We live in a world that’s constantly changing and often in ways that we would have never predicted. On a day-to-day basis, we operate in a pre-defined status quo – one in which many established businesses worry less about innovation and more about efficiencies within their daily operation.
In large organizations, this is an error on the structural level. What I mean by that is because your CEO is essentially a hired employee who answers to shareholders or a board of directors, he or she is more likely to pander to the employer rather than push the envelope and cause radical innovation. In most companies, grunt-level employees will never attempt to overreach their current positions because it puts their jobs at risk. Looking at a high-level executive in any other way is delusional.
At this point in our economy, we’re more focused on quarterly earnings reports than with playing a long-term game that will secure our company over the coming decades. If your stock is publicly traded, your CEO’s primary objective is to keep earnings up and shareholder confidence high through existing business avenues. Making large-scale choices like acquisitions or creating new revenue streams outside the proven model are sure ways to make your company’s financials less attractive to investors.
The big question here: Why is this bad?
The inspiration for this article arose from a debate (argument may be a better word) I got myself into with a group of car salesmen on Facebook. I don’t recommend posting your opinions on open comment threads in an emotionally charged environment, but in this case, it did give me some insight as to how these established salesmen viewed their careers.
The original post was an article on how Tesla was now legally able to sell direct to consumers in Missouri rather than through a franchised dealership model. Dealership lobbyists fought hard against the ruling and eventually lost. The question posed by the page that posted the article was: “Do you think other auto manufacturers will eventually follow Tesla’s model? If so, what will that mean for salespeople?”
You can find my response below.
Now, I completely understand that this triggered a fear response from people established in the industry who rely on their current practice to feed their families. I’m not going to use this medium to justify my opinion, because it really doesn’t matter what I believe the auto industry is going to look like in 10 years. However, I am going to illustrate a trend across business and industry in general.
Apple Computers was founded in 1976 and a year later, Ken Olsen, founder of Digital Equipment Corporation, predicted that: “There is no reason anyone would want a computer in their home.” I think it’s pretty clear how that turned out. The worst part of this is that in the 1980s, Digital Equipment Corporation was the second largest computer company in the U.S. with annual revenues of $14 billion.
Now, granted, this quote is slightly out of context – Ken was talking about the idea of having computers controlling the environmental factors of your home like heat, locks, appliances and whatnot. We’ve got all of that today with the IoT, so he’s still clearly wrong, which is why no one owns anything made by the Digital Equipment Corporation today.
Another example – in February 1995, Newsweek shared an article discrediting the value of the internet. The article stated: “The truth is no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works.” Not only is this prediction hilarious in hindsight, but I imagine the internet probably decimated Newsweek, and like most publishers, I imagine they’re struggling to recapture lost revenue from the glory days of print.
If Newsweek is anywhere close to the position of every newspaper on the planet right now, it’s struggling to monetize good (not click-bait) content in an effective way to keep its doors open. Gone are the days when people willingly paid an expensive monthly subscription for content because we can find everything online today for free.
In 2007 Nokia had a market share of 49.4 percent – they sold nearly 50 percent of all mobile phones. Steve Jobs pulled an iPhone out of his pocket in January of that year and everything changed. By 2013 Nokia had just 3 percent market share left and today, going into 2018, I don’t know a single person with a Nokia phone.
Kodak was a household name in the 1990s (when I was young) and at its peak in 1997 had a market value of nearly $30 billion. Because of its refusal to enter the digital camera marketplace until it was too late, its value fell to $145 million and Kodak filed for bankruptcy in 2012. Today, Kodak sells the photo printers that you see in Walmart and is worth a fraction of what it was 20 years ago.
Currently, after nearly a decade, the hotel industry is still trying to keep face in front of their shareholders against the looming threat of Airbnb. Articles like this show how the hotel industry is trying to convince itself that Airbnb is targeting different consumers and won’t affect their bottom lines. They even go as far as saying that rewards programs, like Marriott’s, will keep customers from ever moving to different services.
I travel and now I stay in an Airbnb instead of a hotel room, even when I travel for business. Airbnb gets my money, whereas 10 years ago the hotel would have. It’s absolutely not a hard concept to grasp and willful ignorance isn’t doing you or your business any good.
This is an obvious trend, but executives still resist admitting to themselves and to their shareholders just how fragile their businesses are.
The truly startling fact of the matter is that these dramatic shifts in consumer behavior were not triggered by an established competitor to any of these examples above. It was radical innovation, often by young people who looked at things from a different perspective.
The fact that the taxi companies didn’t invent Uber is stunning to me. The idea that the Marriott, with all of its money, couldn’t come up with a concept like Airbnb is crazy.
There’s really no excuse here.
Why didn’t General Motors pour a billion dollars into electric car research so Tesla never had a niche to grab at? Why didn’t Boeing think of ways to bring down the cost of space travel and corner the private market so SpaceX couldn’t have risen to dominance?
I love talking about Elon Musk because he brings radical innovation to the table with everything he does.
Exxon Mobile is another great example. With all their infinite resources, why didn’t they jump on the global-warming train from the beginning and become the leader in renewable energy like solar, wind and geothermal? Had they moved in that direction, maybe they would be leading the U.S. in solar adaptation instead of companies like SolarCity and VivintSolar.
I completely understand the drive to milk the cash cow for as long as you possibly can, but if existing companies don’t start seriously looking at innovation and the way markets are changing in the 21st century, they’re going to die.
If you lead a company – and it really doesn’t matter what industry you’re in – you should be looking for all the ways in which you could go out of business and execute on the ideas that are threatening in both the long and short term to your marketplace.
If the issue is large corporations that are slow moving and have boards of executives who don’t like change, then maybe we’re coming up to an era marking the end of large corporations.
Because I can promise you one thing: Change is guaranteed and it’s not slowing down – it’s speeding up dramatically.
And if your business’s strategy is to lobby against government to regulate the disruption that your industry is facing, (taxi companies, hotel industry, energy, auto, etc.) then you really do deserve to go out of business for violating the first rule of capitalism – the free market decides what it wants.
What do you think? Let us know in the comments below!