When creating a new market category, an interesting question to consider is: Where will your product land on the continuum from emergent to hierarchical – what we call the “innovation spectrum”? 

That discussion can help tell you how to approach investors, what kind of product to build first, how you’ll defend the company against competitors that later come into the category, and a lot more.

The concepts of emergent and hierarchical are more common in biology and physics. But it turns out they can be useful when applied to technology innovations. 

I started thinking about this after we, at CDA, got into a conversation with a category design client about what kind of product to build first. The co

mpany had a huge vision, but knew it couldn’t create that vision all at once. It decided to begin with a product that would give any early user an immediate “a-ha!” moment. 

That discussion, in turn, made me remember a book by Steven Johnson that I’d read 20 years ago, titled Emergence. I dove in and read more about emergence theory, and realized it can be applied in the tech world.

First, an explanation of the terms and their properties as they apply to technology and innovation.

Hierarchical Innovations: The Case of Tesla and Others

At one extreme end of the innovation spectrum are highly hierarchical innovations. These are complex products or services that need to be built completely, according to a master plan, before the first customer gets anything out of it. 

One example of that is Tesla. The company had to design a whole electric car, develop an ecosystem of suppliers, build a factory, hire a lot of people, design a way for the cars to get charged, and create a way to sell and service the cars before the first real customer could buy a Tesla and be satisfied with it. 

Such a highly hierarchical innovation requires an enormous investment and a lot of time before getting traction. That may sound like a downside, but it can be an advantage. If the innovation is “right” – if it works and the market wants it and the timing is on target – then the amount of investment and time become a big barrier to entry for competitors. 

So, a hierarchical innovation that is right can become highly valuable, as we’ve seen with Tesla. Tesla created a new category of electric cars, and got such a head start that it’s likely to own the biggest share of an exploding category for a long time. Investors understand that, which is why Tesla is valued at $724 billion while Ford is valued at $44 billion.

Other examples of successful category-creating, highly-hierarchical innovations include the Boeing 707 (first jetliner), IBM System/360 (first mainframe product line), Apple’s iPhone and ChatGPT.

But here’s the catch: the delta between being right and wrong about a highly hierarchical innovation is huge. Get it right and you could make billions of dollars. Get it wrong, and you might not know it’s wrong for years. By the time the innovation tanks, you’ve lost ungodly amounts of money, time and effort. 

Over the years, we’ve seen quite a few of those “getting it wrong” failures in tech. General Magic, Iridium, Teledesic and Webvan are examples. In each case, a vast system had to be built before the first customers could use it. In each case, the technology and timing were wrong, and the company’s implosion left a crater.

Emergent Innovations: From YouTube to Amazon

At the other end of the continuum are highly emergent innovations. These start out simply and can be initially built with a small investment and little time. The first customer can find an early version immediately useful, though in a limited way. 

If it’s truly emergent, the innovation has a future to grow into. Over time it attracts more users, developers and partners that continue to add to the innovation and make it more valuable to everyone involved.  

An example of that is YouTube. It was first conceived as an easy way for someone to share a video with friends and family. Before YouTube, sites like Flickr let people share photos, but the same capability didn’t exist for videos. YouTube’s founders, Steve Chen, Chad Hurley, and Jawed Karim, built and launched (in 2005) a beta version in about three months, and the first users started uploading their videos. There wasn’t much to the site. 

As more people added more videos and yet more people came to the site to see them, YouTube grew more valuable and robust, over time evolving into a media giant that now includes live TV, full-length movies and people who’ve gotten rich doing nothing but making YouTube videos. (Imagine how hard it would’ve been to build all of that at the outset before letting the first customer in.)

Image credit: Office Timeline 2018

A lot of tech successes have leaned toward the emergent side. Amazon didn’t start by building warehouses and stocking huge numbers of items and creating a vast logistics system. At first it just sold books (which it would buy directly from publishers and rare book dealers) and sent them by mail or UPS (it didn’t need its own logistics system). Facebook started as an online student directory at Harvard. Uber started as an app for hailing a black car in San Francisco.

Highly emergent innovations have their own upsides and downsides for category creators. An upside is that they take little money and time to build, so an idea can get launched quickly with a small team. 

But that’s also a downside. If the innovation opens up a category that matters, it won’t take much for competitors to rush in and catch up. Competitive advantage only takes hold once the innovation has attracted so many users, developers and partners that they make the system highly valuable for everyone involved and no one has a reason to go to any competitor.

For a highly emergent innovation, the delta between being right and wrong at the outset is relatively tiny. Get it right and it’s not that valuable at first. Get it wrong, and you’ve only lost a little time and money, and haven’t built anything so complex that you can’t adjust and pivot. 

Interestingly, either way it takes years of dedicated work to fully design, develop and win the new category you’re creating. 

For a hierarchical innovation, the work takes place out of the public eye and then, suddenly, a full-blown product is ready. 

For an emergent innovation, the early product has to iterate bit by bit and add users and an ecosystem, evolving into a robust category-defining product. Everyone involved sees and participates in the progress along the way.

Importantly, this is not bipolar – it’s a spectrum. If you put Tesla at one end and YouTube at the other, there’s a range of possibilities in between. As you move along the innovation spectrum, you dial up and down the various advantages and disadvantages.

Perhaps the innovation you want to build has to be mostly complete before users get value, but it’s not as heavy a lift as building a Tesla or ChatGPT. Spotify comes to mind. It had to build a platform and license a lot of music before early users would find it valuable.

Or you’re creating something that leans toward emergent but requires some robustness before launching. One of our clients, Trainiac, had to build a smart fitness app and also develop a network of personal trainers before getting its first users. It wasn’t a super heavy lift, but it took some time and investment, and so at launch Trainiac had a slight lead over anyone else that might come into its category. 

Strategic Considerations for Category Designers

How does all of this influence a company working on category design?

Approaching Investors: Where you land on the spectrum tells you a lot about how much you’ll have to raise before producing revenue. If you’re highly hierarchical, you’ll have to raise a lot and you’ll have to do a lot of work to convince investors you’re right. But show them the payoff once you’re proven right. If you’re highly emergent, get a little funding and get a lightweight product out the door, but make sure you show investors how you can build on that product so it becomes a much bigger business over time. Where you land on the innovation spectrum informs how much to raise, how much runway you’ll need, and how “right” you’ll have to be at the outset.

Product to Build: Many companies know from the beginning whether they are building something hugely ambitious that will take time and money, or a product that can start small and emerge over time. But if you’re an early-stage startup with a monster breakthrough vision that will likely take years to come true, look at options along the continuum. You might find you can quickly get an emergent product out the door, then build on it bit by bit.

Competition: The innovation spectrum can help you know what battles you’ll have to fightt. For a highly hierarchical product, your chief competition is likely yourself – whether you’re right or wrong. If you’re right and an outlier (i.e., no one else has been building the same thing), you could have quite a bit of time before anyone else challenges. Emergent products can be more easily challenged. Category design can make a major difference, because if you do it well, you set the rules for the whole category and convince the public that you know how this category should be built. That makes others who come in follow you, giving you an edge until you gather so much momentum others can’t catch up.

What NOT to do: The innovation spectrum also tells you a type of innovation to avoid: one that is neither hierarchical nor emergent. A lot of stand-alone phone apps fall into this category, like an alarm clock app. It’s relatively simple to build and quickly gives a user satisfaction, so it’s not hierarchical, but it’s also not emergent – there’s not much to build on and lure users, developers and partners. Any innovation that doesn’t seem to be either emergent or hierarchical will likely never win a market category and be valuable. And to state the obvious, the one thing you really don’t want is to work on a very hierarchical product that’s wrong. You don’t want to find yourself five years from now at the bottom of a crater.

Want to discuss your place in the Innovation Spectrum? You can book office hours with CDA here.