May 15, 2012 - FILED UNDER Agile Business
Plan for Disruption, Save Your Business
Right up until the second it’s too late, it’s easy to believe that fighting disruption is a viable business strategy — especially if you’re the bigger player in the equation. But today’s winner’s circle doesn’t discriminate when it comes to size or position. We’ve seen disruptive innovations out-maneuver businesses of every type, completely obliterate entire industries and generate exorbitant amounts of revenue at breakneck rates.
It’s an intimidating fate for any organization, but nonetheless sealed: take action now, or someone will do it for you.
The Speedy S-Curve
Every business is familiar with the s-curve cycle. It essentially assumes that after a start-up phase, a rapid increase in revenue occurs, and is then followed by an eventual decline. Best-case scenario, successive curves will follow to continue the growth of the business in an upward direction. History tells us that these cycles take a considerable amount of time to complete, but like most other areas of business, today’s fast-paced and collaborative world has altered the norm considerably.
Let’s take cars for example. In 2000, Zipcar’s debut was a pretty radical move in the American transportation industry. By appealing to native travelers rather than out-of-towners, they managed to offer a more convenient and cost-effective option than traditional rental agencies. In 2010, RelayRides went a step further with peer-to-peer car sharing, allowing individual owners to rent out their vehicles on their own pricing terms. What an environmentally friendly solution for getting someone else to pay off your car.
Then again, it’s not all about saving money. Consider how Uber, a 2011 venture-funded start-up, rattled the longstanding taxicab industry — a service that can be traced back to carriages for hire in 1640 — by connecting consumers to luxury cars via mobile application. Uber’s prices are currently twice what conventional cabs charge, and yet the demand is so high that the company plans to add 25 cities (all outside of the U.S.) to its service list by the close of this year.
What’s next for the vehicular landscape, I don’t know. What I do know is that each offering decreased the legacy companies’ consumer bases, and that instead of seeing successive s-curves, they are more likely to find themselves at a dead end.
No Exception to the Rule
If you think you might be exempt from this shift, think again. Between 2000 and 2005 the music industry went from a global marketplace of $40 billion, to $28 billion and digital sales went from zero to $700 million. That’s major disruption in an enormous marketplace.
Or how about Kodak, Polaroid and Borders, which, despite their popularity, were also nonetheless affected by digitization. Instead of embracing the movement they attempted to maintain their normal ways of operating, and in the end completely lost control of distribution, pricing and marketing. Eventually, each company relegated itself to a specialized and dwindling niche, if not a complete shuttering.
Wanting to hold tight to what made you successful from the start is understandable, but not practical and, as you can see, potentially fatal.
Forgiveness is Achievable
The good news is that disruption doesn’t have to be one-shot type of deal. Should the path you choose lead you astray, there’s a good chance you can course correct in time.
When Netflix inflated its pricing model to reflect the switch from discs to streaming, their stock dropped 20 percent and they lost a whopping 800,000 U.S. subscribers in Q3, 2011. When the company realized they’d made a mistake, they released the following statement:
The last few months…have been difficult for shareholders, employees, and most unfortunately, many members of Netflix. While we dramatically improved our $7.99 unlimited streaming service by embracing new platforms, simplifying our user-interface, and more than doubling domestic spending on streaming content over 2010, we greatly upset many domestic Netflix members with our significant DVD-related pricing changes, and to a lesser degree, with the proposed-and-now-cancelled rebranding of our DVD service. In doing so, we’ve hurt our hard-earned reputation, and stalled our domestic growth. But our long-term streaming opportunity is as compelling as ever and we are moving forward as quickly as we can to repair our reputation and return to growth.
Netflix’s stock, which traded as low as U.S. $63.85 in 2011, rose 80% at the beginning of this year, and they currently hold a record number of subscribers. It’s not a complete recovery, and I can’t say how the looming competition (Redbox, Hulu, etc.) will ultimately affect business, but it’s clear that their apology has been accepted.
Disrupt When You’re Ahead
In light of companies that have been disrupted, failed at disrupting and ultimately been forgiven for disrupting badly, it makes sense to say the best time to take action is when you’re ahead. With that mindset, perhaps car rental agencies would have thought of Zipcar’s idea, or Yellow Cab would have thought of adding luxury and mobile functionality like Uber. Maybe Kodak would have survived, and maybe Blockbuster wouldn’t have been ousted by Netflix.
As a CEO it’s in my job description to seek out opportunities for healthy risk taking, but as employees of the 21st century we could all benefit from this mentality. A good dose of paranoia goes a long way by keeping us on our toes, thinking differently and prepared to pivot when need be. In time I think we’ll all see that it’s this kind of momentum that truly allows course correction as well as successful business agility.