Is your business or industry ripe for disruption?

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The term “disruption” continues to be overused in our economy, so defining exactly what it is vs. what it isn’t also continues to be difficult. I offer a basic view of disruption that can help before reading this article, should you need more context.

There are two main benefits to understanding disruption. The first is having a better idea of how to be the disruptor. The second is how to realize its threat to you and guard against it, if possible.
First, let’s take a closer look at a service model that has been wrongly identified as disruptive, but fits the model in a different way in the end.

Rideshare services like Uber and Lyft are pretty commonly termed as disruptive, even to the point of being used as prototypical examples. But, this may not actually be true. The originators of the disruption concept themselves (Christensen et al.) determined that Rideshare services (Uber specifically) are not disruptive. This might seem counterintuitive, but their reasoning is sound.

They explain that rideshare services are often cheaper, but only competitively so. Uber and Lyft don’t offer car rides for considerably less than traditional taxi services; they don’t serve a low-end consumer market. Also, rideshare services are not drastically different. They started by allowing users to hail a ride using a mobile app, but many taxi services have replicated that technology already. (And, technology isn’t what makes something innovative and disruptive; it’s the activities that surround the technology). Nor do rideshare services offer a scaled down version of the service. Were they golf carts or rickshaws, maybe, but they’re still rides in cars, so that’s the same.

For all these reasons, rideshare services like Uber and Lyft are not to be considered classically disruptive. And, I agree with this. But, this is where it gets interesting. It’s true they’re not, but only from a consumer/rider standpoint. I argue the success and rapid rise of rideshare services are due to disruption, but at the driver level.

It’s the acquisition of drivers that undermined the taxi industries in major cities. Compared to becoming a taxi driver, becoming a rideshare service driver was laughably easy. A recent article in the Guardian details how truly expensive and difficult it is to becoming a taxi driver. Locations like New York City require a medallion to become an independent taxi driver. A single driver medallion can cost between $500k to $1m or more. They are purchased with debt and loans and mimic buying an existing business or franchise.

True “disruptors” don’t start business as direct competitors. They begin by undermining incumbent strongolds.
Drivers have to work decades to pay them off. Drivers that can’t or don’t want to get their own medallion can work for a taxi service. These services own the medallions and require drivers to either rent vehicles for each day or treat them as employees (remember the 1970’s show, Taxi) and pay them an hourly wage for driving. In both of those cases, the drivers are usually required to work long shifts of 10 to 12 hours to make their time worth the expense.

Disruptive Qualities of Rideshare

Becoming a rideshare driver is purposely simple. The criteria generally include a car that is less than 10 years old, in good condition, and a good driving record with a background check. Plus, drivers are considered contractors so they only have to drive as much or as little as they want. They’re even allowed to be drivers for rival rideshare services. Because of this, it’s the acquisition of drivers that make rideshare services like Uber and Lyft disruptive.

Serves the low-end price market. If drivers already own a car, there’s virtually no cost to becoming a driver. Rideshare makes its money through revenue sharing with the drivers, no medallions or rental fees involved. This serves a previously untapped market of potential drivers.

Offers simpler experience. Another hallmark of disruption, this experience of driving only when you want and whenever you want greatly simplifies the scheduling of long and inconvenient shifts experienced by traditional taxi drivers. There’s little opportunity to be a part-time taxi driver. Whereas rideshares actually encourage part-time work and therefore open themselves up to a large segment of drivers who would never consider driving a taxi full-time.

Undermines the barriers-to-entry. This is the real disruption rideshare offers. The barrier-to-entry held by traditional taxi services (where selling medallions or managing driver fleets) are completely dismantled by rideshare services. Being significantly cheaper and simpler while offering far more autonomy makes driving for a rideshare services dramatically more inviting than becoming a taxi driver.

It’s this undermining that allowed services like Uber and Lyft to become legitimately disruptive in the driver marketplace. Their rapid acquisition of drivers allowed rideshare companies to achieve the necessary critical mass to compete with traditional taxi services in major cities. It wasn’t the consumer price, mobile app technology, or branding that allowed rideshare to be accepted by rider consumers; it was the sudden ubiquity of being able to find a rideshare driver and avoid the taxi experience altogether.

Disruption risk markers

Lack of alternatives, limited options. If the activities of your business or market offer limited options that restrict consumers (even middle-market “consumers” like drivers or other workers) you’re at risk. Releasing your reliance on controlling the marketplace through limited options allows your business to keep some control by offering alternative and innovative options before a disruptor beats you to it. For decades the dental industry had a hold on straightening teeth. Essentially, an orthodontist fitted patients with uncomfortable and expensive metal braces. However, the recent rise of “invisible” moulded tooth straightening products sidesteps the need for a traditional orthodontist and the previously limited product of metal braces.

Corruption or lack of transparency. An industry rife with insider deals, abusive practices, and a high level of opacity between the upper echelon leadership and everyone else is asking to be disrupted. They alternative disruptors easy areas to differentiate themselves and steal both consumers and and workers from that industry.

Disruptive activities often begin “outside” of a market making them easily disregarded by incumbents.
Banking’s credit card industry is potentially in this position. They may feel the barriers-to-entry are too high and their hold on the market absolute. Therefore they can continue to offer poor service, high fees and expensive penalties. But, if we pay close attention to the rapidly advancing alternative payment methods such as Venmo or even cryptocurrencies, they could be in for a rude awakening in the coming decade.

Serving a mid to high-level market only. The taxi industry served only those drivers who had the ability to purchase expensive medallions and drive full-time. The hotel industry, especially in big cities, served only those who could pay hundreds of dollars a night just for somewhere to sleep. In its early days, AirBNB served the lower-level price market, undercutting the costs of hotels in the same area with accommodations offering the barest essentials. And, in classic disruptor progress, the quality of their rooms increased to directly compete with chain hotels. AirBNB succeeded in following the disruptive path of emerging as a legitimate competitor to the shock and dismay of incumbents.

Innovation stagnation from the incumbent. Incumbent businesses often don’t feel the need to innovate when they’re at the top of the market. Business is strong so the urge to find new offerings or activities can be virtually nonexistent. But, it’s this hubris that allows disruptors to own the innovation space instead of the incumbents. And soon, those lower-market disruptors move up to become direct competitors. At this point, attempting to innovate is often too little too late for the incumbents. Consider Kodak. They had the opportunity to innovate with digital cameras and online photo storage, but opted to stick with investing in film.

Many that do understand authentic disruption are eagerly attempting to establish themselves as disruptors. Incumbent businesses must be at least equally vigilant against how they can be disrupted. They must also take advantage of their established resources to innovate even in the midst of being at the top of a market.

Need more? Read about Authentic Innovation.

Overview

The Strategic Web is an independent consultancy focused on innovation strategy. I help businesses and organizations develop strategies to differentiate themselves in the marketplace and progress out of static practices.

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Scott Hutcheson
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scott@thestrategicweb.com