Do we need government? What purpose should it serve?

The news these days is mostly about the train wreck that is Brexit, the controversies swirling around Donald Trump, the election rhetoric from India and Thailand, the chaos in Venezuela and other such high profile leadership debacles and debates. I’ve started to wonder what all these politicians and so-called leaders actually do for the benefit of their country and its citizens.

The thing is, being the prime minister or president of a country (or even lower down in the order, being an elected representative of any sort) seems to have become associated with power, with being able to drive the agenda that the individual is aligned to and with being very selective about recognizing the will of the people.

You’ll notice all of the examples in my first line come from countries that purport to be democracies. I’m excluding China for the moment from this train of thought, although I’ll come back to that in a bit.

So, here’s the thing. In most of these countries, we, the people, elect these leaders. The funds that allow them to be paid and to do whatever they do come from our taxes (for the most part). Therefore, according to me, they should be set up to serve the people, not lord it over them. Right?

Let’s examine that in a bit more detail – what does a government actually provide its people? Broadly, it can be defined as a framework and facilities for living your life. So, there’s defined laws that protect people’s lives, livelihoods and property. There’s infrastructure in terms of roads, public facilities, some kind of central bank reinforcing the rules around money, armed forces and civil defence forces of various sorts to provide protection. Governments deal with other governments and make some rules around how people or markets situated in different countries interact with each other, how easy it is to get into and out of other countries, trade with them, hire people from them and so forth. Also, in most countries, there is some kind of welfare net to take care of the unemployed. All of this is designed to allow people to live their lives freely, enjoy their rights while being conscious of their duties and generally live in a state of security and peace of mind.

If we go back a few thousand years in history, those needs were met in different ways. There was a feudal society where your feudal lord provided all of those things, in a way, but exacted a price in terms of having rights over your property, cattle and often even your life. Which wasn’t great, obviously, if you were at the lower end of society where you didn’t get much out of the system but got exploited by everyone above you. If you look at America about 200 years ago there was very little rule of law – everyone carried a gun and if you had a difference of opinion or a point of law with someone (like cheating at cards, for instance) you expressed yourself with bullets. If you were transporting goods a long way, across countries on the Atlantic ocean or over land across the American continent, there were pirates, highwaymen and others quite keen to part you from your property. Often when you got to the other end you were at the mercy of the buying party because it was too isolated a place to be able to feasibly threaten to take your stuff back, so you had to sell even at poor terms.

Is the world today much better? We may not have a feudal society but more and more, we’re seeing politicians dividing society with their political planks – using religion or race or outlook as a convenient basis for defining tribes and drumming up support. If you happen to belong to one of the “us” tribes then everything is fine, but if not you’ll find, slowly but surely, that you’re disenfranchised and discriminated against. We have countries in which delusional, misguided or malevolently inclined people can get hold of highly dangerous weapons and wipe out dozens of people before anything can be done to stop them. We have two plane crashes that can be attributed to poor administration of aircraft certification and training procedures rather than natural causes or pilot error – which fall into the province of civil aviation boards that are government departments. We have a complete mess over Brexit in the UK, a demonetization disaster in India and a record breaking government shutdown in the US. We don’t know who is the legitimate president of Venezuela but we do know the economy is in the toilet and people don’t have their basic needs of food being fulfilled. We have Russia annexing Crimea and nobody seems to care, but the moment there is any kind of unrest in an oil producing nation the whole world wants to get involved.

Did the people in any of these countries ask for this stuff to happen? Is this what they wanted when they paid their taxes?

We may all want different things and in the normal course of life, we’ll figure out how to get them. We don’t need so much government and we definitely don’t need the entire apparatus of politics leading up to the selection of a government.

It’s time for people in democracies to stop focusing on which political party or politician to vote for. It’s time to start defining expectations for government – as paying clients for a service, we need to define what that service should be, how it makes priority calls between different customer groups and how, overall it serves the greater good of all.

One last word here about China, which gets a lot of stick for not being a democracy. True, it isn’t a place where people get to choose who runs the country, but somehow, the system has, for about 3 decades now, delivered governments that have run the country extremely well by anyone’s standards. The economy has grown, infrastructure is the envy of most countries, per capita GDP has grown, entrepreneurs have thrived and the vast majority of people here are extremely proud to be citizens of China. While certainly you can argue that the leaders of China are very powerful indeed, their focus and efforts seem to be on doing stuff that’s good for the country rather than displaying their power. Perhaps they’ve understood the concept of leadership being a responsibility to serve, something that has escaped the attention of most leaders in the so called democracies on our planet. Anyway, I recognize that this system isn’t ideal and I’m not advocating that we abandon democracy and embrace a one party state, just saying that democracy isn’t as democratic in its output as we all think it is.

Governments are meant to serve the people. Not the other way round. If they fail at that purpose perhaps we should examine the option of privatizing the key services that a government provides. Security, infrastructure and financial and legal frameworks all exist because we agree that they do – we don’t necessarily need a government to enforce them. Blockchain is a great example, although far from being mature enough to put a lot of applications on it. Privately built infrastructure that levies fees for usage, decentralized security services that any citizen can leverage… all of these things are possible and entrepeneurs are starting to think about them and do them. When most of these things become self-regulated / private enterprise services, perhaps we will see someone actually bidding for the right to run a country for 5 or 10 years, promising certain KPIs and having a management contract with a bonus attached to it.

What should we do in the meantime? I feel like it’s time for the politicians to respond to what people really want – almost like a charter of expectations that citizens vote on and then present almost as some kind of brief for anyone who’s willing to do the job. It could be a single political party that responds, it could be a coalition of parties or even politicians across parties. Perhaps it could even be regular people stepping up to the plate and putting together a convincing team and resources to do the job.

Money and wealth on Planet Earth – an Alien perspective

Sometimes the best way to think disruptively about something is to try and imagine it from a completely different perspective – to which end I was trying to imagine what an alien might think some of the oddest human practices and beliefs are. Here we go…

Money and property ownership

Money is one of the oddest things you humans have ever invented. It allows some people to be very rich and have the ability to acquire things beyond what they can really consume – while some people really need to consume something but don’t have the means to acquire it. If you go back to the beginnings of your world, food and shelter were your most basic needs. Food was available and free in nature, as was shelter – but in limited supply that ensured a natural limit on population.

In your world today, there are often situations where a certain group of people needs food or shelter, there is surplus food and shelter available for use, but your rules around property ownership and money prevent it from being used by the people who need it.

Money itself is a neat idea but it needs to be applied to non-necessities. You cannot withhold food and shelter from someone who’s starving or homeless just because they don’t have money. You can withhold a smartphone, car, software or some of the higher order products of life, but not the necessities.

The second element of that which needs examining is the concentration of wealth. If 8 chartoftheday_7585_the_worlds_staggering_wealth_divide_nindividuals on Earth own as much as the bottom 50% (that’s 3.5 BILLION) of your rapidly growing population, clearly that is an imbalance that needs to be corrected. How? There are many ways – perhaps by increasing tax rates for any income or wealth beyond what is considered a healthy maximum and making that money available for public benefit. Another way is to limit what can be inherited, thus ensuring that the families of the rich do not inherit a permanent, unbalanced advantage. (Infographic from Statista, backlink here)

It is heartening that certain individuals on your planet – notably Bill Gates and Aziz Premji – devote a large part of their resources to helping other people. Nonetheless, it is clear that the vast majority of people with more resources than they need tend to hold on to them rather than redistributing them to those in need.

Why would people work hard then, you might ask? The answer may lie in still allowing for a gap between the ability to have the means to exist at a basic level of human comfort and to have access to finer things in life. Everyone should have access to the basics but only those who go beyond and create greater value are rewarded with the ability to consume non-necessities. Nobody is left with so much purchasing power that they can never use it within their lifetimes, so there is a cap on maximum wealth and income and the rest is used to fund the basics for everyone else.

Cameras, MP3, video recorders… what will smartphones disrupt next?

img_20190301_170411.jpg
Digital camera user at Beijing’s Bei Hai Park, a vanishing breed

Statista-Infographic_15524_worldwide-camera-shipments-The camera industry has suffered more dramatic changes than most others. First, from basic single plate exposure photography to film, black and white to color and then finally to digital photography. Recently, I came across this chart that shows we’re not done with tearing up the industry and throwing it away – the decline in sales of cameras ever since smartphones came around. There will always be a demand for cameras because there will always be professional / expert photographers who want something more suited to their skills, but it’s safe to say that the consumer boom in cameras that digital photography started has now dissipated completely.

Statista-Infographic_10066_losers-of-the-smartphone-boom-Which led me to this next chart on what else the smartphone has replaced.

The multipurpose nature of smartphones and the fact that people always have them handy are driving the integration of a lot of capabilities into one device. Some of the things we’re not measuring in the same way because they’re not hardware replacement are already happening – credit cards and cash, for instance, becoming more electronic with Google Pay, Apple Pay, Alipay and Wechat Pay, for instance.

Most of the photography companies today seem to have moved into related businesses (there have been a few mergers as well – Konica with Minolta, for instance). Also, many of them are clearly struggling as their revenues went down and haven’t managed to replace camera sales with their new lines of business quite as successfully.

Specialist GPS companies have the same story to tell. Garmin in 2018 has still not risen back to its peak revenue from 10 years ago. Apple discontinuing the iPod is a sign of what happened to the MP3 players.

What could all these companies have done differently? I’ve seen 3 broad strategies:

  1. Let the disruption happen but focus on the consumer need for a standalone product
  2. Be the disruptor
  3. Join the disruptors
  4. Leverage the technology you own for new applications – going from cameras to industrial imaging and so on

The first strategy hasn’t been very successful for anyone – although many of the companies survive it’s very clear that they’re still far below their peak revenues from 10-20 years ago.

Apple was the best example of the disruptor – moving quickly to integrate more functionality into the iPhone and iPad and not worry about the impact it had on other businesses.

Leica is an example of joining the disruptors – putting its lenses as OEM into Huawei phones – Karl Zeiss did the same thing with Sony phones many years ago but unfortunately they picked the wrong horse to back and Sony was never a leader in smartphones.

Canon and Konica-Minolta seem to be focusing on related diversification in their annual reports but again, their revenues haven’t grown beyond their digital camera heyday.

The reality is, when something as fundamental as the smartphone comes along, it is going to disrupt a lot of industries – simply because consumers can now make one device do the job of many.

I don’t doubt that there was a moment in the life of each of these companies when it had a chance to recognize that the future was going to be vastly different and they had to make some big changes to get ahead of it, but I think it must have been really difficult to know what to do. What management consultant would have dared to suggest to Canon that they should buy a smartphone company or sell their technology and lenses to one, way back in 2008? And what company CEO would have dared pay heed to that suggestion?

That’s the problem with disruption – it’s easy enough to see after it’s happened. When it’s still in the near future it can be hard to recognize and even harder to know how to deal with. Even if you can figure out a way to deal with it, it may not be a particularly easy or comfortable solution.

Back to the original topic – what will smartphones disrupt next? Personal computing seems like an easy guess, given how screen sizes and processing power are growing. Hearing aids, perhaps? At least for people with less serious problems, a combination of a good earpiece and software through the phone could deliver a good workable solution at a fraction of the cost of conventional (expensive) hearing aids. As phones acquire their own AR / VR hardware capabilities perhaps many aspects of modern living will be subsumed into their capabilities.

And one last thought, what’s likely to come along and wipe out smartphones in the future? It might seem a bit too soon, but if you’re working at one of the phone companies, worth thinking about starting now.

The Great Whisk(e)y Disruption of 1830

oznor_vivid

The Irish claim that they were the first to distill whiskey, on the basis of a report from 1405. (Annals of Clonmacnoise stating “A.D. 1405. Richard Magrannell Chieftain of Moyntyreolas died at Christmas by taking a surfeit of aqua vitae. Mine author sayeth that it was not aqua vitae to him but aqua mortis.”)

The first Scottish record dates to 1494, although, to be fair, it isn’t linked to anyone dying from it.

(I heard all this from Mark, the gent in the picture – who conducts a tasting and tour at the Whiskey Museum in Dublin)

Today, the world over, we drink Scotch whisky and except for occasionally choosing Jameson in an Irish pub – without any reference to whiskey type, you’ll notice – most people don’t even know that Ireland makes whiskey. Quick, name three brands of Irish whiskey… see, I didn’t think so.

aeneas coffey

The main reason for that is an Irish gentleman – Aeneas Coffey – who patented an improved version of the continuous still in 1830 and revolutionised the whisky (and indeed, the broader distilling) industry. Ironically, while he was Irish and first took his design to the Irish distilleries who were using pot-stills at the time, most of them refused to adapt because they felt the quality of whiskey from a triple pot-still distillation was better. Coffey took his technology to Scotland, where most distilleries adopted it to produce whisky in a more economical way, which made it affordable and accessible. The Scottish whisky industry took off, their spelling for whisky became standard and Scotch is now synonymous with whisky. The Irish went from a peak of 412 distilleries of which the largest – Rose – produced more whiskey than all of Scotland to a mere 21 today, while most whisky drinkers around the world can probably name more Scottish distilleries than that just off the top of their heads.

Coffey’s invention – or rather, innovation, since he improved on earlier versions of the continuous still – led to him being compared to Henry Ford with the mass production of the automobile.

It’s funny how reminiscent the lack of interest from the Irish distilleries is of things that happen in the business world today. If you’ve ever run a startup that seeks a new way of doing things and the initial reaction from a lot of people is that it will never work, then think back to the Irishman who drove the disruption of the whisky industry by the Scots. And if you’re feeling particularly down about it, perhaps sample some of the output of said whisky (or whiskey) industry – the Irish make some really good whiskey too, so don’t hesitate to try Bushmills, Powers, Teeling, Knappogue Castle, the Irishman and others. Don’t expect to find them at your friendly neighbourhood Irish pub though, or even in duty free – the sign of how much that disruption cost them is how difficult it is to get Irish whiskey outside Ireland, nearly 200 years later.

What’s the lesson here? It’s the same old one I keep repeating, I’m afraid – if you say no to new ideas, you run the risk of one of them disrupting the industry, and your business. That doesn’t mean you have to entertain every crackpot who shows up at your door, but it does mean you have to attract everyone with a new idea to show it to you first and find ways of trying out as many of them as possible.

And the other lesson? Also an old one – disruption doesn’t have to be digital. This one is clearly analog, apart from being nearly 200 years old – which suggests that perhaps it’s time for the Irish to disrupt the industry right back!

China’s slowdown could be the biggest push for Chinese brands to go global – are you ready for the competition

Huawei foldable

It was interesting to read about Huawei coming out with a foldable phone – not necessarily a very affordable product or destined to be profitable or successful in it’s own right, but certainly a statement of Huawei stepping up to fill the vacuum left by Apple falling asleep at the wheel. Chinese brands have been leading the design and innovation charge in many other categories – notably consumer electronics, appliances, solar power and electric cars, but increasingly in other areas as well.

Normally global brands would look at that and worry about how to win in China against these local innovators. Now, in the context of the China slowdown, I believe they may have a very different scenario to worry about.

So far, everything I’ve read seems to point to people only treating this as a contraction of demand in China for a limited period of time – so if various international companies have business in China they’re thinking about how the contraction of demand will reduce revenue for a while, perhaps a few years at most, before things go back to “normal”.

I believe a far more disruptive trend will emerge in the next few years as Chinese companies also suffer from the contraction of domestic demand in key categories. Companies which hitherto were happy to focus on the massive domestic market in China will now start to expand. Provincial players will go national (an already established trend over the last couple of decades) and national players will go international (also an established trend that will only accelerate).

Will they all succeed? Obviously not – some will learn how to adapt and compete in new markets and some won’t. There are some brands and categories where we can already see Chinese successes – Huawei is clearly one of them. The electric car industry is definitely being led by Chinese brands at this point – brands like BYD and Roewe are way ahead of Tesla in terms of mass producing a viable electric car (in fact, several different models). They have some pretty spectacular consumer electronics and appliance brands as well.

Consumer products may be slower to follow – but inevitably they will.

So here’s the thing to think about. Do you currently have business in China? If so, who are the biggest local competitors you face? Imagine them being local competitors not just in China but in more countries around the world – because that’s definitely going to happen in the next few years. How would you deal with that situation?

There are lots of ways of looking at this, one of the most productive being to try and hedge your bets by buying into some of the most likely future successes from China. The point is to start worrying about it now.

China Giant to Global Behemoth – competing soon in a store near you

chinese-brands

One fifth of the way into the 21st century it’s already very clear that China will be the biggest economy in the world for this century. Chinese consumers dominate a lot of categories – notably overseas travel, luxury goods purchases and so on.

While a large number of global business have responded to that in various ways, there are still more companies that haven’t yet done anything about it. They’ve not started manufacturing in China. Nor have they started selling to China.

However, this post isn’t about either of these things. It isn’t about leveraging the Chinese population as a cheap labour force or as a vast consumption market.

It’s about recognizing that in the next few years, Chinese companies are going to go from being domestic giants to becoming global behemoths.

We have a few examples already. Huawei, which has been in the press for negative reasons, is clearly in the spotlight because it’s one of the rising stars of China, poised to become a global leader in cell phones (goodbye, Apple). Many moons ago, Lenovo bought out IBM’s computer business and continues to be one of the big global brands in personal computers and laptops even today. Chinese brand Roewe is the metamorphosized Rover brand that reinvented itself with electric cars. Geely bought Volvo to give itself a global platform. Xiaomi, Oppo and others are expanding rapidly across Asia and Africa. China is pioneering high-speed, long distance mass transportation with it’s Maglev and high-speed rail expertise and starting to export that across the world. Many new areas like AI and alternative energy are already dominated by Chinese companies.

We’ve been reading about Apple’s woes in China recently. What happens when Chinese phone and hardware brands innovate themselves ahead of Apple not just in China, but across the world? We saw Japanese and then Korean cars overturn the US car industry and luxury Japanese cars compete with European marquees like Benz and BMW. How long before Chinese brands start to dominate the West?

Preparing your business to survive and thrive in the Chinese century isn’t just about having a strategy for China any more. It’s about having a strategy to counter Chinese competitors worldwide. Some of the keys to that could be:

  1. Having a strong business and consumer base in China to compete with Chinese brands in their homebase and delay their expansion abroad
  2. Evaluating up and coming businesses in China and striking strategic alliances with them early to profit from their international expansion
  3. Leveraging innovations that win in the competitive Chinese market and launching them elsewhere to block a niche in the market before the Chinese originator of that innovation arrives (that’s a polite way of saying learn from and copy the successes of Chinese brands and business models)

All of which sounds very different from how people thought about China when I first got here – 21 years ago. Which makes me think, while this post is all about China and Chinese brands, India is on its way too – perhaps 20 years slower. Be prepared!

How long does it take to change the world?

big bird taxies out

Many years ago, when I was an active private pilot, I decided to honor the 100th anniversary of the Wright brothers’ first flight at Kitty Hawk by taking my plane up for a quick morning flight before going to work. As I was turning in for the landing I remember looking over to the left a few miles away at the 3 runways and the massive infrastructure of Singapore’s Changi Airport (I was flying out of a little airport called Seletar) and wondering if the Wright brothers ever imagined all that aviation would become.

Sometimes, when I read about relatively new developments – like blockchain or AI, for instance – and pundits making predictions about how they will disrupt this, that or the other, I find myself thinking back to Kitty Hawk, December 17, 1903. Eleven years later we’d figured out how to use planes to drop bombs and fight with other people (yay, congratulations, humanity!). About 30 years later the first tiny hints of commercial aviation were in place, but it really took about 50 years for aviation to become a common global phenomenon. My father went to the US to do a PHD and his journey in both directions was on a steamer – 3 months on the way out and 1 on the way back, since in the interim the Suez canal had come into existence.

Undoubtedly, things move faster now than they did a century ago. I still think we’re a bit too eager to celebrate something as a successful disruption. Many of the things we make a big deal of go through many stages before settling down and becoming a truly new way of doing things (or a truly new thing to do).

Perhaps the best definition of a successful disruption is one that becomes such a way of life that we can’t imagine the time before it. Can you imagine a time before aviation? When it wasn’t possible to go wherever you liked and if you did go, you tended to stay there for the rest of your life? When you couldn’t sit in Shanghai and drink coffee made with beans from Colombia, eat salmon from Norway or beef from Kobe, Japan. The world was irrevocably changed by aviation and it’s really hard to even imagine what it was like before.

Can we imagine life before Uber? I can, I used to be able to stand on the street and hail a cab – no big deal. Can we imagine life before blockchain? Yep, we’re living it now. AI? Absolutely. Electric cars? Yeah… kinda – while China is an entire generation ahead of everyone else, most of the rest of the world is still on regular cars.

I’m not saying these innovations or technologies aren’t disruptive or important. They are, and they will potentially make the world a more productive and therefore, eventually, a better place. However, what worries me is too much hype too soon, because when we start believing the AI (or blockchain or what have you) revolution has already taken place, we stop thinking about how to really make use of it, what some of the barriers are, how to solve real problems with it.

I work at a consultancy called Ebiquity and a lot of the work we do begins with lots of people doing lots of data analysis. With AI driven analytics tools we could automate a huge amount of the analysis and discovery of findings to share with clients. We’d need perhaps only the top 10% of our people to then use that work in order to advice clients. (While we’re not planning to fire 90% of our people anytime soon we are looking at ways to drive efficiency and productivity).

I believe this will definitely happen in all industries that analyze data and build a consultative layer on top. However, what we’re seeing today is the initial experiments in this direction and what is imperative is that more and more companies do their own experimentation. If we sit on the sidelines and just produce handbooks on how something is going to revolutionize marketing (for instance) , but we haven’t figured out how to revolutionize the marketing consulting industry, then that’s laughable and sad at the same time. It’s not just marketing, let me hasten to add. I see post after post shared on social media by people who seem content to seek out buzzwords rather than do any real innovation or experimentation.

Is that what your organization is doing? Be careful, because when you’re all hype and no real action, that’s when you’re likely to be disrupted. Real change takes time and real effort – not just a powerpoint presentation to sell your clients or management on.

Tech darling today, dust-heap tomorrow?

There’s been a lot of negative press about Apple’s revenue guidance and their future after their CEO connected their recent revenue shortfalls to the Chinese economy.

That prompted me to take a quick look at some of the tech giants of today – Amazon, Alphabet, Facebook and Apple to see which of them looked sturdy enough over the next few years. The only criterion going into this is examining their current sources of revenue and whether anything looks likely to threaten those key sources in the next few years.

(You could argue that Uber, Mobike and so on are also tech giants but given that none of them makes money yet or has gone public I’d argue that their success isn’t proven and they could be just a tech bubble, not a giant, so I’ve left them out. Also, to be honest, I don’t really see them as possessing any technological advantage so they’re not really tech companies, are they?)

Facebook

fb q3 revenue

Facebook is an advertising business. The question that arises is, will clients stop advertising on Facebook, or at least reduce their dependence on it enough to significantly affect the business?

Two broad things could lead to such a situation:

  1. A rapid change in Facebook (and associated social media) user statistics and losing a core audience to other media
  2. Issues with data, measurement or effectiveness leading to advertisers abandoning Facebook

At this moment, Facebook’s broad user base with higher penetration in the younger age groups (18-29) makes it unlikely that they will become irrelevant to consumers in the next few years.

Also, despite the Cambridge Analytica scandal, neither consumers nor advertisers seem to be getting out of Facebook – although periodically problems around measurement crop up and create credibility issues for them. There are also some concerns with GDPR that a lot of Facebook targeting data will become unavailable, making it less valuable for advertisers, but at least at this moment this doesn’t seem to be happening. P&G’s much talked about exit from Facebook also doesn’t seem to have deterred their revenue growth, much of which comes from “performance marketing” campaigns where FB has some very strong metrics to win budgets with.

Overall, however, as a pure advertising business, FB competes with Alphabet and other media companies, so it is not exactly a blue ocean or greenfield venture any more.

Alphabet

alphabet revenue

Despite all their various experiments in other fields, Alphabet is, basically, Google. Google is, basically, all about advertising revenue. While the bulk of this revenue is attached to Google owned properties, the Google Network properties are also a noticeable proportion of the total.

What’s likely to happen in the future? Will advertisers walk away from Google? Or will enough consumers stop using it that it will become less attractive to advertisers?

Google has built an entire ecosystem consisting of their own killer apps – search, map, acquisitions like Youtube and a small thing called the Android OS that dominates mobile and creates an opportunity for them to be a dominant ad network around the world. On the one hand, it’s unlikely that any one development or trend could weaken all of that. However, there are always competitive OS’s coming up. There are murmurs of “better” search engines like Duck Duck Go. Unlike Facebook, Google has less of a hold on users since most people don’t store their historical data with them – yes, perhaps on Mail and Drive but that’s different than having generated several years worth of personal photos and posts on Facebook.

It is conceivable that over the years, individual players will compete with and pull ahead of Google, which would weaken it’s hold. Android OS is it’s strongest asset at the moment but we have seen that operating systems can be overtaken in time and there is no shortage of competitors in this arena.

Apple

apple revenue

Apple has a huge dependence on iPhones, followed to a smaller extent by other device sales.

Will consumers stop buying iPhones? We’re seeing in China that this is already happening. There are lots of reports around how Apple hasn’t had product innovation in a while now and are starting to imitate other phone makers instead.

All of which suggests that if they don’t find a way to innovate product or the business model soon, Apple could be in deep trouble in a very short time.

Amazon

amazon

Amazon’s business is built mainly on online retail revenue – both their own as well as 3rd party seller services. However, it’s interesting to see them constantly trying new things and growing them – physical retail and AWS being prime examples.

Will there come a time when being an online retailer and running Black Friday promotions doesn’t do the trick? Entirely possible, but it’s clear that Amazon is constantly thinking ahead and looking beyond just the world of online retail for the future. This is clearly a company that will be around and successful for a long time to come as they build revenue in new areas.

What’s the conclusion from all that? If you’ve succeeded by doing one thing and you’re still pretty untouchable at it, that’s great. If you’ve succeeded by doing one thing and are using, that success to fund more things that you’re good at, that’s great too. If you’ve succeeded by doing one thing but other people are catching up and you’re struggling to maintain your lead, then there may not be a lot of time left in which to reinvent yourself for the future.

(* I did consider Microsoft as one of the companies in the mix but the way they report their revenue by “Productivity and Business Processes, Intelligent Cloud and More Personal Computing” makes it hard to separate B2B, B2C, advertising revenue, hardware, software and service revenue streams.)

(** All the numbers quoted here are from company financial reports to be found online in the investor relations sections of their websites)

Slow and steady doesn’t get funding…

Remember the fable of the hare and the tortoise? Well, it doesn’t seem like VC’s or investors do any more.

Many years ago, when I worked at a cloud-based ad-delivery startup called eBUS, we were trying to raise money to fund an expansion into China – a relatively small sum, under a million dollars. The company was already several years old at the time, we’d proven the business model and had a business in ANZ and India that was making a small profit which would clearly grow over time.

We met with all the big name VC funds and their feedback, pretty consistently, was that they wanted to invest in something that had the possibility of being a billion dollar company, not in a B2B with a high probability of success but perhaps a ceiling of 50 million a year in revenue. What became clear to me was that a business that had even a 1% probability of the billion dollar revenue (and hence multibillion dollar valuation) was a far more attractive proposition than our mid-sized, highly likely to succeed business.

Eventually, we did raise more money from existing investors, make the foray into China, build a business across Asia and sell it to IMD, so it all worked out. However, those interactions with VC’s left me puzzling about why they follow the model they do – of making several investments in low probability bets, most of which fail, in the hope that one will come good and make up for all the rest. I’ve tended to be involved with B2B startups, mostly, and I’ve always found raising money from the regular VC crowd quite difficult, whereas every day in the news you hear about some startup somewhere raising huge sums in the tens or hundreds of millions of dollars, but in the same breath look at them making massive losses that will clearly burn through the investment in a relatively short time.

Here’s the problem with that model – throwing huge sums of money at unproven businesses delays learning about the flaws in the model. If Fail Fast is an important element of building startups, giving them the money to not realize they’re failing is a huge mistake. Take all the bike-share companies or ride-hail app companies, for instance – I don’t think any of them has worked out the economics of making a profit in the real world. If they realized that in the first 6 months and were forced to tweak and modify their pricing and model, they’d eventually get to a place where, instead of trying to provide hundreds of millions of consumers with an unrealistically cheap solution, they’d price for profit, serve a smaller market more viably and actually have a business that made sense. Giving them huge sums of money takes away the incentive to arrive at a model that works, often for several years, during which these startups buy consumers with investor money. At the end of that time, the business still doesn’t make sense and implodes, taking all the investor money with it.

The investors were the one who exarcerbated the problem in the first place, so I don’t really care about them. However, that money could have done so much good if it was spent elsewhere. Failed over-funded startups cost a lot, it’s just not immediately apparent who’s paying the price.

This is why it makes sense to pursue disruption from within, somewhat slower and steadier, but with the intent always being to explore new, sensible, viable business models and then scale up, not the other way around.

When disruptors become establishment…

 

A lot of the time, companies become successful by doing something different than every other player in their category, but then they tend to stop innovating. Someone new comes along and breaks the mold, thus disrupting the erstwhile disruptor, or else everyone does what the disruptor is doing at scale, thus making them irrelevant. Let me give you two quick examples and then talk a bit about how to get past this problem.

Example 1 for me is IKEA. They disrupted the furniture category by re-examining the entire supply chain, costs and consumer experience. By selling disassembled, flat packed furniture that people put together themselves they were able to achieve a cost-quality equation that most people loved. They then created a unique store experience that makes IKEA a full day family outing instead of a shopping trip. Their strategy thereafter has been physical expansion and essentially more of the same. Adding more things to the store experience, making the range of products wider and wider and so forth.

What’s likely to hit them?

Well, first of all, there is a small but clear trend towards buying furniture online (yes, I know in theory you can do that with IKEA too but bear with me for a moment). At this moment, the leaders in online furniture sales are usually the leaders in online, not the leaders in furniture. What that means is that the consumer experience isn’t built for the category, it’s like buying anything else online. It’s only a question of time before someone comes along and changes that (there are some startups doing this already). Imagine using VR to see what furniture fits in your home, how it would look along with everything else and so on. That could be an experience superior to going to the store and the technology to deliver it exists today. Delivering that experience properly would cost less than setting up one store and in the long run could provide an alternative business model for the furniture business that disrupts the existing ones.

Second, there is another small but clear trend towards renting furniture rather than buying it outright. This one has more startups behind it and a lot more disruption potential.

Continuing to build enormous stores and pack in more experiences may work for a while longer, but in the long run these two trends and the players leveraging them will change the furniture business.

Example 2 is Tesla – the posterboy for electric cars. Everyone seems to be making electric cars now but there was a time when Tesla’s visibility in this field and their solutions to some of the basic design problems were key to progress. However, Tesla is still not a successful commercial venture because they’re now trying to do what all the other car companies do – mass produce cars at a large enough volume to make the fixed costs pay out. In a world where the volume of cars from the other companies is far greater than Tesla’s, and those companies rapidly shift towards electric cars, perhaps Tesla’s disruption isn’t relevant anymore. Perhaps they need to ask themselves what business they’re really in – is it the business of manufacturing and selling electric cars? Or is it making the technological breakthroughs that make electric cars viable – in which case they’d go a completely different route than building factories and dealing with all the hassle of actually delivering cars.

The core question to ask in both cases is “What business are we in, and is what we’re doing representative of the future of that business?” If IKEA were to ask themselves that question in light of the trends in the industry, they might realize that selling more Swedish meatballs and salmon isn’t the key to their future. Tesla may realize that they don’t need to manufacture and sell electric cars – they need to keep disrupting the industry with better technology and solutions.

A quick note on the pictures – they’re of the band Rush in their youth and more recently. I used them primarily because they’re my favorite band. Any excuse to put a picture of Rush on my blog, although you could argue that they actually contradict my point rather than support it, since their skills were amazing even as they aged and became more “establishment”. Apparently Neil Peart now finds it difficult to play concerts so they’re going to retire, which is sad but understandable. Luckily I still have the video of Red Barchetta to watch, and the comforting thought that once, in a studio while practicing with my band, we pulled off an excellent cover of it which was very satisfying even though I quit the band before we played it on stage.