I have written and spoken many a time on Disruptonomics, the economy of rapid change we now live and survive within.
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 Lovefilm, Tower Records fell (as did HMV before its recovery) to the new music world driven by Apple, Spotify and others.
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 is failing badly and putting 64,000 jobs at risk with $5bn in debt at a time where customers can order online quicker, faster and cheaper. Amazon Toys reputedly did $4bn revenue in the USA 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 now 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 whom 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 as 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. To really transform to align to the new world can be painful, risky and unpalatable for many. The first discussion that normally occurs is how does this affect what we’ve got, our existing revenue, profit and valuation. What CEO and board is willing to accept that to get to a more successful new foundation for growth, that they may have to go backwards before going forwards. Facing a drop in revenue or profits, a stock price drop on the promise of future gains is a painful one that puts most into a ‘do what we can but don’t commit to that’ mode!
And for this reason, we see many dipping their toe into the new world order, but not truly committing and wondering why new Unicorn, new born companies with no legacy ball and shackle holding them back, accelerate, disrupt and take business from them. This usually resulting in the same outcome they sought to avoid, deficits in revenue profit, growth and share price. But this was done to us, not to ourselves so were not at fault. This was out of our control, it’s the market, its customers being fickle; blame anyone but themselves for the short sightedness and protective nature from old world thinking. 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.
There is no doubting a need to transform and across sectors, In the IT sector itself, Microsoft famously re-invented itself as the Cloud company over the last 5-7 years, moving at one point 95%+ of its development to cloud to all in and ensure it happened. Oracle, SAP and others have followed, publicly mandating their commitment to cloud as not an option! In Banking we are seeing challenger banks such as Metro Bank and Number26 (N26), challenging old traditional models to better serve the customer of today.
The customer and buying dynamic has changed. The customer offered a simpler, faster and more convenient to their modern life option (sometimes cheaper as well often simply comparable) will change from a legacy brand to a new name quickly. We have seen this proven with Amazon, Uber, AirBnB and will see an increase as customers become more app and new world accepting.
The clear message is a need to understand and be willing to bet on future success over existing status quo and to take step backs as ways to step forwards and acceptable and needed risks for survival.
We are already witnessing the start of a 2nd 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 3rd party vehicle. They have launched Uber Eats (Food delivery) and Uber Rush (Parcel Delivery) and you can see the similarity with how Amazon entered our world as a Book seller, only to widen the platform to other products rapidly.
Amazon as a case in point is a multi-disruptor; firstly in online e-tailing, then onto Video streaming, through to the providing of providing its own cloud services (having had to build for its own use) and 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 online through to true content production and ownership which now threatens the traditional broadcasters. We can expect to see these disruptive companies gaining power through success and revenues and divesting themselves into other markets where they can take on the historic names at their own game.
In the coming 3-7 years we will unfortunately witness more of these legacy brand name failures hitting the news and if you are sitting their now thinking you don’t need to change, think again.