Startups can disrupt a whole industry. That is why when startups should start with an old and tired market, where there has been little innovation.
We see the pattern over and over again. A long term industry has a few players controlling it or single player in an industry has a monopoly and all the avenues to market entry are either blocked or limited.
Take the taxi industry for instance. I heard it was nearly impossible to get a taxi cab license in NYC at one point in time, before Uber emerged. Airbnb is the story of one of the most disruptive businesses in our life time, turning unused second bedrooms into revenue generators and taking a chunk from hotels/motels.
In every industry we see the same thing happen. There is always a period of rapid growth, followed by consolidation and then what can be best described as stagnation or steady-state. And it is at that point of stagnation, which could be across a year to 100 or 500 years, that startups have their opportunity to jump in and find a way to change the industry around and disrupt it.
I use the word stagnation because that is what happens to day to day innovation typically when there is just one player at the top. A monopoly or oligopoly gets fat and happy and there are actually incentives to not innovate, to slow the release of new features and products and service improvements. Everything gets focused on maximizing profits and revenue. I believe we are at that point with a lot of industries and a lot of companies.
It tells me that finding a new way to compete may be just around the corner in some of these staid industries.
Change becomes evil to the industry in charge. In fact, there are cases where the company or industry in charge spends 90% of their resources fighting the change coming right at them. And they are basically Ostriches with their heads in the sand. Look at the Fax Machine. It was apparently ignored by Western Union and telex. Look at Block Buster Video Rentals versus Netflix. Look at any industry that became obsolete overnight.
Stagnation is a great financial situation for companies for at least the short term. It drives their stock up, allows the shareholders and executives to make a lot of money. Often the financial minds have taken over and are focusing the business on the bottom line, because they now control the market and typically with less and less cost, you have more and more profit. That is why we are in the a period of automation and outsourcing!
The less competition within an industry, the less innovation. In fact, once a corporation and group of companies control an industry much of their focus is on barriers to entry and less improvements for the customer.
There are a few major exceptions. Amazon for one. They have not focused on big time profits, and have reinvested every dime they have in innovation and improvements. But they are a rare breed. Even their day in the sun will come. It comes for all corporations.
So, as time passes it becomes more and more possible for disruption, because the players at the top get slower, sloppier and lose their ability to innovate. There was a time when Howard Johnson’s and Chock-Full-Of-Nuts were the biggest restaurant and cafe competitors in America! Believe it or not, the greatest companies on earth have all been through this, and as you know if you are a fan of history, it will happen again.
So, how do you, as a startup, take advantage of this cycle and disruption?
You have to look for the advantage. Some of it is timing and being at a place where the tipping point is occurring in an industry. Some of it is related to new technology. Let’s say a new technology, what I call a Medium, has become available that is at its infancy. I have seen when smartphones emerged, the ability to get an advantage suddenly became possible. When email first was introduced there was an opportunity. When SMS/Text came out it presented an advantage. For instance right now Virtual Reality is available to build out solutions. When the Internet arrived it offered a way to break into the market and disrupt Retail and other industries. They were disrupted and online players jumped in.
So you need to find a point to jump into a market and use a new medium that is emerging. You need to find an industry which is ripe for disruption. You at least need to know when the market doors are closed for the current technology available.
Look at the online dating business. Match.com has acquired so many other competitors like Plenty of Fish, Tinder and OkCupid that they are shutting the doors to market entry online and on smartphones. I have not been on their site in a couple of years, but I bet the innovation level is now slowing. Their competitors are smaller and focus on different markets. But this is actually the best time to compete and disrupt them, but only through a new medium (not the internet or smartphones).
And then there are some old time industries that are controlling their shelf space in grocery stores or still running their top heavy industry controlling businesses.
The thing about disruption, is you, as a consumer, can’t see the new market entry or change, till it happens.
Let’s look at a few industries still ready for disruption.
Transportation. Everything from trains to bikes to cars to golf carts to driverless cars, to airplanes and how the airline industry works, leaves an industry ready to transform into something else.
Office Space. It has already started. Co-working is going on a rampage, destroying what we knew an office used to be. The entire industry is starting to be disrupted.
Strip Malls. Somebody needs to figure out what to do with all these unused strip mall space. Ah. there is an opportunity to disrupt.
Food and Restaurants. We are seeing what I think is a revolution in food and healthy eating with Heathly Eating places and Raw Juice bars at corners and the end result may be different than you were expecting.
Energy. We are in the middle of a switch to solar and other non-fossil fuel energy sources. Just solar alone is a major way startups are getting into a new disruptive industry.
I am sure I can come up with a dozen or more industries that need to get whipped by a new upstart. But you may have noticed I stayed away from Internet Web sites and Mobile Apps. I just think what has happened in the tech world among startups, is they view websites and mobile apps as an industry. It is an industry, but generally it requires a tangible business beneath the hood to disrupt. Focus on the industry not the technology to find a market.
The internet and web tech is not an end unto itself. It is a “medium” that other previous competitive businesses have been upended by and disrupted by. You need to look at old time, long standing industries if you are interested in disruption! So looking online is not always the best way to do this. Getting out and looking at real world physical products and services is a great answer!
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