I have written and spoken many a time on Disruptonomics, the economy of rapid change in which we now live – and survive.
We have seen an accelerating growth of large reputable and seemingly safe brand names slipping from customer favour and even going bust.
Blockbuster Video succumbed to the new world of Netflix and Amazon Video. Tower Records fell (as did HMV before its recovery) to the new music marketplaces driven by Apple, Spotify and others.
Amazon the prime distruptor
The most recent news was that of Toys R’ Us, a 69-year-old firm and a globally loved brand with 1,600 stores worldwide. It is failing badly and putting 64,000 jobs at risk with $5bn in debt. All this at a time when customers can order online quicker, faster and cheaper. Amazon Toys reputedly made $4bn revenue in the US alone in 2016 of the total $20.4bn USA toy sales.
In 1960, the average age of firms in the fortune 500 was 60 years. In 2015 we saw an average age of 12 years, with 52% of the fortune 500 firms having changed since year 2000. In the top 10 valued companies we now see 5 that have been around less than 20 years (Amazon, Apple, Google, Facebook and Netflix).
We now live in a world where as a business and brand you are only safe only until you are not! We hear the phrase Digital Transformation used widely, but this is not easy to achieve if you are a legacy firm. It involves an aggressive willingness to accept change where required in all its forms. From process, and technology right through often to people.
A painful, difficult experience
To really transform and align with the new world can be painful, risky and unpalatable for many. The first discussion that normally occurs is how does this affect existing revenue, profit and valuation. CEOs and boards must be willing to accept that to get to a more successful new foundation for growth, they may have to go backwards before going forwards. Facing a drop in revenue or profits and a stock price fall on the promise of future gains is a painful place to be. It puts most decision makers into a ‘do what we can but don’t commit to that’ mode!
For this reason, we see many dipping their toe into the new world order, but not truly committing. Then they wonder why new Unicorn companies, with no legacy ball and shackle holding them back, accelerate, disrupt and take business from them.
This usually results in the outcome they sought to avoid: deficits in revenue profit, growth and share price. But hey, this was imposed on us so it’s not our fault. It was out of our control, it’s the market, its customers being fickle. Blame everyone, except yourself, for your own short sightedness. Blockbuster Video is a perfect case in point. At one point they had the opportunity to buy Netflix in 2000 for a price of $50m and chose not to!
Old world thinking is no longer working. We have seen this with the growth of historic brand failures that have already occurred and will occur in the coming few years.
Through the Windows to the Cloud
There is no doubting a need to transform across industry sectors. In IT, Microsoft famously re-invented itself as the cloud company during the last decade years, at one point moving 95% of its development to cloud to ensure it happened. Oracle, SAP and others have followed, publicly mandating their commitment to cloud. In banking we are seeing challenger banks such as Metro Bank and Number26 (N26), challenging traditional models to better serve the customer of today.
The customer and buying dynamic has changed. If you offer a customer a simpler, faster and more convenient alternative, they will from a legacy brand to a new name quickly. We have seen this time and again with Amazon, Uber, AirBnB and many more will follow.
The clear message? You to be willing to bet on future success over the status quo and to take step backs in order to move forwards, while taking acceptable and necessary risks for survival.
We are already witnessing the start of a second wave of disruption as the disruptors up their game and expand into other arenas. For example, Uber, mostly and incorrectly labelled a Taxi firm, is in reality a platform for moving something from A to B using a third-party vehicle. It has launched UberEATS (food delivery) and UberRUSH (parcel delivery) and you can see the similarity with how Amazon entered our world as a book seller, only to widen its platform to other products rapidly.
Don’t just sit there, do something amazing instead
Amazon as a case in point is a multi-disruptor; firstly in online e-tailing, then video streaming, through to providing cloud services – based on the systems it built for itself. It is now moving rapidly into food retailing and e-tailing through its acquisition of Whole Foods.
Netflix like Amazon has also moved from the disruption of the video film rental market to true content production and ownership which now threatens traditional broadcasters.
We can expect to see these disruptive companies gaining power through revenue growth and divesting themselves into other markets where they can take on the historic names at their own game.
In the coming five years we will unfortunately witness more of these legacy brand name failures hitting the news. If you are one of them and sitting there now thinking you don’t need to change, think again!
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