Disruption comes with two inconvenient truths.
The first is that it’s happening every day, in every industry, in every sector. And while you think disruption is a cliche, the reality is that if an industry hasn’t already been displaced or isn’t grappling with how to respond to new threats, it’s very likely that it lacks the self-awareness to appreciate that its future exists on borrowed time.
In the last month, I have twice presented a perspective on how disruption plays out. On both occasions, the audiences were companies who are responding to disruption. They were looking for advice on how to innovate. Instead, they were greeted with the second inconvenient truth; that failure drives innovation.
The irony, beyond showing how disruption plays out to organisations being disrupted, is that there IS time to fail and by extension, time to innovate.
And here’s the grossly obvious, frog-in-boiling-water punchline: The longer an organisation postpones decisions to refactor its core businesses, the shorter the available time it has to experiment and learn (through failure) and ultimately benefit from reinvention.
Disruption doesn’t happen overnight, but it will happen.
It takes time for disruption to play out. It can decades but more recently, decades have become years. And there are usually two reasons why it takes this long.
The first is that new threats in the form of start-ups, led by enlightened industry veterans or naive entrepreneurs, need time in the market to refine their proposition so that they can deal sufficient damage to incumbent business models.
The second reason hails from the romance tied to how money has been made in the past. The human addiction to familiarity and relative stability for the ‘tried and tested’ more often than not drives decisions that favour the status quo and more importantly the misdiagnosis of threats.
This combination of sustained ambition from entrepreneurs, fuelled by vision and the size of the prize (which isn’t always financial) and slow speed of appropriate response from incumbents sets the stage for inevitable disruption. And by the time spectators feel confident to call out that a company or industry is facing disruption, the horse has already bolted.
The fascinating idea here is that incumbents were once start-ups.
There are 5 steps to industry disruption
There is an alarming precision with which these steps play out. Transportation, retail and media are the popular case study but take a moment to consider just how practical these steps are and the fact that the closer you get to the fifth step, the smaller the available time to experiment, fail and reinvent.
Step 1: Competitive response
On realising a threat has emerged, incumbents create a short term competitive response, usually price driven, to flex their market muscle. This is designed to discourage start-ups or new entrants for proceeding but this is like bringing a knife to gun fight. It never works. Not only does it provide new players with competitive intelligence on how incumbents react, it’s usually the only response they have which isn’t sustainable.
Step 2: Underestimate the full scope of disruption
“It’s just an app.” How many times do you think these words were spoken by management teams at Budget, Avis and other car rental companies when they first learned of Lyft and Uber? That romance for how money is made is also responsible for narrowing how people analyse trends, meet needs and do business. After all, their rewards are tied to delivering in the short term.
This is disastrous because it means the full breadth and depth of the pending disruption is either ignored or completely misunderstood.
Step 3: Invest in the wrong innovation
Setting up a corporate venture fund to invest in startups is in vogue. However, the hard truth about these funds is that they invest in interesting startups that aren’t likely to resolve the core issues of the parent company. In other words, these investments don’t create capabilities that the parent company can use to out-manoeuvre threats.
Step 4: Cut costs
There’s only so many times you can cut costs.
Step 5: Look to consolidation to drive sustainability
The cumulative effect of the first four steps drives companies to the brink where the only real option for survival is joining forces with or being acquired by another company.
The Red Pill And The Blue Pill
With disruption taking place everywhere there are two options to consider.
The red pill: Discard disruption as a fad and take your chances with the five steps of industry disruption. That’s it. Good luck.
The blue pill: Accept disruption is normal and become a badass innovator. Here are the six behaviours that these people live by:
1. They value time
They know it’s the most important asset and they treat it as such.
2. They think in public
There is next to no value in an idea that no one knows about and people don’t (often) steal ideas so learn by getting your idea to people that can help you learn and evolve.
3. They experiment in short cycles
There’s something wrong if you’re not learning something new every week about what you’re building. The faster the learning cycle, the faster the progress.
4. They celebrate lessons (the byproduct of failure)
People fail. Products fail. Markets fail. That’s reality and how humans learn. Celebrate the lesson learned and be ok with the idea that failure and learning are inextricably linked.
5. They are aware of luck
Whether you like it or not, luck has a role to play in just about everything. Innovators and entrepreneurs know that. They don’t rely on it. They just know it exists and that helps when the unexpected, good or bad, happens.
6. They create air cover
It’s wrong to assume that leaders are the only source of air cover for divisions and teams. Colleagues and teammates are the primary sources of air cover and this comes in the form of having their backs while at the same time living up to high shared standards.
At the end of the day, there’s no reason why you can’t take the blue pill and it’s also important to be aware that it’s not just David’s fighting Goliath’s fighting it out. Start-ups are also disrupting start-ups. Game on!
If you learned something, let me know by leaving a comment. Thanks!