Heads up, strong language is used in this blog for emphasis.
TL; DR (Too Long; Didn't Read)
Disruptors win because they have a superior mindset that focuses on not giving a fuck, fighting the people they hate and aggressively pursuing great wealth.
This blog is a ‘tell it as it really is’ insight into what disruptors really think, feel and do. It’s a reaction to this video which got me very pissed off up because I could not believe how detached the speaker is from today’s disrupted reality. This speaker doesn’t understand disruption and if you buy into what he is saying then you’re company is definitely going to die because you don’t get it either. The purpose of this post is to help you ‘get it’; to understand how disruptors approach things. Why? When you know your enemy, you have a better chance of beating them. So, pour yourself a drink, put on this song to evoke the disruptor ‘spirit’ and listen up.
Disruptors don’t give a fuck about regulators
Incumbents are supposed to work with regulators to define the status quo of an industry. What actually happens is ‘regulatory capture’, the phenomena whereby incumbents actually make the regulator serve their needs instead of the regulator protecting the consumer and market. The total failure of the British and US Financial Service Authorities to protect the world from financial apocalypse in 2008 is a good example of banks capturing their regulator. What actually happens is that incumbents use regulators to kill innovation and stop new entrants from taking market share, thereby creating stagnant environments were the incumbents maximises profit over everyone and everything else. The appalling level of service from taxis around the world is another good example of this as the taxi mafia (used to) dominate city hall world-wide (more examples here). However, there’s a problem for incumbents: disruptors don’t give a fuck about regulators.
Disruptors don’t care what regulators think because they focus on doing their own thing. They just don’t give a fuck. This ‘zero fucks given’ attitude is something incumbents cannot do or even understand. For example, Uber (transport), Airbnb (travel) and Transferwise (international payments). Taxis, hotels and banks are running around crying because they are being disrupted and yet the regulators are usually unsympathetic… Why?
The problem for incumbents is that they have forgotten that regulators serve the consumer, NOT the incumbent. Therefore, when the disruptors create something so goddamn awesome that totally redefines the industry (e.g. Uber) then regulators re-align themselves to the disruptor. Regulators have always known that global taxi business is a giant mafia scam but have lacked the power to do anything about it. That’s why most cities actually welcome Uber; it breaks the taxi mafia, finally provides long-suffering consumers with great transport and reduces congestion. Big win for City Hall.
Rule number 1 for thinking like a disruptor: Forget the rules, create your own then get others to support your way of doing things.
Disruptors fucking hate you (not you, the incumbent firms)
True story; Uber was founded because its co-founders were partying in Paris and couldn’t get a taxi for love or money. Having been in a similar situation myself I can tell you that it’s true, taxis are impossible in Paris let alone late at night. Immensely frustrated, they discussed the idea of a driver-on-demand service and Uber was born.
It’s important to note that what drove them to create Uber was their intense frustration at the taxi-travel reality. Not a clever business plan, not billions of investment, instead it was pure and simple RAGE at the incompetence and injustice of the way taxis served customers. In other words, the founders were fucking pissed-off and decided to do something about it.
Most disruptors are driven by a deeply felt ‘mission’; a profound desire to ‘beat the goddamn system and build a better world’. It is important to understand that this is pure rage, a deep hate for what exists and a burning passion and desire to build something better. They live, breathe and burn to beat the incumbents. They are on the warparth to break the old system and build a new, better one in their own image.
We can see examples of this phenomena in Apple, SpaceX and Tesla; companies driven by visionaries who demand a better world and will fight to the death to make it happen. Incumbents don’t understand this rage because the truth is that they don’t really give a shit. For example, the leaders at most banks don’t really give a shit about their customers or consumers. How do I know this? Because if you care then you create. When you really care about something you are compelled to create a better world for it. All we get is excuses about ‘what’s not possible’. There is no fire, no desire, no sincerity in ‘building a better world’ and that is why the disruptors fucking hate you.
Rule number 2 for thinking like a disruptor: Find what you care about and fight to the death for it.
Disruptors want to get fucking rich
Just because they are driven by their mission doesn’t mean disruptors don’t want to get paid. They do, big time. For them, getting paid is much more than earning money, it’s a way of keeping score, money is a measure of their success. I repeat, they aren’t earning money because they want a nicer car, they want to ‘win’ the game of life by getting the high score and scores are measured in millions and billions of dollars.
Disruptors want to get fucking rich and the way they are going to get there is by stealing market share from the incumbents. They think incumbents are too slow and ignorant to fight back (which is usually true) and, therefore, focus on growing as fast as possible. They don’t compete with incumbents because they know the incumbent CAN’T compete (do you really think taxis can compete with Uber?). Instead it’s all about go-go growth. Highly aggressive and focused on massive growth, disruptors are single-minded in pursuing the high-score of life.
Rule number 3 for thinking like a disruptor: Focus on explosive growth that rapidly captures market share.
Today we lived in a disrupted world; the confluence of globalisation, Gen Y and accelerating technologies. There are a lot of disruptors with the above mindset and many, many more will emerge in the next 5 years. To survive, incumbents will have to fight them and win, adopting the disruptor mindset can help them (you) do that.
In our increasingly disrupted VUCA reality, more and more startups are seeking to disrupt existing incumbent players to steal their gold and glory. How can it be that the titans of today are worried about tiny minnows? To understand the fear, we need to understand the nature of disruption.
According to Clayton Christensen, the Harvard Business School professor who popularised the term, disruption occurs when a new product opens a previously underserved market category (new market disruption) or offers a dramatically cheaper and/or easier value proposition (low-end disruption). Disruption does not refer to products that are cheaper, faster and better. Instead, disruption describes products and services that serve new categories of customers that then grow so big as to change the rules of the game.
For example, the iPhone was disruptive because it offered smartphones to a whole new category of people who had previously never considered buying a smartphone, ordinary consumers like you and me. Pre-2007, Blackberries et al. were for business and tech geeks, not normal consumers. Apple’s genius was to offer a far easier device that fundamentally re-defined what a phone was to an underserved population segment, the normal consumer.
The key insight here is that in the beginning the incumbents don’t care about being disrupted because they are not losing profitable customers. They are losing customers who they can’t serve anyway or didn’t believe existed. For example, many of the consumers who bought iPhones wouldn’t have bought Blackberries. For a long time, many people had a Blackberry for business and an iPhone for personal use. However, these disruptive technologies can become so popular so quickly that they cause the entire market to shift rendering the incumbent irrelevant i.e. people don’t want 2 phones and since the iPhone was more relevant to more people it ended up winning.
A key point is that as the disruptor grows, it causes existing consumers to shift their preferences i.e. they prefer the advantages the disruptor provides. For example, the iPhone keyboard was initially not as fast as the Blackberry physical keyboard and there were business functions the Blackberry could perform better e.g. encryption. But for most consumers, this was not as important as the many advantages the iPhone offered e.g. touch screen, apps etc. Eventually, even business people preferred to use iPhones and the battle was lost. The disruptive iPhone caused the market to shift in ways Blackberry had not anticipated; Blackberry did not expect the massive shift to consumer smartphones and suffered as a result.
Why didn’t Blackberry see this shift coming? A final, and crucial insight about disruption is that the traditional incumbent cannot fight the disruptor because they lack the means to do so. Specifically, they will lack the strategy, technology and people to fight back. Blackberry couldn’t build a serious iPhone competitor even when it actually wanted to (5 years too late). The problem is that the incumbent is trapped in their old way of doing things and this prevents them from changing fast enough. It is the incumbent’s inability to transform fast enough that causes them to die.
How fast does the incumbent need to transform itself? As I showed in a previous post, the problem is that the incumbent, especially the senior leaders who lead (manage) the incumbent, fail to take the disruptor seriously enough soon enough. They wait too long to respond and by the time they really understand what is going on it’s too late. It’s too late because the disruptor is now growing faster than the incumbent can fight back. At a certain point, Apple and Android were growing so fast that Blackberry (and Nokia and Microsoft) had no chance of catching up. Specifically, it seems like 5 years is the magic number, by the end of year 5 the disruptor will be moving at an innovation velocity that the incumbent cannot match. By 2013, it was clear that Apple and Android had won.
Based on the above insight, we can create a simple disruption equation to understand who will win, the disruptor or the incumbent. Specifically, can the disruptor gain market share faster than the incumbent can transform itself to fight back? If this is true, the disruptor will win e.g. Apple. However, if the incumbent can change fast enough, it can fight back against the disruptor and protect itself e.g. Microsoft protecting its Office product against Google Docs. Therefore, the entire contest comes down to 2 specific rates of change; the rate at which a disruptor gains market share vs. the rate at which an incumbent can transform themselves to fight the disruptor. This is what I call The Disruptor Equation.
The Disruptor Equation; the rate at which a Disruptor gains market share
vs the rate at which the Incumbent transforms themselves to fight the disruption.
:) Disruptor growth rate > Incumbent transformation rate :(
The Disruptor wins because they will grow faster than the incumbent can change
:( Disruptor growth rate < Incumbent transformation rate :)
The Incumbent wins because they can regain market share faster than the incumbent can steal it
However, since most organisations today are over-managed, under-led and have little innovation capability (especially in finance…), the reality is that most incumbents will die when confronted with aggressive, fast-moving disruptors who have superior technology and are well-funded (hello fintech!). The reason why many startups today receive huge valuations is that the investors believe the startup will grow faster than the incumbent can respond. People invested in Airbnb, Uber and SpaceX because they don’t think the incumbents will be able to fight back and that these new players will capture huge chunks of the market at the expense of the incumbent. The truth is, they are probably right. Incumbents are terrible at transforming the way they do business and that is why many of them are struggling and going out of business, they were on the wrong side of the disruptor equation. RIP Blackberry.
PS. Bonus example for those who are keen:
A beautiful example of disruption is Airbnb, the platform that allows anyone to transform their home into a hotel. At first, it only served Gen Y travellers; an underserved customer category who couldn’t afford hotels and wanted a more local experience. Airbnb was disruptive because it served a new customer category. The company grew rapidly and then started to target traditional business travellers and is increasingly attacking traditional hotel markets. Today it is worth more than USD $30 billion, more than most hotel groups in the world. None of the billion dollar hotel groups in the world have been able to create a serious competitive response to Airbnb because they are stuck in their old models of charging you $15 USD for wifi and $30 USD for breakfast. There is a quote to describe disruptors: "first they ignore you, then they laugh at you, then they fight you and then you win." Airbnb has won the 21st Century travel market… for now.