In recent years our attention has really turned to market disruptors from category killers.
The dichotomy this creates in a market is intense. New businesses introducing new business models into (possibly) stagnant markets, versus stalwart businesses whose most typical reaction is to defend its territory. One business is 100% geared up to change the game. The others are defending the past while trying to achieve their own business goals. And that is just the first imbalance.
The protagonists want the same thing but can be set up in different ways, physically and mentally. The disruptor is focused on one vertical/proposition/purpose where the legacy businesses can have multiple plates spinning. This new disruption is just another one.
Nature vs Nurture
The players are built differently.
Disruptors are risk-takers. There is no promise of success and indeed more fail than succeed. But in legacy businesses, ‘risk’ is the governor. There has been little or no imagination or modeling placed into what could happen if this (or any) disruptor gets a handle on your market.
The differences in approach are not subtle:
- Applied, at their most far reaching, modeling techniques in incumbent businesses tend to be modest and progressive on current run-rate. Disruptors models are based on imagination and potential.Activity is biased towards today’s metrics, not tomorrow’s in longer standing businesses. “Raise prices, cut costs and the profit will remain the same!” - maybe for now.
- Activity in the incumbent, in most cases, is generated because of an issue already prevalent in the business. Many businesses are in problem solving mode, not predictive or anticipatory mode.Even in data analysis, there is way more focus on what a customer did, than why they changed. Disruptors have a wider range of metrics, hard and soft, as they look for traction in more places with different definitions of success.
- The set-up and flow of many long standing businesses points to explanation rather than market or purpose dynamism. And in the (maybe) twice yearly check-in on strategy, there still tends to be more focus on what is working today, rather than concentrating on the horizon.
Dare to dream
The disruptors are working on a 'profit later' model built out of love for the consumer/product/opportunity versus the more common place status quo model of business now.
My guest on next week's podcast is Richard Shotton, author of The Choice Factory. His book is about behavioral science and its uses in marketing. The book features an in depth breakdown of 25 biases customers can be exposed to. I believe some of them are prevalent in business managers too.
The bias of price relativity focuses on changing your comparison set to improve your value proposition. Think about how your growth paradigms are framed in existing business. In the inversion of this bias, the reality of your existing and past performances will usually govern your view on what growth and progress look like. Modest single digit gains are borne out of hard fought battles through the years. So you don't dare to dream, because history has taught you otherwise.
Disrupters are only there because they dared to dream. The approaches are polar opposites.
So many of the ‘unicorns’ today are measured by how many people they have engaged on their platform or with their product, with the confidence that profit will come later through cost engineering, economies of scale, further investment etc. Whether that is true or seen to be 'unfair', isn’t important in your analysis.
What should be important to you is that they are talking to your (potential) customers in ways that you are not.
Sure this is an easier approach when you don’t have any profit, but it’s one that is truer to their consumer. On the other hand legacy businesses are trying to squeeze grains of sand and desperately hold onto what they have. How quickly it will slip away comes back to their approach to risk management or risk taking! Of course you should attempt to hold on to what you have, but take a long hard look at your time spent on both sides of this equation. It would be rare for it to be anywhere near equal.
Hard Learned Lessons
Having worked in several legacy businesses, here is what I have seen happen most commonly that propagates the threat of the disrupter:
- “It’s small and not meaningful” - insert single digit market share metric
- Take one or some of the aspects of the disruptors proposition and mimic it to some degree.
- “We need more Marketing $ to fight them off” - to which I have retorted in the past - “what would you like me to say”. In other words nothing new but more!
#3 is a marketing nightmare! Assuming there is no new money (and there rarely is), the dilution on your other efforts can be significant. It will drive inefficiency into your spend and in my experience the premise for spending more is based on some hope rather than belief or purpose.
#1 in worst case scenarios will change before your eyes. What was 2% quickly becomes 5% market share and when the panic button has been hit, you now have a multiplier on #3!
#2 may boost the short-term, it’s unlikely to be sustainable. Fundamentally because it’s not your proposition. It won’t necessarily fit in your business model unless you are tearing that down too.
Act not react
And that is my point. If you are sitting in a historical/legacy business, why not disrupt yourself? What would it take? Not some additional responsibility to an already over stretched group or person. Remember the match up! Your disrupter is only focused on that one thing that you just inserted in someone’s to do list. It’s unlikely you win.
I am reminded of an example from my good friend and former colleague, BJ Naedele, from his Nike days. Nike has very clear purpose around serving their athlete. They also had very clear principles around change and when profit would follow. So in order to take the position Nike coveted in running, a sport synonymous with it’s roots, Nike took the bold and brave decision to shut down the profitable golf equipment division along with some ancillary businesses because they were not rooted to its DNA of athlete first. This facilitated and created the focus the business needed to create many of the aspects of Nike running we see today. They disrupted themselves and stayed true to their purpose even though there was opportunity to have more.
The truth is that there are few companies willing to take that purposeful of an approach. And so the headlines of many businesses struggling in the face of new models and new competition will continue. Whole business sectors like retail, will continue to suffer if there isn't more balance. Your next quarter's results are important but it is even more important to frame them in your view of the next 5-8 quarters. Feeding your business on a hand to mouth basis will leave you hungry in the end.
For many businesses, the profitable verticals/sectors are ‘paying for’ the losses in other divisions. The modern day threat is that your disrupter is looking at your business as one vertical, not in totality. If a long standing business modeled its near future with diminished profit from its cash cow verticals, what actions would it lead you to? Is it really risky or is it just smart?
I am 2-1 in my legacy business track record.
The key differences between winning and losing were:
- Focus and commitment to the change required to make the business successful. Where the businesses grew, resources were carved out to ensure that we could really deliver on the growth opportunities. And it is not just money. Time spent on this was arguably the biggest commitment and success factor.
- Two companies were market listed and this made a difference. The unwillingness to diminish profit in the short term in front of your shareholders is a major barrier. It may also be imagined that it is unacceptable. It can be overcome, and the discipline to do so is a good one. There needs to be a clear, cohesive plan with the commitment from the point above. You may also need a change in personnel and skill sets. It shouldn't be assumed that you have what you need in your talent pool.
- The plan needs to be resourced adequately (and fluidly), so that there is opportunity to execute that plan.
My point is that it can be done. Disruption can be anticipated, it's impact can be absorbed and legacy businesses can prevail. However they must be purposeful and focused and brave.
Or in other words, more like a disrupter!
Commitment in business demands planning.
So here are my questions:
What are the big opportunities in your business? (Not remedial forecast fixes - opportunities).
What time is spent on the identification, quantification and probability of achieving it? If you wait until you NEED it, that will be tough.
What level of resource (people, time and money) have you put into assessing your own situation? This can also be addition by subtraction, as we saw in the Nike example.
How closely are you looking at your own business? It is never soon to start. However as we see on a weekly basis, it can be too late!
With all the headlines and investment around disruptors and creation of unicorns, I guarantee someone else is already looking!