By Robert Tercek
There’s a widespread myth about disruption, which is that it happens overnight. According to this myth, a previously unknown startup company emerges out of nowhere and upends an entire industry in a matter of months.
It’s not surprising that this myth exerts such a powerful grip on the public imagination: just about everyone likes to fantasize that they, too, might someday launch a successful business that instantly reinvents an entire category. The problem with this myth is that it is mostly untrue.
The myth of the fast-growing disruptive startup is deceptive because it reverses cause and effect. The fast-growth startup company is a consequence, not the cause, of vast tectonic changes in the information technology that underpins an existing industry.
The MP3 was introduced as a digital audio format in 1991, eight years before the music-focused file-sharing service Napster arrived on the scene in 1999. Streaming media existed for nearly ten years before the video-sharing website YouTube debuted in 2005. Downloadable apps for mobile phones were a thriving business in Japan eight years before Apple launched the App Store in 2008.
Changes in the foundational technology are incremental and mostly invisible because they occur on the periphery. They take place over such a long period of time, out of sight, that few observers notice them. They are easy to dismiss because, in the early stages, the technology tends to be clunky and the resulting product quality is subpar. But these changes accumulate and accelerate and gradually improve, and as they do, they alter the economics of the entire industry, shifting away from the scarcity dynamics of a mechanized era to become abundant information-based processes, which require new ways of working and new kinds of workers with different skill sets. By the time the rapid-growth startup companies emerge to take the spotlight, the landscape has evolved so greatly that the entire basis of the industry has been altered.
Until 2007, this process took a decade or more. That’s why the myth of the overnight startup success is only mostly untrue. What’s changed since then is that the technological foundation for change has become so ubiquitous and so well established that new ventures can launch much more swiftly with far less capital investment and grow to massive scale in much less time. Today, for instance, it is common for a successful new mobile messaging app to add a million new users a day during a viral breakout.
Older established businesses are often hamstrung, unable to take advantage of technological changes. They have a responsibility to amortize massive investments in industrial-scale facilities made in previous years. They are bound to long-term contracts with suppliers and other partners. They operate in a slow-moving, regulated environment. Although they have learned how to operate profitably within these constraints and, in some ways, these constraints have protected them because of the high barrier of entry they present to newcomers, these established businesses suffer as the entire economy shifts. The old constraints become a barrier to innovation inside the established company, and often these companies are blindsided by technology startups that have learned to thrive in the harsh environment outside the protective barrier. In Darwinian terms, the incumbent firms are ill adapted to the new environment. That’s why the leaders of established businesses often insist on bending new technology to fit old infrastructure.
The single most vexing question facing every chief executive officer of a mature company is, “When is the right time to put a bullet in the head of a stable business and switch to an unproven model based on new technology?” The consequences of making a wrong move can be catastrophic because investors have no patience for companies that miss forecasts or lose market share. Public companies are damned in the short term by the demands of the stock market and in the long term by technology.
Often it makes more sense to start a new venture from scratch. Unencumbered by commitments made in the past, a digital startup can easily adapt to the new technologically defined landscape. Responsible only to a small number of venture capital investors, the startup is immune to the demands of the stock market and can operate unprofitably for many quarters while it perfects its offering and acquires customers.
What makes a successful startup venture seem so brilliant is a combination of timing and execution. The trick is to consolidate a set of technological changes into one easy-to-consume package and deliver it at a much lower price made possible by the process of vaporization. It takes time and resources to get this right, and it is an iterative process of trial and error. When the combination works, the results are explosive.
The widespread adoption of mobile devices, social and digital media, cloud infrastructure, e-commerce, and related technology means that the foundation is now in place for digital disruption to occur in many fields simultaneously. Startup companies can engage prospective customers using digital devices much earlier in the process, sometimes before a product is even developed. Vaporized companies can launch with customers before they have products. Demand pull from customers speeds the innovation process, so smart companies are developing a way to listen to their audience, engage with them as early as possible, and design their offerings in response to the feedback they receive. Companies of any size could benefit from this practice.
The biggest impediment you will face as you attempt to lead your company into the vaporized era is cultural. You’ll need profound charisma in order to persuade, cajole, convince, demonstrate, and lead others to accept the new technology and the new way of doing business. Be prepared for some resistance. Trust me, most of them won’t want to go there with you.
Robert Tercek is the author of VAPORIZED Solid Strategies for Success in a Dematerialized World. He has launched satellite TV networks, the first video on mobile phones, multimedia games, and live interactive learning programs. He provides strategic insight to Turner Broadcasting, InterPublic Group, PBS, and other firms. He previously served in executive leadership at MTV, Sony Pictures Entertainment, and most recently as President of Digital Media at OWN: The Oprah Winfrey Network. For more information, to go to: http://www.roberttercek.com/.