On my previous post on Nvidia, I discussed how Nvidia has risen to the leading position within electronic boards for Artificial Intelligence. A mix of skills and sheer luck has multiplied seven times the value of the company and skyrocketed its market share to 70% within GPU manufacturers, almost double as much as its closest competitor, AMD. Intel is almost nowhere to be seen.
Read the previous post on Nvidia; How Nvidia managed to conquer the AI market.
There are several insights that the Nvidia case provides to alert CEOs. I have chosen to focus on those that in my view have a long lasting influence on the future of any company in threat-cutting innovative industries.
First of all, get out of the building. Be present in seminars and conferences and do not disappear just after your presentation if you are as speaker, as many CEOs do. Write articles for the leading websites of your industry that force you to reflect on the main trends of your industry and structure your thoughts. Listen to the pulse of the market. Talk with your customers and with your sales people (not only your VP of sales, she may filer unpleasant information). Be active and visible in social media.
The point with all this is to catch as soon as possible rumors and trends that can affect your company in a rapidly changing environment. It also gives you the opportunity to be “top of mind” when someone from a related industry looking for growth areas needs a partner. (In the case of Nvidia, Google looking for a partner on the hardware side of AI) as we discussed in the previous post on this)
The rise of Nvidia: Takeaways for CEOs
- Get out of the building
- Beware the cost-cutting trap
- Make market share a top priority
- Expand to new customers that may need your technology too
Beware the cost-cutting trap. Cost leadership is a valid strategy. It may even increase your market share for a while. However, be aware of the long-lasting consequences of casting your company into a cost-cutting carousel. Once you are in for the ride, there is no easy way back. Specially initiating a cycle of reducing R&I expenditures is a serious red flag if there is a high innovation-induced rivalry in your industry. Although possible, it is not easily reversible, and at some point in time, economies of scale, lay-offs and lean philosophies meet the wall and cannot help any more.
In addition, investing in R&I can lead to developing new technologies that indeed decrease the unit price of your products. AMD has indeed had problems matching the prices of the Nvidia GPU cards, at least partially due to new architectures developed by Nvidia.
Make market share a top priority. High market shares gives your company visibility and attention from investors, it makes easier to rise funds and generally speaking increases the share price of the company. It also brings you company to the top of mind position when a serious player wants a serious partner to earn serious money. However, it doesn’t mean that you must have the leading market share in all segments. No company has enough resources to do that. Think carefully. Which segments do you want to have a major presence in? What is their volume, growth, average prices, competitive landscape, customer base and shareholder attitude. The iPhone still has only around 10 percent of the smartphone market. It commands over 90% of all profits in the industry, though.
Expand into new customers that may need your technology too. It is almost impossible to eternally grow in the markets you operate. At some point in time, there are no more new customers, the market shares of leaders and followers get cemented and margins decline. To win over competition, protect margins and win market share while avoiding commoditization from competitors, you will have to continuously look around. Which other customers may need your technology or skills? Which of them are poised to grow fastest or soonest? For Nvidia, the transition from the PCs and video consoles market to the AI market has been a catalyst of wealth for its shareholders. Another good case is Panasonic. The company expects to double its battery sales thanks to its supplier contract with Tesla in the new industry of electric vehicles.
Nvidia got lucky at some point in time, but the company was indeed “a new success waiting to happen”. Sure, not everyone can expect Google to knock at their door. However, getting out of the building, carefully managing cost and market share and continuously looking for new opportunities in new markets can help CEOs to propel their companies to new levels of growth and profitability.
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