2019 is the first year in a long time when IPOs are generating lower returns than existing stocks. Has the era of disruption come to an end? Not for a minute, if you ask me. Finding ways to disrupt a market to deliver more value to a group of customers will always be at the heart of strategic, market, and economic success. The renowned economist Schumpeter taught us this fact decades ago. The generation of wealth since WWII in free markets versus planned markets was proof of his thesis. So, of course, the market loves disruption and awards start-ups, some with “Unicorn” (i.e., > one billion dollars) valuations. But some disruptions are duds. WeWork, the shared office space company, is one example. WeWork recently withdrew its IPO as potential investors raised questions about its underlying financials. Others are not all they are hyped…
The steep costs of misperceptions
The breakthrough financial success of the new Wonder Woman film contains an important lesson. For years, women super-heroes were outside the scope of movie producers’ considerations. Why? A 2004 film, Catwoman, also starring a female superhero, had failed to achieve its commercial aims. An assumption – female superheroes do not fill seats – became a belief that shaped future investment decisions. No river is ever the same at any one point on the shore. The analogy holds true in the business world. An idea that failed in the past does not necessarily mean the idea has no merit today. And winning ideas that won in the past may lead, today, to your business’ disruption. Beliefs born from assumptions are shortcuts that make our world faster to navigate. Brushing our teeth is good for our health and social life. But beliefs can shrink our…
What do Whole Foods, Netflix, and oxygen monitors have in common?
Whole Foods Market, once the darling of the grocery industry, is facing a whole lot of problems. Poor shareholder performance threatens founder and CEO John Mackey’s position. New directors have been added to deter activist investors and improve relationships with major institutional investors. Some argue that for all its previous success, Whole Foods has not mastered Retail 101 and that is why it is failing. Perhaps – no retailer gets away with poor service and unnecessarily high prices these days. From my perch, however, the core issue facing Whole Foods is its business model. Organic and healthy was once a unique niche within the grocery industry, warranting a separate store. Now, fresh and organic are mainstream. Niches are alcoves — protected places. They exist in our natural world. In our economy, they’re specialized markets. By serving a narrower target market (Four Seasons versus…
Building, shifting, and destroying value
Economist Joseph Schumpeter called waves of industry change “creative destruction.” He argued disruption of the current industry structures and companies built a nation’s wealth. Most economists agree, viewing creative destruction as a necessary ingredient for economic growth. But Schumpeter was writing in 1942. Is creative destruction still a positive force in today’s world? Or are the benefits of creative destruction more nuanced and the costs far greater than Schumpeter argued? As I reflect on this question, I observe three types of disruptions to markets: new-to-market capabilities, reshaping of the industry value chain, and consolidation. While all three create winners and losers, the net benefits to society differ. New-to-market capabilities disruptions include examples like the steam engine, the telephone, the electric bulb, genetic profiling, and personal computers, creating industries that allow us to do things previously impossible. When an entrepreneur brings new-to-market capabilities to…
Disrupting the workplace
In 1989, the CEO of my global employer allowed me to work from home rather than demand I move halfway across the US to be near corporate headquarters. Two technologies made his decision possible: Overnight delivery and an early fax machine. I was the first distributed worker other than our sales and product service representatives. Flash forward to 2013. I worked for IBM where 45% of its global workforce (and growing) worked from home offices. Those of us already virtual referred to IBM as “I’m By Myself.” We used a shared on-line knowledge base so poorly structured that we often entered the IBM site pretending to be a customer—it was the fastest way to find the information that we needed to complete a pitch deck. Many a day, I thought I was working for a computer, not a company. Distributed work is an…
Reflections on business model innovation from a company strategy retreat
“Select a once rapidly growing company whose growth stalled. Then, contemplate the root cause for its decline and be prepared to share your reflections at the retreat.” This assignment was one of many I asked leaders of a rapidly growing, omni-channel apparel retailer to complete in preparation for our two-day strategy retreat. (Omni-channel refers to the fact that people increasingly engage with companies across multiple channels, using each channel for different tasks.) The chosen once-celebrated examples of stalled growth included company names that used to fill articles on “best practices” to secure revenue growth. If nothing else the following names serve as a testimony to why leaders should never assume their existing business models will remain vibrant over the long haul. Kodak Too slow (or quarterly profit focused) to change from film to digitally-based business models Never fully immersed itself in digital photography…