DISRUPTION, ANYONE?

AHI GVIRTSMAN, CO-FOUNDER AND CHIEF KNOWLEDGE OFFICER AT SPYRE - INNOVATION ECOSYSTEM DESIGN

YOU ARE STANDING NEXT TO A POND THAT HAS A SINGLE WATER LILY IN IT. AFTER ONE MINUTE, THERE ARE TWO WATER LILIES IN THE POND. AFTER ANOTHER MINUTE, THERE ARE FOUR AND SO, THE NUMBER OF WATER LILIES IN THE POND DOUBLES ITSELF EVERY MINUTE. AFTER AN HOUR, THE POND IS COMPLETELY FILLED WITH WATER LILIES.

QUESTION: HOW MANY MINUTES PASSED SINCE THERE WAS ONE WATER LILY IN THE POND UNTIL IT WAS HALF FULL WITH LILIES?

When the COVID-19 pandemic hit early 2020, the world population got a firsthand experience of what an exponential phenomenon looks like. The graphs below demonstrate the cumulative number of deaths in three countries. In two of them, Italy and Iran, it is clear that by the time governments realize that they are experiencing an exponential event, it’s too late to do something to stop it. For us humans, it is very difficult to intuitively grasp the behavior of such occurrences because we don’t experience them regularly in our daily lives. This had tragic ramifications in many countries around the world. Countries that have learned a lesson since then keep a constant eye on the rate of rise in infections, severe cases and deaths in order to “flatten the curve” early.

The answer to the question above is that the pond was half full after 59 minutes. If you got it wrong, don’t feel too bad. Many people do. This isn’t intuitive for us humans.

Now, let’s talk about the exponential nature of business disruption. Take a look at the two graphs below. Both demonstrate the exponential nature of a company disrupting a market. On the left, you can see Amazon’s revenues from their launch of AWS and on the right, you can see the revenues of Netflix from the moment it started till it became the market leader.

Those graphs look very familiar, don’t they? At the time that Amazon launched its AWS business, there were many companies making money off of data center equipment, physical data center services, data center consulting and so on. The impact of cloud computing and the impact of AWS and its counterparts on those industries cannot be overstated.

As for Netflix, in 2000, its founder had a meeting with the CEO of Blockbuster, the indisputable leader of that market and offered him to acquire Netflix for $50M. In 2006, Netflix crossed the $1Billion mark and in 2010, Blockbuster went bankrupt. Think about it for a minute. In 10 years, a company goes from being nothing to a global leader that causes its predecessor to go bankrupt. Let me ask you a question. If I placed you in a time machine and sent you to the year 2006 as the Blockbuster CEO with the knowledge you would be disrupted and go bankrupt in four years but no knowledge of the exact cause, what would you do? What could Blockbuster management have done about it in 2006 even had they known? Four years considering the lifespan of companies is merely a blink of an eye.

Going back to the pandemic analogy, what management teams must do is to constantly survey the landscape and understand the opportunities and threats that are out there. The answer may have to do with flattening someone else’s curve or leveraging a trend to ride a curve of your own.

For example, let’s say that a transportation company offering a taxi service to and from airports realizes the disruption imposed by Uber in time. What can be done? Here are a few ideas: Since the appeal of Uber is that it orders the service via an app, the company can develop an app that allows the transaction to be cashless and the ordering much faster. It could make sure that its drivers wear a uniform and give the passengers a VIP level service in order to differentiate from the more variable nature of Uber driver quality.

The point is that when disruption hits, a company has to keep asking itself what it means and adjust, then ask again, and adjust again. In other words, companies that are being disrupted must adopt an entrepreneurial mindset and practices. This doesn’t mean that the entire organization has to now transform itself all at once. A company that has 1,000 employees, a management hierarchy and a certain employee evaluation and compensation system in place all created around the existing way it does business, will not change itself fast enough. What it can do is create enclaves of entrepreneurship within the company that with the right guidance will cause the company to try numerous options, fail and correct course in parallel to what it already does while leveraging the resources and strengths that it has as an established company compared to any newcomer.

MY FINAL MESSAGE TO YOU IS THAT REGARDLESS OF THE INDUSTRY YOU’RE IN, IF YOU ARE NOT ACTIVELY DISRUPTING RIGHT NOW THEN SOMEONE ELSE IS DISRUPTING YOU. REMEMBER! BY THE TIME YOU REALIZE THAT YOU’RE BEING DISRUPTED IT’S TOO LATE TO DO SOMETHING EFFECTIVE ABOUT IT. YOU MUST ACTIVELY SEEK THOSE POTENTIAL DISRUPTORS AND BREAK THEIR CURVE BEFORE THEY BREAK YOURS.