Welcome to the Part Three of a series of musings on Entrepreneurship.
What is disruption?
Welcome to the Martin Haese Report. If you have already read my previous posts about entrepreneurs and intrapreneurs, you will have noticed that one word has influenced both - disruption.
For the last decade or so, the word ‘disruption’ has usually been preceded by the word ‘digital’ and many businesses have gone down the path of building their digital footprint with websites, online stores, blogs and dedicated social media teams.
These platforms are all valuable tools for businesses and even the humble corner shop should, at the very least, consider updating their details with Google. However, each of these digital tools are just that - tools.
I closed out my last post in this series with the statement:
“For many years, the biggest threat to most businesses was competitors with cheaper prices - a relatively easy problem to counter, but over the last decade or so it has been competitors with better ideas.”
Disruption happens when a new idea is enabled by technology.
I cut my teeth in the retail sector and retail has a long history of disruption. From the first chain stores of the Hudson Bay Company in the 1670’s through to mass production made possible by the first industrial revolution, disruption in the retail sector has been ever-present.
The advent of the department store in the mid-19th century, vending machines and mail order in the 1880’s and supermarkets, big box stores, credit cards and suburban shopping centres in the mid-19th century were each significant developments resulting in various levels of disruption. This has all happened in an industry that the pundits first pronounced dead in the 1880s when the Sears catalogue was produced.
In the last quarter century, we have seen a sharp acceleration in the pace of new technology and with it, an explosion of new ideas.
Suddenly, anyone with a computer can open a shop and take orders from around the world, but it will be new and better ideas that determine which ones will be successful or not.
In my last post I talked briefly about the epic disruption caused by the widespread use of the iPhone and I used it as an example of how it upended the photographic industry in a very short period.
By enabling access to the internet, smart phones became increasingly indispensable and adding a camera meant that our way of thinking about photographs was always going to change.
Smart phone technology didn’t happen in isolation - it required big leaps forward in both internet connectivity and wireless technology, but it has disrupted and destroyed many industries and created many new ones.
Happy 40th birthday - Sony Walkman
The Sony Walkman turned 40 on the 1st of July this year and it is important because this unassuming little box changed many lives.
The recorded music industry emerged as a disruptor to the sheet music printers at the beginning of the 20th century. Phonograph records had been available since the 1880’s but back then, new technology took a little longer to catch on.
Recorded music enabled broadcast radio in the 1920s which brought music to the masses and with it came an explosion of artists, record producers, sound engineers, recording studios and companies, record player manufacturers and record stores.
Many industries emerged from that first idea and the music industry grew apace.
Video killed the radio star … or not?
Video Killed the Radio Star by the Buggles was released in 1979 and the song predicted the demise of records and cassette tapes. It was, unsurprisingly, the first video aired on MTV in 1981.
Coincidentally, the beginning of the disruption of the music industry began in the same year with the release of the Sony Walkman - it was the triumph of an extraordinary idea over an otherwise good one.
Up until that point, music wasn’t very portable - at least not in the way it is today. Radios, record players and cassette decks were getting smaller, but most people still listened to recorded music in their cars or more commonly in their homes.
Music videos seemed like the next big thing, a logical next step forward. However, music videos weren’t revolutionary as adding visuals didn’t radically change the way people listened to music, only their visual appreciation of it.
The revolutionary development or ‘better idea’ was in fact allowing people to listen to their favourite music anywhere and at any time and the industry continued to grow.
So, where did it all go wrong?
Even better ideas.
Advances in technology led to digitised music in the form of the compact disc and later digitised music files, stored on your device or on the cloud - streamed, downloaded and endlessly shared.
By making the physical product redundant, the music industry has saved billions of dollars but that in turn has led to the demise of many jobs in the associated industries that supported it.
Some argue that it has also affected the quality of new music - when people paid for records, we had David Bowie - now we’ve got Chris Brown.
Global disruption is usually easy to identify but what of the small-scale disruption going on around us every day?
Talking to business owners, I have noticed that many are doing it tough while others seem to be doing better, and this is most apparent in the food and beverage industry.
In the last few years we have seen the emergence of a new kind of business owner, one who is both entrepreneurial and curatorial.
This new retailer has observed a niche in the market and has created and ruthlessly curated their business to that fill that niche.
A tale of two cafes
Not that long ago, successful cafes were much larger and had seats for 80+ people.
They sold coffee and served a tried and tested menu of focaccia, bruschetta, pizza, pasta, cakes and ice cream - something for everyone.
Patrons would find a table, then go to the counter to order their food, shuffle across to another counter to order their drinks and come back with a table number and wait for their food.
This format worked well for a long time but lately that format has been challenged by a new type of cafe.
For starters these new cafes are harder to find. They pop up in the least expected places. They don’t always want or need a mainstreet shopfront and they don’t need to pay inner-city rents because there are plenty of customers and very little competition in otherwise under-serviced suburbs.
These new cafes are a lot smaller and less likely to be fitted out by a commercial shopfitter - they often have mismatched chairs and tables and the smaller size means they are quieter and more intimate.
Most of these cafes offer a wide selection of vegan and gluten free options because they know that an estimated 12% of Millennials identify as vegetarian or vegan and the percentage of Generation Z is likely to be even higher.
Don’t be surprised if your cup and saucer or knife and fork don’t match - it’s almost as if they’re saying, “who cares about the utensils - we’re all about the food.”
The lessons for traditional retail
If food and beverage operators are finding niches and exploiting them, why aren’t other sectors of the retail industry?
There is an orthodoxy that every retail business should be heavily data driven like the Fast Moving Consumer Goods (FMCG) sector - an orthodoxy that involves no human curation and puts them into direct competition with the likes of Amazon.
I recently read this from Seth Godin in a blog post about curation:
“Amazon is good at selling everything, but they’re terrible at selling a thing … The platforms (Amazon et al) are built on the idea that the audience plus the algorithm do all the deciding. No curation, no real promotion, simply the system, grinding away. This inevitably leads to pandering, a race to the bottom.”
He goes on to say that, in the past:
“Curators and their curation led to promotion and attention. There was a cost to picking junk, and a benefit to earning trust.”
and it is this trust that builds customer loyalty much more effectively than a rewards card or complicated points scheme.
You can read the whole post here
It is also entirely possible that many retailers have failed to change with the generational shift in the market. In some cases, the business practices that made them successful and endeared them to the Baby Boomers and Generation X are now their biggest liability with Millennials and Generation Z.
Disrupting your own customer base.
What do Nike, Michael Hill Jewellers and Gillette have in common?
Until recently, they all had a younger target demographic but an older client base - the customers that made them successful were becoming their liability.
When you think of Nike, Nike wants you to think of young, lean and strong sporty types, but their loyal customer base is often the exact opposite.
Michael Hill was just another jeweller selling expensive baubles to Baby Boomers using the imagery of Generation X.
Gillette is a heritage brand and part of the global Gillette/Schick duopoly for razors, both are under increasing pressure from subscription razor models (another ‘better’ idea)
Millennials are just as rebellious as every preceding generation and wearing the same brand shoes as your dad or the same ruby earrings as your grandmother was never going to wash with them.
Faced with this reality, those companies made concerted efforts to win Millennial customers by deliberately letting go of some of their existing customers.
Colin Kaepernick, Quarterback for the San Francisco 49ers, began protesting his country’s treatment of minorities in 2016 by kneeling during the national anthem and he continued to do so at every game throughout the 2017 season.
Many Americans were incensed and Kaepernick was heavily criticised.
Under increasing pressure, Kaepernick opted out of his contact to become a free agent but was not picked up by another team.
While standing up (or kneeling) for what he believes in did not align with any of the other NFL teams brand values, another brand thought Kaepernick was a perfect fit.
In September 2018, Nike launched a campaign to celebrate the 30th anniversary of their “Just Do It” tag line.
The campaign featured Serena Williams, skateboarder Lacey Baker and others but it was the inclusion of Colin Kaepernick that ‘inspired’ some Nike wearers to make YouTube videos of themselves threatening to boycott the brand and burning their Nike branded T-shirts and socks.
It would be easy to think Nike misjudged public sentiment, but I would argue that Nike doesn’t make mistakes like that. It was instead a calculated attempt to distance themselves from people they didn’t want to wear their brand in order to attract people they do want wearing their brand.
The campaign resonated with Millennials and Generation Z and Nike sales and shares soared in the direct aftermath.
Michael Hill Jewellers
Support for marriage equality has been high in western democracies for at least the past decade but especially amongst younger people and inter-racial marriages barely rate a mention.
But still, there was controversy and like many other things that older generations get ‘worked up’ over, most Millennials simply couldn’t understand what the fuss was about.
This sentiment was fertile ground for marketers tasked with differentiating their client from their competitors and in 2015, Michael Hill Jewellers released their stunningly beautiful ‘we’re for love’ campaign.
This two-minute-long advert marked a departure from hackneyed jewellery advertising with their unrealistic portrayal of glamorous women on the arms of handsome men or sparkly product shots.
This ad shows product but if you blink you will miss it - the focus here was on real people and real love, no matter what form that takes.
I remember bumping into a jeweller after this ad was released and it came up in conversation. He was shocked that they chose ‘such ugly models’ by which I assumed he meant ordinary people.
This ad signaled to younger people (by far and away the largest target market for wedding and engagement rings) that Michael Hill was the destination of choice.
There’s nothing trendy about razor blades - at least not since the heyday of Punk Rock in the 1970s and it’s difficult to instill brand loyalty in what amounts to a grudge purchase.
Until recently, the razor blade duopoly had little competition but the subscription models have chipped away at the younger market (older users generally don’t buy their own blades) by removing the hassle of having to remember to buy them, then lining up at a special counter and having to ask for them because they aren’t kept on the shop shelves.
Earlier this year, Gillette set out to win Millennial hearts and minds with an advert squarely aimed at toxic masculinity with the ad riffs on Gillette’s tagline asking, “is this the best a man can get?”
The ad caused an immediate backlash from some consumers and again, angry customers posted videos of themselves binning Gillette products on YouTube.
But for many, the ad tapped into the horrific revelations exposed by the #metoo movement and shone a light on other aspects of society that are all too often tolerated or excused.
Here was a big corporate calling out bad behaviour, no matter the cost of doing so.
It is difficult to gauge the impact on sales, Gillette reported that sales were down 3% on the previous year but without access to historical sales data, we don’t know if 3% down on last year is an improvement in their long-term sales trajectory.
We do also know that Gillette management reported post campaign sales were in line with pre campaign sales suggesting that Gillette gained as many customers as they lost.
5 ways to become a disruptor.
1. Embrace disruption
When speaking to business owners about disruption, they invariably see it as something they must counter rather than something they should be actively encouraging.
I can guarantee you that your competitors who are growing and thriving, those ‘challenger businesses,’ have a very different view of disruption - they see it as an opportunity. It often helps to cast your mind back to where it all started and think about how you would open your business today, knowing all that you know now.
I recently read about a senior executive who displayed a large framed poster in front of his desk that simply read ‘THINK’.
His reasoning was that we all spend far too much time working in the business rather than working on the business and the poster was a constant reminder to stop occasionally and think about the bigger picture.
When I owned my retail business, I consciously set aside most Fridays to work ‘on’ my business and not ‘in’ it. I credit this discipline as being one of the key reasons why the business was able to achieve size and scale faster than many others.
I often break the process into smaller pieces, concentrate on one aspect of the business and depending on the situation put myself in the customer or employees’ shoes before looking for pain points and opportunities.
3. Competitor analysis
Every now and again, someone will ask me for business advice. If it’s an industry I’m unfamiliar with, I will often ask what their competitors are doing and I’m frequently shocked by how many people say they don’t know.
Getting out and about to see what the market is doing is one of the most important things you can do - If you don’t, you’re running your business in an echo chamber.
4. Educate yourself
You’re already reading my blog so that’s a great start but also consider booking yourself into an industry conference or trade show, take a short course in social media marketing or read books or listen to a business podcast.
I am a voracious reader and often come across books, biographies, journals and articles that I sense you would benefit from. To provide you with even greater value, I will soon share some of these with you in future posts on the Martin Haese Network.
You have the entire sum of recorded human knowledge at your fingertips - use your time wisely.
5. Ask for help
Nobody expects you to have all the answers, so ask for help.
Your first step is to ask your employees (see The Talent Within: Entrepreneurial Employees) but failing that, customers, colleagues, close friends and family each have different perspectives and they all want to see you succeed.
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With kind regards,
Martin Haese MBA
Next blog post:
Part Four - Social Entrepreneurs - can the world’s problems be fixed by entrepreneurs?
Your enthusiasm for building businesses in SA is admirable and I enjoy reading your blog. I do have an issue though that I wish to address, if I may.
While I try and step around the use and application of political correctness I do recognize a bit of slight when I see it. Perhaps it is just reflective of your rationale of the concept ‘disruption’. Take for instance, “Until recently, they all had a younger target demographic but an older client base – the customers that made them successful were becoming their liability.” Isn’t a sale a sale? Why does a business have to consider the older client base a liability? Not only does this teach others to be ageist, it diminishes the concept of community, respect for others – and reinforces the concept of money as being the bottom line. And Nike is hardly exemplary of right corporate conduct as we well know, using child labor in 3rd world countries to make their products. The slogan “Just Do It” was taken from a death row inmate’s last words. I would prefer to buy a product from a company with solid corporate ethics – well beyond the usual rhetorical spin. And, no, not even a tear jerking advert will entice me. What is wrong with targeting multiple demographics in an ad campaign?
Back to the oldies for a minute. “When you think of Nike, Nike wants you to think of young, lean and strong sporty types, but their loyal customer base is often the exact opposite.” In the latest issue of Life Extension magazine there is a photo of a 67 year old athlete who doesn’t look a day over 39. She is lifting weights and promoting her health regimen. The science of longevity is becoming more accessible and allowing many to embrace the possibilities of an extended life span. Read Harvard researcher David Sinclair’s latest book Lifespan. What if companies are missing out on a customer base because of their age bias or being out of touch with what is going on in our communities.
Rather than using the word ‘disrupt’ (too close in etymology to the word ‘corrupt’) why isn’t the concept ’embracing the possibilities’ being used? Instead of promoting a short-term, disposable mindset that seems to have infiltrated every aspect of politics, let’s start building a community of businesses that have something of value to offer -beyond an empty advert, slogan or shareholder listing.