Do You Know The Exponential Growth Secrets (2)?
In the 1st article of this series, Xponential Growth 1st article we have described the trends and the impacts of the Xponentially growing technologies. Do you recognize them in your business? To evaluate if you and your company is ready for the era of Xponential growth see below a few relevant questions:
• Are you or is your company thinking linearly?
• Which products or services are going to dematerialize or demonetize first in your industry?
• Which Xponential technologies are going to disrupt your business?
• What will become free in your industry in the future?
• What Xponential technologies can you use to create a competitive advantage?
• What Xponential technologies can you use to create new markets, or business models or expand industry boundaries?
Are you prepared for the era of Xponential growth?
In this part we will explore the foundations of the process to create Xponential growth. There are 2 major approaches for creating faster growth in any business. The first approach is to disrupt an existing market or industry by introducing a new value proposition or a new value-cost combination enabled from a new technology or in general a new business model. But what is the essence of disruption or disruptive Innovation?
In the 20th century, established companies have been caught-out by innovators (smaller companies with different technology or different value propositions and rarely with a different business model) entering and operating successfully at the lower-end of their market or non-served market. These innovators, starting from low end applications managed to work their way up as the incumbents reacted by vacating margin unattractive market segments and going upmarket. Technology and consumer expectation don’t always go hand in hand (after time in almost any industry the quality improves so much more than the customers need and the products or services become too expensive), leaving space for technology niches (often not yet mature enough) and therefore, mostly at the lower (margin unattractive) end of the market. E.g. Steel Industry: Mini Mills technology replaced initially the huge steel factories for simpler applications and plastic household ware replaced metal ware for a number of applications.
If the niche technology focused its market entry towards the non-consuming market, growth can go unnoticed by the incumbent for many years. e.g. the smartphone market has disrupted many portable PC manufacturers who thought that smartphones are not competing with PCs. Disruptive innovations often focus on finding alternative ways to get the job done and do not just suddenly happen. They take time to mature. If incumbents do not spot them, it is because they are not looking. They can also be anticipated. Not identifying the (tech) driver behind the disruptive innovation in time is fatal: catching up may prove to be impossible. Going head-on with the innovator to avoid volume/scale loss, is in many cases the preferred strategy. Financial metrics are not geared to support such strategy (you are going after low margin business). Disruptive innovations especially the last 15 years are not limited to technology but they focus more on the business models as we will find out. e.g. 3D printing will eventually affect retail, repair shops, logistics and many more parts of the existing value chains and emerging value networks as we will see later on.
Summarizing there are 3 ways disruptive innovation took place in the 20th century and till recently:
• Focussing on a lower cost, less sophistication value propositions with unattractive gross margin for the incumbents
• Focusing on non-consumption
• Finding alternative ways to get the job done.
Although in the 21st century disruption is remaining a popular term and part of the normal technological progress, the focus is more on business model disruptions where real time data and insights are becoming more and more essential. Normally the result of any disruption is a zero sum game where many people lose their jobs in the process although other types of jobs are created. E.g. the manufacturing automation disruption with robotics, machine learning and AI is reducing or will reduce the number of traditional manufacturing workers and at the same time is increasing the number of engineering jobs related to design or maintenance of robots. A lot of time disruptions are created because the incumbents are not innovating enough leaving the space to new innovators to create innovative value-cost spaces resulting in disruption of their businesses. Companies like Amazon keep on experimenting (e.g. Amazon Go for convenience stores or Amazon Fresh for food delivery) and although many times are failing (e.g. search engine or smartphones) many times are succeeding (Kindle, AWS, Amazon Echo ecosystem of 4000 different devices).
But disruption is not the only way to do business in the 21st century. There is the option to create new markets or even industries by solving big world problems, creating new demand, introducing new products, expanding the industry boundaries and finally expanding the potential customers population where existing players do not lose but the overall market expands. Water and energy shortages, environmental challenges, various diseases that kill millions and major healthcare cost increases when the percentage of older people is increasing are examples of big world problems. The next figure shows the 17 UN sustainable development goals related to many big world problems that need solutions and are inspirational for many new entrepreneurs.
17 UN Sustainable Development Goals
Microfinance for financing small entrepreneurs, Viagra to extend the sex life of millions of couples, iTunes with enjoying digital music everywhere, Netflix with watching movies anywhere and AirBnB for renting spare rooms are examples of new products/services that created new markets and/or expanded the market. AirBnB has expanded the hospitality industry by utilizing unused assets (spare rooms) and creating opportunities as well as expanding the travel market for young travellers that could not afford the normal hotel prices. The bottom line is that you need to think not only in competition terms which is natural as you are part of an industry ecosystem with many participants, competitors and collaborators but also how to create something new or expand existing boundaries and create new demand. For start-ups it is natural to focus and create something new, many times disrupting and other times creating a totally new market.
Examples of expansion of existing boundaries include:
• Google: Google is using various technologies (Mobile AI, Cloud Computing Machine Learning/AI, High Speed Internet, IoT, Biotechnology & Genetics and Crowdsourcing) that cross many industries (Entertainment, Communication, Education, Finance, Transportation, Military, Medical) to expand their activities beyond their main revenue generator (Search/Google Ads). Google, or better Alphabet, creates value with Google Play (media), Android (handsets) and Google Wallet (retail) and captures value through ad sales (advertising), its core business. In fact, Google is expanding its ads platform to an e-commerce one with ordering products using Google Home.
• Amazon: Creates value with Kindle (handset) and Amazon apps (media) and captures value through e-commerce, its core business. In fact Amazon is expanding its e-commerce platform with 1 click checkout and Amazon Echo to sponsored products ad platform.
For established companies you need first to analyse for which part of your business you need to innovate. For the current business portfolio incremental innovation is the norm and there is always a need to create new future business portfolio for business sustainability.
The next step in your Xponential growth journey is about finding options or pathways to grow. There are many ways to find pathways to grow and this will be the subject of the 3rd article.
I welcome more comments and thoughts. How is this applicable for your company?
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Mike Mastroyiannis is Business, Management & Executive Coach and Management Consultant for among others, Transformational Leadership, New Business Models and Exponentially Disruptive Innovations. He has served as CEO of business units in Multinationals, founded or lead start-ups and serves in advisory boards. He can be reached through LinkedIn or email mike@TenX2.com