Why Lyft and Twitch succeeded while Quibi and Kodak failed—and why smart entrepreneurs focus on inflections

Ann and I cofounded Floodgate as a venture capital partnership and have worked together for more than fifteen years. The daughter of a rocket scientist, she was a debate champion in high school, graduated from Yale with a degree in electrical engineering, and was five years into her PhD in math modeling of information security at Stanford when we joined forces.

It was the summer of 2012. Ann had returned from a board meeting for Zimride, a San Francisco start-up we’d invested in two years before. Zimride provided a carpooling web hub for college and corporate campuses. It was doing well enough but wasn’t setting the world on fire. Now founders Logan Green and John Zimmer wanted to conduct an experiment: a peer-to-peer ride-sharing app that ran on smartphones.

But the California state government (at the behest of the taxi lobby) would almost certainly challenge the legality of ridesharing services. Like virtually all major US cities, San Francisco required taxi firms to be licensed according to an old-fashioned medallion system that limited the number of cabs. The city would likely issue cease-and-desist letters to ridesharing services on the grounds that they were unlicensed taxi services.

“Logan and John are going to call it Lyft,” Ann continued. “We’re putting pink mustaches on the cars so it won’t seem as scary getting in a car with a stranger.”

Inflections

You already know where this story is headed. But do you know the route it took to get there? Do you know what transformed the moderately successful Zimride into the spectacularly successful Lyft? Do you know what caused that breakthrough to unfold the way it did?

The answer has to do with inflections, a term that has multiple meanings depending on the context. In speech, it denotes a change in voice pitch. In mathematics, it signifies a point on a curve where the curvature changes direction. I first heard the term applied to business by Andy Grove in the 1990s, when he was the CEO of Intel.

In his book Only the Paranoid Survive, Grove described “strategic inflections” as a turning point in the way people think, feel, and act: a change in what they value, what they believe, what they can do, or what they’re willing to do. Our perspective of inflections is very similar to Grove’s, albeit approached differently. Grove viewed strategic inflections as major threats due to their potential to disrupt the industry’s established norms. Companies that failed to identify and adapt to these changes risked becoming irrelevant. The challenge for dominant companies was avoiding complacency and swiftly responding to these shifts. Grove stressed the need for vigilance and adaptability, even suggesting a hint of “paranoia” for continued success amidst such changes. His book highlighted instances like the predatory competition in the memory chip market; the internet’s reshaping of computing, which shifted the demand for chips and their capabilities; and deregulation in the airline industry, which allowed fare freedom, route choice, and new entrants, leading to pricing wars, efficiency demands, and mergers. In all cases, incumbents who didn’t adapt faced potential obsolescence. These inflections usually benefited consumers by increasing access and reducing costs. However, for incumbent businesses, the changes were seen as threats, jeopardizing the market positions they’d long held. Not surprisingly, established leaders often perceive inflections as destabilizing rather than empowering forces.

Upending the status quo

Peter and I have a different perspective. After all, we work with start-ups—and enjoy it, because they make something out of nothing. They change the future, which means they upend the status quo. From our vantage point, inflections—such as a change in the power of a technology, a change in people’s attitudes, a change in regulations—are the underlying force that start-ups can exploit to radically alter how people think, feel, and act and thus create a radically different future.

Consider Lyft and its archrival Uber. Both capitalized on two powerful inflections: the advent of GPS-enabled smartphones that could track location for free, and Facebook Connect, which enabled websites and smartphone apps to incorporate Facebook’s profile information, allowing other users to see it. Uber and Lyft exploited these new forms of empowerment in a way that radically changed how people traveled.

An inflection is a type of event—a change. But it’s not just any change. It’s an underlying change that makes an even greater change possible, one that adds to the inventory of what humans can do. In this way, livestreaming, tweeting, web surfing, and ridesharing all harnessed the power of inflections. None of these activities were possible until an inflection conferred new capacities on people. From a start-up perspective, what makes inflections interesting is that they create an opportunity to alter the rules that govern competition in the future rather than simply improving existing products according to the current rules.

Apple underwhelms Kodak

Digital photography is another example. When I graduated from business school in 1994, Apple announced a digital camera called the QuickTake 100. The initial price was $749. It had no focus or zoom controls and could store eight photos at 640×480 resolution. There was no way to preview images on the camera, and no way to delete individual photos. At the time, Kodak had a $28 billion market valuation and 140,000 employees. The QuickTake 100 did not leave Kodak quaking in its boots. Not surprisingly, it failed to take off.

The digital photography improvement curve climbed at an almost imperceptible rate for a while. It looked like a flat line. But in fact, the technology was improving at an exponential rate off a small base. Then—seemingly overnight—it went nearly vertical in a way that was obvious to just about everyone. Digital cameras as well as the cameras embedded in smartphones became orders of magnitude better for normal people with each passing year. By the time Kodak saw digital photography as a threat, the improvement curve was climbing too steeply for it to respond. This is ironic since Kodak was one of the inventors of digital photography.

The first camera phone was introduced in 1999 with a 0.11-mega-pixel camera. In 2007, the first iPhone shipped with a 2-megapixel camera. In 2012, the iPhone 5 shipped with 8 megapixels. That same year, Facebook bought Instagram (which had fewer than twenty employees) for a billion dollars, and Kodak declared bankruptcy.

The first digital cameras didn’t empower enough people to take the kinds of pictures they wanted. For these cameras to be a valid inflection, they needed to reach a critical point where they achieved a high enough level of resolution that people would be willing to use them in order to take photographs they cared about.

Historical inflections

The advent of new technologies, new regulations, new societal attitudes, new political or economic situations—all of these can be inflections that introduce the potential for radical change. All can be exploited by a start-up, or any organization for that matter. In fact, technology inflections have historically played a pivotal role in shaping political landscapes and influencing political changes, not just upstarts in the business arena.

Here are some notable examples of technological inflections that have shaped political and social changes:

• Printing press (1450s): Johannes Gutenberg’s invention rapidly helped spread ideas, leading to the Protestant Reformation and the Renaissance.
• Telegraph (nineteenth century): Allowed for rapid communication over long distances, altering diplomatic and military strategies and leading to more interconnected global politics.
• Radio and television (twentieth century): Events like the televised debates in 1960 between US presidential nominees Richard Nixon and John F. Kennedy showcased the impact of media on political image.
• Internet and World Wide Web (late twentieth century): Revolutionized the dissemination of information as a tool for both promoting democracy (as seen in the Arab Spring) and conducting surveillance and asserting control by authoritarian regimes.
• Social media (twenty-first century): Platforms like Twitter, Facebook, and YouTube have reshaped political campaigns, protests, and movements. They played significant roles in events like the Arab Spring, the Occupy movement, and various election campaigns worldwide.
• Cyber warfare (twenty-first century): State-sponsored cyberattacks can influence elections, steal sensitive information, and disrupt critical infrastructure, leading to new frontiers in international relations and defense strategies.

Many of the examples we use to illustrate the power of inflections come from technology since that is where we have been most active as investors and co-conspirators. But the importance of inflections extends beyond technology to society-wide attitudes and new political or economic situations. Here are some political inflections that have shaped social changes:

• American Revolution (1775–1783): Led to US independence from Britain and the establishment of a republic.
• Bolshevik Revolution (1917): Led to the rise of the Soviet Union and the spread of communism as a major world ideology.
• Decolonization after World War II: Many African and Asian countries gained independence from European colonial powers during the mid-twentieth century.
• Fall of the Berlin Wall (1989): Marked the beginning of the end for the Soviet Union and the Cold War.
• 9/11 terrorist attacks (2001): Led to significant global political and military shifts, notably the US invasion of Afghanistan and Iraq, and the implementation of stricter security measures worldwide.
• Arab Spring (2010–2012): A series of antigovernment protests, uprisings, and rebellions across the Middle East and North Africa, leading to significant political change in several countries.

While we respect the role of societal and regulatory inflections, it’s still technology that dominates the reshaping of human capabilities. Things surrounding us daily might not scream “tech.” But dig a bit, and you’ll see that technology likely pushed them forward at the start. Take something simple, like the cereal you eat for breakfast. In the late nineteenth century, when John and Will Kellogg invented a cereal that had a long shelf life, it was a major technology breakthrough. Most significant progress, from conjuring fire out of the darkness in ancient times to the use of movable type in the Middle Ages to tapping into artificial intelligence today, comes from mastering and applying new technologies. This is why Peter and I prioritize technology inflections as a necessary ingredient when evaluating new start-up ideas.

That said, we frequently observe how technological changes can intersect with political, societal, or regulatory shifts to enhance their collective impact. Outside the realm of start-ups, inflections can influence any organization’s potential to spark significant transformation. Individuals in any organization—be it a budding enterprise, established business, political group, or nonprofit—should monitor inflections for their transformative potential. Recognizing inflections can be a powerful tool for challenging and reshaping the status quo in any domain. Not every new thing marks an inflection, and neither does every widespread societal change. Consider fads or crazes. They’re not inflections even if they’re widespread, because they don’t radically expand human abilities. Fidget spinners, cronuts, and avocado toast didn’t add to the inventory of radically new things that humans can do. Fads and crazes are just new expressions of well-established commercial patterns.

An unfair advantage

Inflections aren’t caused by start-ups. They happen externally to start-ups. That’s one of the reasons that the radical success of some start-ups and the failures of others puzzled me for so long.

Returning to the example of content streaming, how did Justin.tv, initially perceived as a poorly conceived venture with limited funds and an inexperienced team, pivot to become Twitch, a streaming powerhouse?

In contrast, why did the streaming start-up Quibi, with its massive funding and pedigreed team, fail so completely? Quibi was a mobile-focused streaming service that offered premium on-the-go video content lasting ten minutes or less. It featured shows across various genres: drama, reality, comedy, and news. Led by Jeffrey Katzenberg and CEO Meg Whitman, Quibi boasted $1.75 billion in funding and a massive investment in content from celebrity A-listers. Yet it shut down in October of 2020, barely six months after launching. Much of Quibi’s failure is attributed to execution failures: its content didn’t resonate with customers as the founders had hoped, and customers didn’t want to add another streaming subscription fee when they were often paying for several already. Many of the platform’s social features were poorly conceived, and it only worked on mobile devices. But numerous products miss the mark at first and iterate to correct their initial mistakes, particularly when lots of capital is available.

Quibi’s decision to give up so quickly is better understood by its failure to harness inflections. At its heart, Quibi’s strategy rested on a seemingly pivotal moment: the confluence of mobile-first viewing, microentertainment, interactivity, and social media clout. Yet by 2020 this wasn’t a new frontier, but rather a well-trodden path. Giants like Netflix, Hulu, Disney+, and Amazon Prime had already made their marks, and then there were the tech-centric offerings, like Twitch and YouTube. Quibi’s foray into the short-content realm was akin to the latecomer at a party—not exactly crashing it, but certainly not the guest of honor. Its attempt at differentiation was lost amidst a crowd of already entrenched alternatives. Investing heavily in marketing and star-studded content wasn’t enough for Quibi to gain attention. It wasn’t just about having a voice; it was about having something singularly compelling to say. Without tapping into an inflection, Quibi had nothing to say that would make it stand out. Its problem was more profound than missteps in execution; the idea itself was a fundamental miscalculation. Instead of becoming a groundbreaking force that reshaped our media appetites, Quibi was predestined to be a cautionary tale. To the founders’ credit, they quickly grasped this reality. Rather than delaying the inevitable, they chose to wind down operations and return the remaining capital to investors.

Comparing Justin.tv/Twitch to Quibi underscores another key distinction about inflections we previously mentioned: They aren’t mere trends, business drivers, or progress curves. Instead, they’re specific change events that mark pivotal shifts, enabling radically new capabilities that didn’t previously exist. While the emergence of short-form content is an important trend, it’s only an inflection if it can offer something revolutionary that wasn’t possible before. Merely adopting a popular trend doesn’t equate to capitalizing on an inflection.

Twitch’s success versus Quibi’s failure highlights the difference between tapping into inflections versus merely following trends. An inflection offers a chance to radically change human capabilities for the first time. In Twitch’s case, home broadband had recently advanced to a stage where high-definition video streaming was accessible to most people. Multiplayer games designed for replayability had concurrently seen a surge in popularity. This pivotal moment, marked by the capability to widely stream games just as they were becoming popular shared experiences, allowed Twitch to launch something new and compelling that gamers hadn’t seen before. Twitch’s livestreaming service tapped into the growing gaming culture and offered a unique, interactive, and community-driven platform for both viewers and streamers. In contrast, when Quibi launched its short-form, mobile-centric streaming service nine years after Twitch, mobile media, streaming, and short-form video had become commonplace. Quibi’s inability to identify and capitalize on a new inflection meant it didn’t introduce anything that seemed radically different. Customers quickly lost interest.

Using inflections gives start-ups an unfair advantage—and they need it. Big companies have employees, customers, supply chains, competitive moats, an established reputation or brand, and many other assets a start-up lacks. Ultimately, an incumbent’s biggest advantage may be that they benefit from people’s established patterns of behavior.

A start-up’s advantage, by contrast, depends on redefining people’s patterns of behavior—on replacing established patterns with new ones. As creatures of habit, humans get entrenched in ways that gain inertia over time. Overcoming that inertia takes something powerful—an inflection. That means inflections are the start-up’s most important opportunity to make a major impact.

Why do so many start-ups fail to harness the power of inflections to radically change the future? Why do they miss the wave? The answer is that many start-up founders begin by looking for trends in the here and now, or for big markets with white space and pain points. As a result, they fail to discover inflections that can help them transcend the status quo.

Many start-up presentations fail to pinpoint a transformative inflection that can power a fundamental breakthrough, even though they offer details about a problem and a seemingly fitting solution. Take climate change, for instance: while numerous pitches target problems in areas like electrified transportation or decarbonization, few tap into a significant inflection to address the problems. When I ask something like “Can you help me understand the inflections that are happening outside your start-up that have enabled you to do this just now?” I often get a blank look. I’ve learned to recognize this as a sign that the start-up solves an incremental problem in the present instead of offering a breakthrough with the potential to radically change the future.

Founders might reference advancements in battery efficiency or declining green energy costs, but too often they emphasize the gradual progress of a technology curve rather than the tipping points that could usher in revolutionary products and alter customer behaviors.

It’s insufficient to just observe that solar energy costs are dropping by 7 percent each year. That’s a powerful trend, but lots of people know about it. More importantly, it doesn’t show a turning point that can alter human capabilities. Recall our earlier example of Instagram. The digital camera improvement curve represented the ongoing increase of megapixels in smartphone cameras. The inflection was the turning point when smartphone cameras became good enough for people to want to share their photos broadly. The improvement in cellular network speeds simultaneously reached an inflection, surpassing the threshold of making it easy to upload those higher-res pictures quickly. Returning to solar energy, an inflection should demonstrate how solar technology improvements are on the verge of providing new capabilities that were once nearly possible but can now be fully realized to benefit people at scale. Despite the challenge, I’m still optimistic about potential breakthroughs in solar and climate change in general. I want to meet founders who see an inflection coming and understand how it will empower people at scale.

Breakthrough start-ups use the power of inflections to create a new game with new rules that they define. They force a choice and not a comparison. They can’t be reconciled with the offerings that came before. That’s how they change the future.

Technology curves

While technology improvement curves are not the same as inflections, the two have an important relationship. A technology improvement curve is like a mountain range whose summits represent pivotal points along the way. The summits are inflections-defined moments that provide the ability to empower people with radical new capabilities. The most famous example of an improvement curve is Moore’s Law, formulated by Gordon Moore, the cofounder of Intel, which states that the number of transistors on a microchip will double roughly every twenty-four months at a given price. This curve has persisted as a constant force enabling change for decades. It has catalyzed multiple inflections through time. It made personal computers possible in the first place. As performance improvements marched on, they begat future inflections that enabled graphical user interfaces, smart-phones, and later cameras that were of high enough quality to enable photosharing apps on phones. In all these cases, the continued march of technology improvements created new tipping points along the way that exceeded the threshold that may enable a pattern-breaking innovation.

With such exponential improvement, new empowerment changes emerged on the horizon: the milestone of graphical screens with windowing interfaces, phones that slipped into our pockets but held the world, and embedded digital cameras that reached a point where sharing life’s moments became a spontaneous act. Moore’s Law hasn’t only enabled consistent technological growth; it has also led to significant milestones where inflections enabled innovators to develop products that were radically different from previous offerings.

As a technology improves at a faster rate, it tends to lead to major advancements more frequently. Rapid progress up the technology curve means big changes happen more often and more quickly. For example, between 2009 and 2019, the cost to produce electricity from solar panels dropped by 89 percent. This means performance doubled roughly every 38 months and saw a tenfold increase about every 126 months. Consider again Moore’s Law: performance of microprocessors doubles every twenty-four months and multiplies tenfold around every eighty months. Then there’s Huang’s Law, an observation by NVIDIA’s cofounder and CEO Jensen Huang that the performance of graphics processing units (GPUs) doubles about every fifteen months and experiences a tenfold boost every fifty months. This is especially exciting for the AI field since GPUs drive most advancements there. Genome sequencing is advancing even faster, with performance doubling almost every eleven months and growing tenfold approximately every thirty-seven months.

It’s crucial for founders to assess the technologies they’re working with and how fast they are advancing. The pace of this advancement significantly influences their chances of shaping the near future. In areas like genomics and AI, numerous opportunities for major shifts are on the horizon. However, for those focusing on solar panel advancements, it’s vital to pinpoint when and how these improvements will lead to groundbreaking change. They might also consider pairing a potential future shift with other, faster-evolving technologies that can offer inflections sooner. After all, creating a transformative impact becomes more challenging if the potential for change takes longer to materialize and is harder to foresee within a specific time frame.

Similarly, an inflection is likely to be more powerful if the pace of its adoption accelerates at a more rapid rate. When smartphone penetration exceeded Microsoft Windows penetration, that was a critical moment, because it meant a massive shift in how corporations spent their IT budgets. Until that moment, when Microsoft shipped a new Windows version, people upgraded reflexively. But with that change, smartphones became the center of the action.

This dynamic applies when multiple inflections overlap—like the constructive reinforcement of superpositioned waves. Improvements in smartphone camera resolution made impromptu photos look better, but they require more storage. Cell network operators constantly improve their networks with the ability to move picture data more quickly. Instagram benefited from these improvements in the cellular data infrastructure that made it quicker and easier to upload higher-quality photos. Kodak could have taken advantage of these same inflections to dominate digital photography. They did not.

Excerpt from Pattern Breakers: Why Some Start-ups Change the Future (PublicAffairs; 7/11) by Mike Maples Jr. and Peter Ziebelman

Mike Maples, Jr. is an entrepreneur, venture capitalist, podcaster, and cofounder of Floodgate, a leading seed-stage fund in Silicon Valley that invested in companies like Twitter, Twitch, Okta, and Outreach at the beginning of their startup journeys.

Peter Ziebelman splits his time between academia and the business world. He  teaches entrepreneurs as a lecturer at the Stanford University Graduate School of Business, where he is the principal instructor for the popular graduate school course on entrepreneurship and venture capital.