 131 years (yes! Since 1888!). Nokia had 38.6% market share! They were massive, on top of the game!
Yet they all got destroyed by small startups that had almost no money – but the skills to grow and grow fast they did!
Here’s the shocking reason why being the biggest isn’t always enough…
The Real Problem: These Giants Stopped Exercising Their Innovation Muscle
These companies didn’t fail because they ran out of money or talent. They failed because they stopped adapting to new customer needs.
Think of it like this: Imagine you’re the best horse-and-buggy maker in town. You keep making faster horses and prettier buggies. But while you’re focused on perfecting your horses, someone else invents the car. You had all the skills to build amazing horse-drawn vehicles. But you forgot to ask: “What if people don’t want horses anymore?” That’s exactly what happened to these three giants.
Revolutionary innovations like cars take years to displace current technologies. Meanwhile, existing businesses believe they cannot be replaced. Unfortunately, this form of fixed mindset is what, over time, displaces existing businesses, giving way to new entrants.
The Two Types of Learning Every Company Needs
Type 1: Getting Better at What You Already Do
- “How do we make our stores nicer?”
- “How do we make our cameras sharper?”
- “How do we make our phones smaller?”
Type 2: Learning What Business, You’re Really In
- “How do people really want to watch movies?”
- “How do people really want to capture memories?”
- “How do people really want to communicate?”
The companies that survived did both types of learning. The ones that died only did Type 1. In essence, you need to think about your business in 10, 20, 50 years. Where is this business heading? How would our solutions look in 50 years? You need to re-define your purpose from “We build horse-drawn vehicles” to “We are in the family transportation business”, or from “We sell cameras” to “We store memories”. How can you implement this?
The Three Billion-Dollar Learning Failures
Blockbuster: Focused on Stores, Missed the Internet
What They Were Great At: Running video rental stores
Blockbuster was amazing at:
- Having the newest movies
- Organizing thousands of stores
- Getting people to return videos on time (with late fees!)
What They Missed: People didn’t want to drive to stores anymore
In 2000, Netflix’s founders flew to Blockbuster’s headquarters with an offer: “Buy our little company for $50 million.”
Blockbuster executives looked at Netflix – a company that mailed DVDs to people’s houses – and basically laughed. “Who wants to wait for movies in the mail when they can drive to our store and get them right now?”
The Big Mistake: Blockbuster kept asking “How do we make our stores better?” They never asked, “What is the business that I’m at?”, “How will this business look in 50 years?”, “What do our customers want?”.
Netflix kept experimenting. First mail, then streaming, then making their own shows. While Blockbuster perfected store operations, Netflix learned what people really wanted: convenience, no late fees, and unlimited choices.
Lesson: When you only focus on getting better at what you do, you miss opportunities like this.
Kodak: Invented the Future, Then Buried It
What They Were Great At: Making film for cameras
Here’s the crazy part: Kodak invented the digital camera in 1975. An engineer named Steven Sasson built the world’s first digital camera right in Kodak’s lab.
But when Sasson showed it to company executives, they said: “This is interesting, but people want real photos they can hold and put in albums. Digital is just a toy.”
What They Missed: People didn’t want film – they wanted to capture and share memories.
The Big Mistake: Kodak spent billions trying to make digital cameras that would sell more film. They never asked: “What if people don’t want film at all?”
Meanwhile, companies like Canon, Sony, and later Apple asked: “How can we help people capture and share memories instantly?”
They built cameras that didn’t need film, let people see photos immediately, and eventually put cameras in phones so people could share pictures instantly with friends around the world.
Lesson: Having the right technology isn’t enough. You need to ask what customers really want to accomplish.
Nokia: Built Amazing Phones, Missed the Computer Revolution
What They Were Great At: Building tough, reliable phones
Nokia made the most popular phones in the world. Their phones could survive being dropped, had amazing battery life, and everyone loved playing Snake.
When Apple launched the iPhone in 2007, Nokia’s CEO said: “We don’t see this as a threat. It’s just a phone with unnecessary computer features.”
What They Missed: People didn’t want just phones – they wanted computers that fit in their pockets
The Big Mistake: Nokia kept asking “How do we build better phones?” They never asked, “What if people want their phone to be a tiny computer?”
Apple asked a different question: “What if we put the internet, music, games, and apps all in one device?” They weren’t trying to build a better phone – they were building a pocket computer that could also make calls.
Lesson: Being the best at your current thing can blind you to what your thing is becoming.
Why Smart People Make These Mistakes
They Get Trapped in “How” Instead of “Why”
“How” Questions (What these companies asked):
- How do we get more people in our stores?
- How do we make film cameras better?
- How do we make phones more reliable?
“Why” Questions (What they should have asked):
- Why do people really want when they “rent a movie”?
- Why do people really want when they “take a picture”?
- Why do people really want when they “use a phone”?
They Mistake Their Product for Their Purpose
- Blockbuster thought they were in the “video rental store” business (their product) instead of the “home entertainment” business (their purpose)
- Kodak thought they were in the “film” business instead of the “memory capture” business
- Nokia thought they were in the “phone hardware” business instead of the “mobile communication” business
They Optimize the Parts but Miss the Whole Picture
Imagine you’re managing a restaurant, and you notice customers are waiting too long for food. You could:
Option 1: Make your cooks faster, your waiters quicker, your kitchen more efficient
Option 2: Ask “Why are people really coming here? What can we do to fulfil their needs?”
The companies that failed chose Option 1. They got good at optimizing their existing system. The companies that succeeded chose Option 2. They asked bigger questions about what customers wanted.
What Winners Do Differently
They Stay Curious About Customer Jobs
As Clayton Christensen would suggest, instead of asking “How do we sell more of our product?” they ask “What job is the customer trying to get done?”
- Netflix asked: “What job are people hiring video stores to do?” Answer: “Help me relax at home with entertainment I want to watch.”
- Digital camera makers asked: “What job are people hiring cameras to do?” Answer: “Help me capture and share important moments.”
- Apple asked: “What job are people hiring phones to do?” Answer: “Keep me connected to the people and information I care about.”
They Build Learning Systems, Not Just Products
Old Approach: Build a product, then try to sell it
New Approach: Constantly experiment to understand what customers want, then build that
Netflix didn’t just build a DVD-by-mail service. They built a system for learning what people wanted to watch, when they wanted to watch it, and how they wanted to get it. That learning system led them from mail to streaming to original shows. This is key for growth! Disruption doesn’t occur overnight, it is a process, where a new solution is developed, that fulfils a need in the market. Through time (sustaining development) these products and services evolve, to the point where sometimes they disrupt the market – just like the examples above.
How to Build a Learning Company
1. Create “What If” Sessions
Every month, gather your team and ask:
- What if our customers’ needs completely changed?
- What if our main product became unnecessary?
- What if a 10-year-old designed our business from scratch?
2. Study Your Customers’ Lives, Not Just Your Sales Numbers
Don’t just track who buys your product. Understand:
- What problem were they trying to solve when they found you?
- What did they try before they found you?
- What would they do if you didn’t exist?
- Why are they buying our products?
3. Run Small Experiments Before Making Big Bets
Instead of spending millions on a new product, spend thousands testing the idea:
- Can you test it with 100 customers first?
- Can you build a simple version to see if people want it?
- Can you learn what works before building the full thing?
4. Reward Learning, Not Just Success
Celebrate teams that discover what doesn’t work just as much as teams that find what does work. Both are valuable learning.
5. Ask “What Business Are We Really In?”
- If you run a restaurant, are you in the food business or the “bringing people together” business?
- If you make software, are you in the technology business or the “helping people get things done” business?
- If you sell products, are you in the manufacturing business or the “solving customer problems” business?
The Bottom Line
The graveyard of business is full of companies that were amazing at what they did yesterday but couldn’t learn what customers wanted tomorrow.
Your competitors aren’t just trying to build better products than you. They’re trying to make your entire approach to business irrelevant.
The question isn’t whether change is coming to your industry. The question is: Are you building a company that learns fast enough to stay ahead of change?
Success isn’t about having the right answers today. It’s about asking the right questions every day.