Disruption

Welcome to the Part Three of a series of musings on Entrepreneurship. 

Disruption

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 World's first shopping mall - Southdale Centre, !956

Southdale Centre, opened in 1956, was the world’s first shopping mall. Designed by Victor Gruen, the shopping mall significantly disrupted the retail sector.

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.

Global Disruption

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 Sony Walkman

The Sony Walkman turned 40 this year, forever changing the way we listen to music.

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.

The Buggles - Video Killed the Radio Star

The Buggles predicted that the future of music would be visual, in the same year that the Sony Walkman was released.

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.

Local Disruption

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.

New Cafe

A new cafe format has emerged to cater to a new generation of patrons

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.

Nike 

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. 

Colin Kaepernick - Nike - Just Do It

Nike chose Colin Kaepernick to disrupt their customer base

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.

Gillette

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.

2.  Think

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. 

Thank you for subscribing to my blog. 

If you haven’t already joined my network, you can sign up here for free and please don’t hesitate to recommend my blog to any of your friends, family or colleagues who share our common interests.

With kind regards,

Martin Haese MBA

Next blog post: 

Part Four – Social Entrepreneurs – can the world’s problems be fixed by entrepreneurs?

Are entrepreneurs born or made?

Welcome to Part One of a series of musings on entrepreneurship.

Who and what is an entrepreneur?

Definition and history of the term ‘entrepreneur’

The Oxford English dictionary defines an entrepreneur as:

Entrepreneur. Noun. 1. A person who sets up a business, taking on financial risks in the hope of profit.

… and this is certainly what most people think of when they first consider an entrepreneur. However, the word is much older than you might think and its meaning has changed and continues to evolve over time.

‘Entrepreneur’ is borrowed from the French and is derived from the word ‘entreprendre’ which means ‘to undertake’, itself a translation from the German word ‘unternehmen’ – also meaning to undertake. The British, in their no-nonsense way, used the term ‘adventurer’.

What we do know about being an entrepreneur is that it requires both thought and action.

In the 16th century, the first French entrepreneurs were military men, ‘undertaking’ the building of roads and bridges for military purposes. Yet entrepreneurs existed before then and perhaps the most famous historical entrepreneur was Marco Polo, the Venetian born merchant and explorer who travelled extensively (and very profitably) throughout the near and far east.

Marco Polo in the court of Kublai Khan

Marco Polo at the court of Kublai Khan

It wasn’t until the 18th century, with the start of the first industrial revolution that the term began to be more closely associated with business and commerce.

In 1755, Irish born Parisian, Richard Cantillon penned an essay ‘Essai sur la Nature du Commerce en Général’ or ‘Essay on the Nature of Trade in General’ where he defined the term entrepreneur as ‘a rational decision maker who assumed the risk and provided management for the organisation.’ 

While contemporaries such as Adam Smith assumed that entrepreneurs were simply capitalists, Cantillon’s definition is more nuanced as it emphasised the role of the entrepreneur in assuming the risk and dealing with uncertainty, distinguishing them from the person or organisation who provided the resources. 

Perhaps more importantly, Cantillon’s definition did not limit the term’s usage to commerce and this is especially important in the 21st century with the emergence of intrapreneurs as well as social, political, and environmental entrepreneurs

I recall with amusement someone referring to me as a ‘Mayorpreneur’ when I was Lord Mayor of Adelaide between 2014 – 2018. Let’s leave that judgement to posterity.

In the 21st century, the term entrepreneur better describes a mindset or modus operandi and more succinctly describes someone who, regardless of their endeavour;

1. Creates and/or recognises opportunities

2. Assumes the responsibility for the risk involved in new ventures, and

3. Has the managerial skills to gather and deploy the required resources

Entrepreneurial stereotypes

Most of us would be able to name several, famous entrepreneurs and many would have an opinion on the reason for their success, but Hollywood and the MSM have a bit to answer for as more often than not, famous entrepreneurs are famous precisely because they are the exception to the rule.

One of the enduring stereotypes is that entrepreneurs are inventors and social misfits and you need look no further than Hollywood’s less than flattering portrayal of Mark Zuckerberg in ‘The Social Network’ or worse still, the focus on Howard Hughes’ obsessive compulsive disorder in ‘The Aviator’. 

More recently, in 2018, the world’s media focused on the space journey of Elon Musk’s Tesla Roadster while the launch of SpaceX’s Falcon Heavy rocket which put it there, was reported almost as an after-thought.

Elon Musk's Tesla Roadster was used as the payload for SpaceX's heavy rocket

Elon Musk’s Tesla Roadster was the test payload for SpaceX’s Falcon heavy rocket launch.

Spaceman, sitting in his Tesla listening to David Bowie, with the words ‘Don’t Panic’ inscribed on the glove box (a nod to The Hitchhiker’s Guide to the Galaxy) was certainly not an accident and some might argue that the launch of the Falcon Heavy rocket would have gone largely unnoticed by the 24 hour news cycle if not for its unusual payload.

You can track Spaceman’s extraordinary journey here.

Later that year, footage of Elon Musk smoking marijuana resulted in a drop in the value of Tesla shares and consumed the media for months. 

My point is that the world is becoming increasingly fascinated by entrepreneurs, even if we do not entirely understand them.

Quirky entrepreneurs are newsworthy and successful entrepreneurs know how to get attention.

Invention vs Innovation

Another myth is that entrepreneurs are always inventors. Sometimes they are but often they are not – or at least not in the way that most people may interpret that term. 

Entrepreneurs are always innovative, but not necessarily inventors. Perhaps a better way to describe entrepreneurs is ‘creative problem solvers’. 

Take for example Eli Whitney (1765-1825) who was responsible for one of the industrial revolution’s most important inventions, the cotton gin. 

In the late 18th century, while travelling to South Carolina, Whitney met the widowed Catherine Greene who invited him to visit her plantation in Georgia. As Mrs. Greene’s guest, Whitney constructed some clever labour saving devices for the household which led his host to introduce Whitney to a group of businessmen who were looking for a way to increase the efficiency of cotton production, specifically a way to separate the seeds from the lint which was, at that time, done by hand. 

With limited knowledge of the industry, product or production but a talent for innovation, Whitney invented his cotton gin which enabled a person to process up to 25 kilograms of cotton per day compared to the less than half a kilo when done by hand.

Eli Whitney's cotton gin (engine) transformed the world

Eli Whitney’s cotton gin (engine) transformed the United States economy and changed world history.

Backed by Mrs Greene and other investors, Whitney formed a partnership with Mrs Greene’s plantation manager with the intention of charging cotton growers two fifths of the value for cleaning their crop. Resentment at the price and business model, the simplicity of the design and primitive patent protection laws in 18th century America meant that the design was quickly copied but the cotton industry and national economy were significantly transformed. 

As the plaintiff in multiple lawsuits for patent infringement, Whitney did not get rich from his invention, however lessons were learnt, and Whitney was later credited with the development of interchangeable parts in musket manufacturing. It should be noted that standardisation and interchangeable parts was not a new idea – humans have been using the concept since Roman times but Whitney was one of the first to adapt the idea to a commercial scale in the manufacture of arms for the military.

Entrepreneurs can and do experience failure, however while Whitney may have failed to monetise the cotton gin for personal gain, his intellectual property was one of the most important developments of the first industrial revolution. It transformed the cotton industry and the national and global economies.

Ambition

Many entrepreneurs are business owners but not all business owners are entrepreneurs.

Most business owners have some of the traits of entrepreneurs. Identifying opportunity is one of the fundamentals of any business plan and business owners certainly assume financial risk in the operation of their business, but their business goals and personal ambition tend to be more modest.

Take for example a successful book shop owner, buying and selling the latest airport novels or even second-hand books from a bricks and mortar store. This model has served humanity well throughout history and there is nothing fundamentally wrong with earning a living through self-employment – until a disruptor enters the market.

Enter Jeff Bezos who has been many things in his lifetime, including a successful bookseller but selling books (or indeed any other product) wasn’t Jeff Bezos only goal when he founded Cadabra Inc in the mid-nineties. 

Cadabra Inc was, from the outset, a logistics company and every logistics company needs something to move around – in the early days it was books, but it soon became every consumer good you can think of. 

Cadabra Inc was renamed Amazon when Jeff Bezos’ lawyer pointed out that the reference (to magic – as in Abracadabra) was too obscure.

Are entrepreneurs born or made? 

One of the enduring myths about entrepreneurs is that entrepreneurs are born that way.

The nature vs nurture argument is as old as time and if we introduce that old English translation of entrepreneur as adventurer we might well ask ‘are children born adventurous or is it learned behaviour?’

Nature vs nurture - are children born adventurous?

Nature vs nurture – are children born adventurous?

In my experience, entrepreneurs are undoubtedly a product of their environment and there are common traits which support this view. 

For example, most entrepreneurs are likely to have role models – a family member or peer who has already blazed a trail – or they have had exposure to an entrepreneurial environment. 

Entrepreneurs are also likely to have had experience with product development, distribution, marketing and in other areas such as general management. They also embrace technology as an enabler of change. 

Entrepreneurs are likely to have had 8-10 years of experience working in their chosen field – long enough to have learned not only the ropes but also long enough to have observed its flaws and to have spotted opportunities. They have almost certainly been there long enough to have asked ‘why do we do things that way?’ and been told ‘because we have always done it that way’ (aka, one of the most dangerous phrases in business). 

Entrepreneurs ask lots of questions; of themselves, of others and of the future.

I have certainly had the good fortune of surrounding myself with entrepreneurs for many years and they come from all walks-of-life. However, without fail, I find their characters to be restless, searching and inquisitive and I almost always find them to also be inherently creative. They see opportunities ‘between the gaps’ and do not think in a linear manner.

Entrepreneurs also drive change. They are a catalyst for change in business and within society. In my observations, they are partly driven by leaving a legacy of change

Another trait I have noticed and I mention this without wanting to further hackneyed stereotypes, entrepreneurs share a mild (but healthy) sense of paranoia or perhaps heightened sensitivity and I have often wondered if this is linked to a different or even greater level of emotional intelligence.

I have also concluded that while entrepreneurs invest in their own ventures and those of others, they have a very different skill set from an investor, angel or venture capitalist. This then begs the question if entrepreneurs do it for the money? Personally, I’m not so sure that financial return is the primary motivating force. While everyone in business (entrepreneur or otherwise) seek a return for their efforts, entrepreneurs are driven by something more; something deeper. While some adventurers climb mountains, entrepreneurs satisfy their deep-seated quest for adventure by building great enterprises.  

“Having founded, built and sold successful enterprises myself, I have not as yet concluded whether I was an entrepreneur, a business owner or I just have entrepreneurial tendencies, or whether it is entirely situational.” 

Nonetheless, I have concluded that I am fascinated by entrepreneurship. I have met entrepreneurs all over the world, co-founded the Entrepreneurs’ Organization in my hometown of Adelaide Australia, attended global conferences and read several hundred books on the topic. I have just re-read a book by Tom Butler-Bowdon called ’50 Prosperity Classics’ which is a precis of many books on the topics of wealth creation and abundance. 

Now imagine if businesses, both large and small, were able to identify and harness that entrepreneurial mindset instead of sometimes creating an environment that pushes them away to potentially create new competition.

Thank you for subscribing to my blog. 

If you haven’t already joined my network, you can sign up here for free and please don’t hesitate to recommend my blog to any of your friends, family or colleagues who share our common interests.

With kind regards,

Martin Haese MBA

Next blog post: 

Part Two – Intrapreneurs – who they are and how to develop and grow them?