Published June 03, 2011

Assessing Technological Change in Small Businesses

By Clay Brock

I recently read an article about the future of LED lighting entitled "Solid-state lighting:  ‘The case' 10 years after and future prospects" by Roland Haitz and Jeff Tsao (published by Wiley in 2010).  In it, the authors make compelling arguments for why LED lighting will displace most traditional lamps by 2020.  One of the things I found most interesting was their summary of what it takes to win a technological revolution.  They write,

"The most common ingredient is benefit to the user.  This benefit can be measured in performance, cost, convenience, or environmental factors.  But benefit alone is not sufficient.  The path to successful revolution most provide at least two additional ingredients: (1) The existence of stepping-stone markets to finance the required investments and to hone manufacturing processes to the required performance; and (2) the targeted technology must be mature and/or incapable of reacting to the attack in a timely fashion."

The article then goes on to discuss the benefits of the automobile over the horse carriage, the semiconductor transistor over the vacuum tube, and other less successful examples.

While Hadley Capital is not a venture capital investor, we often review companies that may be affected by technological change and thus we need to form opinions about whether such a change may occur, and if so, how fast.  This article framed some of these factors well.