Tag Archives: disruption

Overthrowing the 600lb Gorilla: Create a Platform Shift

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As the little guy, albeit with some pretty large aspirations, how do you exactly go about taking on the 600 lb gorilla that has billions of dollars in resources and tens of thousands of employees? The gorilla has been in the industry for ever, knows all the other chimps in the space and is the undisputed leader. So, how do you, with limited resources, almost no name and a tiny team expect to, well, overthrow this big guy? You did have large aspirations, remember?

Assume the incumbent is in the industry of creating horse-carts. He knows everything there is to know about horse carts – which breed  works best for what purpose, what  food the horses should eat, how comfortable the cart needs to be and so on. You can’t compete with this guy on horse-carts. He has tens of thousands of horses for every imaginable type of cart and he is killing it.

So, how do you beat him at his own game? Well, you change the game! If the entire industry is making horse carts, you do the unthinkable and get rid of the horse! Bring in a motor car.

Initially you will be scoffed at – “A man derives his worth from his horse”, “It’s so unnatural”, “Instead of a horse, you are creating a bunch of explosions 2 feet away in your fancy-schmancy car? Did you hit your head somewhere?”

You are crazy! Why would anyone want to copy a crazy person? So, while you are being scoffed at, you get ample time to solidify your base and perfect your product. You debut your invention and start selling to the early adopters. People are coming around to the idea – “The engine did not explode on anyone yet, right?” You start taking off – slowly, but surely.

Meanwhile, the 600lb gorilla is still selling billions of dollars’ worth of horse carts, although growth is taking a hit. Maybe it’s a one-time thing? Maybe they need to innovate more. The CEO calls for increased investments in R&D. The department gets to work and finds a substantial 5% increase in the horse’s energy output if they feed it a new combination of grain!

You release version 2 of your motor car – which is even better! People are warming up more to your invention – “You don’t need to take care of such a large animal anymore”, “My friend’s neighbor has one of those motor-things”

At Gorilla, Inc. there is a crisis. Sales are 80% of what they were. The CEO thinks they need to start looking into this motor car thing after all. He pulls up a team from across his company of the best horse-trainers and the best cart-makers to go and figure out this motor thing.

The Gorilla debuts its own motor car. Unfortunately, it doesn’t run too well. Turns out, the engine doesn’t eat a liquid diet of horse grain.

One extremely forward thinking employee in Gorilla, Inc. goes up to the CEO. “Horse-carts are old news. We need to stop making them and put everything we have into perfecting our motor car.” The CEO isn’t too happy – “You’re telling me that we should abandon a product line that accounts for 70% of our revenues over something that could just be a fad? Have you completely lost your mind? Who hired you?” The CEO fires the employee – “We can’t have people making such ridiculous comments in time of crisis here.”

Even though you’re doing well, the entire process has taken its toll on you. Either you’ve greyed all your hair or maybe lost most of it but there is a lot more ground to be covered. Now, there are a lot more companies now trying to create their own motor cars, though you clearly have the most advanced one – for now.

You’ve put the 600lb Gorilla on a diet. Play your cards right and you may end up taking it down after all.

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If you study the rate of development in different industries since 1980, you’ll see that it is only the technology industry that has made significant progress. The rate of innovation in medicine and pharmaceutical industries is the same; commercial aviation has actually regressed and average air-speeds have slowed down since the Concorde got decommissioned; finance has become massive, though it works on the same principles as before; there hasn’t been a significant platform shift in manufacturing; and classroom instruction is pretty much the same since the 1800’s.

Most of these industries use newer technology as tools to do the same things that they keep doing, slightly better. It is the equivalent of finding a 5% increase in output by feeding the horse better grain. Industries need to be re-thought from the ground up for you to discover a motor car in there.

Now, technology is progressing to the “internet of things” – you know, when your front door pings you on your phone asking if it should lock itself since you forgot to do it. Mobile internet and cloud storage are already in place, while robotics and artificial intelligence are making a lot of progress. Technology will soon permeate the very essence of what you interact with – covering pretty much every industry.

So, while the incumbents use technology to make their horses slightly better, when will you debut your motor car?  

Disruptive Strategies for Crowded Markets

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Markets that deal in essential or everyday goods are typically described as being ‘cut-throat’, ‘plagued with rivalry’ and ‘being hard to innovate in’ just given the sheer number of competitors present. A company in the business of food, clothing, real-estate, jewelry or any other commodity is typically going to be a price taker- where the prices set are dependent on the market. In this scenario, growth is typically slow and limited – simply because it is hard to differentiate yourself from the crowd. As a result, startups like these are not too attractive to venture capital.

However, despite common convention, there is still scope for massive innovation in crowded markets, where startups can choose to be price setters – i.e. dictate prices for their products even in the midst of several competitors. Using technology, startups in these markets can experience phases of rapid growth, comparable to hot silicon valley startups. This is especially true given that incumbents in commodity markets are laggards when it comes to adopting technology as opposed to other industries – leaving the space ripe for disruption.

Permutations and combinations of business models are becoming more innovative with technology, specifically with the rise and adoption of mobile, social, local, and e-commerce. There are several opportunities where you can splice and re-apply innovative business models to traditional industries:

1) Printer-ink cartridge– Nespresso is a classic example of a product where Nestle used the printer-ink cartridge business model and applied it successfully to coffee. Nespresso is basically a form of premium coffee, where they sell the coffee machine for a very low markup/almost at a loss and then sell coffee pods at a lot higher markup. With several patents, they ensure that only their coffee pods are compatible with the machines. With this, they are able to tap into the home markets at almost a 5-10x markup compared to competitors.

2) Group Buying– With the rise of Groupon, group buying has become mainstream. Using the same principle of group buying, companies like Kickstarter are taking the concept and applying it to investments in creative projects. Plukka is doing the same for jewelry manufacturing – and we should still just be scratching the surface.

3) Social News – Reddit and Hacker News use their users to rank their articles/posts based on what is most popular to the community. The same concept can be applied to e-commerce, manufacturing etc. Not sure of what to produce and sell? Why not let your users create and organize it for you! A great example is Chloe+Isabel for jewelry. C+I lets people sign up as ‘merchandisers’ and then it helps them organize ‘trunk shows’, encouraging hosts to invite their friends, family and colleagues attend their shows to buy jewelry.

4) Discovery – There are several startups trying to do discovery. Discovery of apps, music, videos, news, and movies. Now, the issue in crowded markets is that it is hard to identify the true ‘hidden gems’ that would be perfect for you – specifically. How about  taking hints from the business models of Pandora, Spotify, Netflix and the various other innovations like geo-fencing to re-apply them to discovery in crowded markets – for buying homes, groceries, jewelry, medicines, cultural arts and crafts etc. The process of ‘discovering’ what is right just for you – is among the big trends already catching on.

5) Personalized/Made to order – With access to better software, manufacturers are able to individually personalize products on a mass scale. Diamondere is a great example where a manufacturer is able to completely personalize each piece of jewelry. Users can change individual gemstones on any design, change the gold color and quality and even get their purchases engraved. Using software that virtually renders each permutation, the site is able to give a ‘futuristic’ experience of personalizing jewelry. There are already several companies that personalize t-shirts, business cards etc. on a mass scale for individual consumers, but this concept is still in its nascent stages.

Business models are becoming creative – ‘I have x and you give me $ to buy it’ is getting old. How about ‘We will make and sell you either x, y or z depending on what you and your friends want’ or ‘You bought x and y, here’s z’ – but that said, try not to be too creepy about it!