Never stop innovating. That’s what they tell you in school, at work, really everywhere. While continuing to learn and innovate is important, it might be even more important to understand why it’s so critical. To help us get there let’s look at the story of Windows mobile in the mid 2000’s.

The Windows Mobile Case

When Palm fell on hard times in the early-mid 2000’s Windows mobile was really the only mobile OS left. There are benefits to being the last man standing. For a good stretch of time they had a de facto monopoly on mobile. This dominance caused overconfidence. The group that had done a rock solid job began to focus on maintenance rather than improvements. This “just get by” mentality seemed to work for a while.

I think we know how this story ends. It’s June 29th 2007 and the Apple iPhone goes on sale for the very 1st day. Walt Mossberg at the Wall Street journal calls it “a beautiful and breakthrough handheld computer.” To the Windows mobile team it was more than that. The iOS team at Apple hadn’t stopped improving their mobile capabilities. They had a drastic functionality advantage and Microsoft would need to scramble to catch up. To this date they haven’t (Windows phone is 2.9% of the market in well behind Android’s 84.4 % and Apple’s 11.7%)

There’s nothing wrong with Windows (excluding Vista)

Or Microsoft for that matter. It’s easy to rest on what you’ve done and stop getting better, or look at a drastic improvement and not execute on it. Kodak invented the digital camera in 80’s but didn’t act on it for fear of cannibalizing its main product line, film. What phenomena could cause these big players to make the same mistake? Nobel Prize Winner Kenneth Arrow calls it the replacement effect.

Here’s what it means: Through innovation it’s possible for a small player to replace a large one. However, if a large player made that same innovation it would only really be replacing itself. This gives incumbent leaders a lower willingness to innovate than new entrants in a market.

There’s a reason accomplished companies or people rest on their laurels. Their upside for drastic innovation isn’t as high as it is for a new candidate or entrant. Now you’re probably thinking, “Well I don’t want to be a Kodak or Microsoft mobile where I work.”

So what can you do?

Think Big: When some venture capitalists make an investment in a company they look for companies with the potential to return more than the rest of their fund combined. If a win is too small (e.g. only returns 1/5 of the portfolio) it isn’t pursued.

Use this strategy on the job. When you’re looking at ways of doing things better think bigger. If an improvement is only marginal don’t necessarily go for it. Completely changing everything because it’s 2x better isn’t helpful when a 10x improvement might be right around the corner.

Focus on the future not the past: You are not a combination of past accomplishments/work experiences, that’s your resume. Rather than dwell on how well that last project turned out stay hungry for the next opportunity to make it even better.

Remember past performance is not indicative of future results. Too much staring in the rearview mirror might cause you to miss your exit.