The Imminent Failure of Business as We Know It
Forgive the sensational title, but disruptive transformation is quickly wiping out the established models of business. The change is so rapid and pervasive that it is almost imperceptible. But it is time to recognize that we are in a new age, and like the Industrial Revolution, the Internet Age has changed the way business should operate.
It is time to realize that what has happened to the travel industry, the music industry and recently the taxi industry, is coming to your business.
We need to rethink how problems are solved and how businesses operate. Our current jobs are based on out-dated concepts of corporate structure and employee relationships.
What has Happened?
We have experienced a period of symbiotic innovation that has changed the playing field. Computing infrastructure has become a commodity, along with easily accessible technical capabilities. In addition, the internet and social media have created immediate access to markets and distribution. Capital to support innovation and new ideas has also transformed. The days of trying to obtain a business loan from the bank, or taking a second out on your mortgage, are over. Most start-up entrepreneurs today are too young to even have a mortgage. Venture Capital, Angel Investing, and Crowdfunding all provide alternative financing models. The competition today is about ideas, rather than the mechanics of business.
In a playing field based on ideas and new ways of solving problems, traditional companies will lose.
The Status Quo of Business
Business today was based on the idea of leveraging capital and human resources to scale a proven business model. The business owners put their capital at risk and rewarded loyal employees with reliable pay and financial security. Management drove productivity through a command and control model of oversight and direction. Task focus and efficiency were rewarded and new ideas required business plans and funding approval. Why would a company divert from their proven revenue stream to compete with themselves. Innovation had to compete for resources, representing a risk of return on investment.
The Failure of Business
The large, successful companies of today are now trapped by their own success. The vision and strategy that produced an effective business model, has created an institution that will cling to that model, and ensure its own demise. Circuit City, Borders, Kodak – these were individual businesses who failed to change. Now we are seeing this happen with entire industries.
Big companies protect their past success through risk aversion, management that drives efficiency by rewarding conformity and challenging anything that will cannibalize their sales, including new ideas. They are by definition non-entrepreneurial and run and operated by those who value security, continuity and direction over uncertainty, disruption and struggle. These are commendable traits, but not the ones that provide advantage today.
The New Innovation Advantage
Start up businesses are attracting the young workforce that is the most trained and qualified to leverage the new model of business.
They have the dual advantage of being blank slates who can examine business problems with a fresh perspective. They are not tied to past experience and what has worked before. This is critical since the convergence of innovative advances enables us to solve yesterday’s problems in a new way. And, that way, is not incremental to the way we solved it previously. It is completely different. The advantages in the Innovation Revolution go to those who were raised on the internet and grew up Googling to find answers to any question, not those who remember consulting an encyclopedia.
Why Established Companies are Left Behind
In addition, startups have developed a highly effective approach. The transparency of this new business model means that success can scale very quickly. Business itself can become a viral phenomenon, where a new business model becomes an overnight sensation, like Uber or Open Table. It never existed before, and then it is everywhere.
This transparency creates a hyper-Darwinian model where only the best survive and all the rest are quickly abandoned. There is a short gestation period before you must prove yourself publicly. They start very lean, and leverage the reach of the online world to vet their models without building heavy infrastructure in advance. They essentially operate conceptually until they get the core value proposition correct.
And then, the real disruption occurs – they scale immediately and massively in a way that corporations cannot comprehend.
The Expanding Business Divide
The gap between old business and new business is wider than anyone recognizes. Long established and accepted ways of doing business have ended. The pace, though, is accelerating as patterns emerge. Just like the industrial revolution that displaced the need for manual labor, the economy based on infrastructure, capital and market access is being displaced.
The result is that small business no longer needs established business to scale.
There is also a cultural and generational gap that is becoming more pronounced. Before, small start ups aspired to be like big companies and mature to their models. Look around – they are not trying to develop into the corporate world we know. Their cultures and values are different. They are able to make mistakes, pivot, and keep going. They have less to lose and can afford to seek a better solution.
So, is this a cautionary tale (like The Lorax,) a dystopian prophesy (which seems to be the rage in teen novels and movies,) or misguided conjecture? Please let me hear your comments. All are welcome!
image credit: engagementhq.com
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