The Intersection of Issued and Outstanding Shares and the Shark-Fin Effect: Navigating the Challenges of Technological Adoption and Ownership

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Aug 17, 2023

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The Intersection of Issued and Outstanding Shares and the Shark-Fin Effect: Navigating the Challenges of Technological Adoption and Ownership

In the fast-paced world of business, both ownership structure and technological adoption are crucial factors that can determine the success or failure of a company. Understanding the concepts of issued and outstanding shares, as well as the alternative adoption process for disruptive products, can provide valuable insights for entrepreneurs and investors alike. Let's explore how these two seemingly unrelated topics intersect and what actionable advice we can derive from them.

Issued and outstanding shares refer to the ownership stake in a corporation that has been purchased by individuals or entities. When shares are issued in exchange for payment, the purchaser becomes a stockholder, and the corporation records these shares in its stock ledger. On the other hand, fully diluted shares involve the granting of the right to buy shares at a later date. These shares are not yet issued and outstanding and do not appear on the stock ledger. It is only when the option is exercised that the shares become issued and outstanding.

The distinction between issued and outstanding shares and fully diluted shares is important when calculating ownership percentages and valuations. Depending on the context, a company may choose to base its calculations on either the issued and outstanding shares or the fully diluted shares. Clear communication and agreement on the method of calculation are essential for all parties involved.

Now, let's shift our focus to the alternative adoption process for disruptive products, known as the Shark-Fin Effect. The traditional model proposed by Rogers, which outlines five phases of technological adoption, has become inadequate in the digital era. The Shark-Fin Effect offers a new perspective on how disruptive technologies are adopted and replaced.

The first phase of the Shark-Fin Effect is the try & learn stage. During this phase, innovators collaborate with accelerators and external consultants to identify market-changing solutions. This is a critical step in weeding out poor ideas and focusing on those with high potential. Once a promising solution is identified and meets market demand, the Big Bang phase begins. This is characterized by exponential growth and can quickly eliminate alternative solutions in the market.

However, the Shark-Fin Effect also highlights the possibility of a big-crunch phase, where a former disruptive product is replaced by another disruptive innovation. Factors of success are constantly changing, and industry-changing players can quickly introduce new technologies that render existing ones obsolete. Companies must be adaptive to survive in this dynamic environment.

From the intersection of issued and outstanding shares and the Shark-Fin Effect, we can derive three actionable advice for entrepreneurs and investors:

  • 1. Clearly define ownership structures: Whether you are a startup seeking funding or an investor looking to acquire shares, it is crucial to clearly define the ownership structure based on either issued and outstanding shares or fully diluted shares. This will prevent any misunderstandings or disputes in the future.
  • 2. Embrace the try & learn approach: When developing a disruptive product, collaborate with accelerators and external consultants to identify and refine ideas with high potential. This iterative approach will increase your chances of success and minimize the risk of investing in poor ideas.
  • 3. Stay agile and adaptive: Recognize that the technological landscape is constantly evolving, and what may be disruptive today could be replaced by another innovation tomorrow. Stay agile and adaptive to navigate the big-crunch phase and ensure your company's long-term success.

In conclusion, the intersection of issued and outstanding shares and the Shark-Fin Effect offers valuable insights into ownership structures and technological adoption. By understanding the importance of clear communication in calculating ownership percentages and embracing the try & learn approach in disruptive product development, businesses can navigate the challenges of the dynamic and ever-changing market landscape. Staying agile and adaptive is key to surviving the big-crunch phase and achieving long-term success in the digital era.

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