Megatrend 5: Disruptive start-ups

Disruptive start-ups – young businesses that use new technology or ways of working to reshape the markets they operate in – are asset-lite and radical. They are bringing huge opportunities to a wide range of industries, but also great risks for the existing businesses in those sectors. This blog will explore what disruption is and how business leaders should engage with it. You can read about the other 13 megatrends here.

“We will now discuss in a little more detail the Struggle for Existence.”

In November 1859, a geologist called Charles Darwin published On the Origin of Species. It outlined “one general law, leading to the advancement of all organic beings, namely, multiply, vary, let the strongest live and the weakest die.”

Over time, the theory of evolution through natural selection came to be recognised by the scientific community, and subsequently the vast majority of humanity. The concept of “survival of the fittest” – that the organism best suited to its environment will thrive in comparison to those less well adapted – is now indelibly marked upon our social consciousness.

Organisations are not organisms, despite the shared etymological root, but businesses do rise and fall based on their relevance (adaptation) to the markets (environment) in which they operate. Today, the megatrends are causing the business environment to shift; at the same time, new technology is allowing businesses to evolve faster than ever. The disruptive start-up is the offspring of these two factors.

In this Darwinian business environment, a willingness to adapt and experiment will be rewarded; inflexibility is an evolutionary cul-de-sac.

What does this mean for businesses?

According to research from Innosight, in 1964 an S&P 500 company could expect to spend an average of 33 years on the list. Today, that period is slightly over 20 years and by 2027 it is predicted to reach just 12 years.

This falling lifespan at the top is testament to the increasing challenge that disruptive start-ups pose to the incumbents of each sector. Historically, high start-up costs, expensive technology, and a lack of communication links with suppliers acted as barriers for new companies attempting to enter the market.

In many cases these barriers propped up large corporations because the effects of inefficiency or lack of innovation were outweighed by the benefits of already having a substantial market share. Today, however, even the smallest enterprise can reach a global market with minimal financial outlay.

This means that new businesses, usually asset-light and with a clear problem-solving proposition (such as Uber offering cashless taxis through an app), can rapidly expand into a market by offering a more convenient (and often cheaper) service. Faced with the dual threat of low costs and improved functionality, the sector incumbents often find they cannot stem the bleeding to the disruptor.

What can business leaders do?

For most businesses, therefore, the key challenge is how to avoid being disrupted.

Ultimately, if a business is relevant it will have a more secure place in the market than one that is losing relevance. The difficulty is remaining relevant in a business environment that is constantly changing, and for this there is no manual.

Instead, business leaders should focus on making themselves and their organisations adaptable. No one can predict quite what the future will bring – how many jobs will be affected by AI? What form will politics take in the coming years? – so a ‘future-fit’ business is one that is able to evolve its offering and its processes to meet the changing needs of customers.

Facebook (founded 2004) was once a disruptive start-up in the social media network space, but since overtaking MySpace it has been the incumbent. In order to maintain that status, it has acted ruthlessly to remain relevant, updating its core service as well as buying potential disruptors like Whatsapp and Instagram. The latest plank of Facebook’s relevance strategy is banking, with announcement of its new currency, Libra.

Business leaders should not, therefore, shy away from innovation or risk-taking if they want to remain relevant. To do so would be to risk extinction.

Questions for business leaders to think about

• Is my business a disruptor or an incumbent?
• How agile is my business?
• Do I have the right mindset to face unexpected challenges in the future?
• How could I set up my own competition?

Further reading

The future is now: the new context of leadership (Lane4 white paper)

Innovation in the fourth industrial revolution (The Economist)

What is disruption, really? (Peter Daisyme, Startup Grind)

Disruptive 25 (Inc.com)

 

Click here to learn about the other 13 megatrends.