Disruption is everywhere. Businesses and sectors are being disrupted like never before. Technology, disintermediation, and the climate are making previously dominant companies vulnerable, while startup companies run by millennials in hoodies are becoming increasingly dominant. While all this is happening on a micro level, on a macro level we are also seeing a shift in global power from the west to the east. Failure to identify, understand, and exploit these changes will be fatal for any entrepreneur. Businesses fail principally due to their inability to anticipate changes. Charles Darwin said that it was not the strongest of the species that survives, nor the most intelligent. It is the species most adaptable to change. The twenty-first century has been fascinating from an investment and capital market perspective. We have witnessed three mega stock market crashes. The dot.com bubble burst in 2000, the subprime mortgage crisis in 2007/2008 brought capitalism to the brink of collapse, and the coronavirus pandemic in 2020 reminded us of the fragility of human existence. Here are three signs your business may be vulnerable in the twenty-first century:
1. You are a Traditional Intermediary We are living in a century of technology, and one thing that technology does very well is shrink the middle market. I returned to my native South Africa in 2020 after living abroad for 25 years and was amazed to find that travel agents still exist – but being isolated on the southernmost point of Africa means that we are often 5 or 10 years behind global trends. Take a second to consider how the internet has destroyed the industry of the travel agent/intermediary. Twenty years ago, if you were planning a wine tour through the Bordeaux region of France, you would jump into your gas-guzzling car and drive to your travel agent. You would sit in front of them, and they would start tapping away at their keyboard and rattle off several options which in theory would be in your best interests. The only way to know if this was the best deal was to go to another travel agent for a second opinion. If you had real trust issues, you would go to another for a third opinion. Today, you can see ALL the available options in milliseconds using sites like Expedia. If you operate in financial services and have never heard of the DeFi movement, then you better bone up on it. Cryptocurrencies, blockchain, and crowdfunding have now made possible a life without banks. If you want to transfer money or pay accounts, crypto accounts allow you to do so. If you want to borrow or invest money, you can go to crowdfunding sites like Moneytree or Lending Club. If you want to buy and sell stocks or mutual funds, you can do so through apps like Robinhood. At the core of this disruption is the desire for disintermediation. Financial companies are classic middlemen. You want a loan, go to a bank. You want to pay for your lights and water, go to your bank and pay. If you want an insurance contract, go to your insurance broker. If you want to buy and sell stocks, you go to your stockbroker. As people become more informed about the limited value these intermediaries offer, they look for ways in which they can bypass them and go straight to the source. Disintermediation is the Robin to Batman's Fintec.
2. Your Business is in a Major Global Counter-Trend To know if you are in a counter-trend, you need to understand the key global trends. In a long sentence, I would summarize them as follows – the wholesale move from fossil fuel to renewable energy, the rethinking of the concept of ownership due to the sharing economy (Uber, Airbnb, WeWork), disruption in traditional banking, the move towards ESG investing, cryptocurrencies and non-fungible tokens on the blockchain, virtual and augmented reality in the metaverse, the worldwide legalization of marijuana, the global scarcity of water, the aging population and the strain that is placing on health care, incorporation of technology in education. So if you are looking to drill for oil in the middle of the desert, or buy a taxi medallion in New York City, or invest in a traditional brick and mortar bank, or start an auto company that will produce cars with internal combustion engines, or start a business that pollutes, discriminates against women and has no corporate governance, etc, your business is going to be vulnerable in the long term. 3. Your Primary Focus is Making Money Henry Ford said that a business that focuses only on making money is a poor business. Money should not be your why. Your customer should be your why. Jeff Bezos from Amazon says you "should start with the customer and work backward". Most companies do the opposite – they start with the product or service and then work towards the customer. In every Amazon internal meeting, there is the rule of one empty chair. If there are five Amazonians in the meeting, there need to be six chairs. Whom/who does this chair represent? It represents the customer. Bezos does not want decisions to be made without taking the customer into account. I worked in investment banking for decades. This is an industry notorious for putting its needs above the needs of the client in the pursuit of profit. Look at what happened to the major investment banks in 2008 – they were instrumental in almost bringing down the global banking industry. Lehman Brothers collapsed in September, Merrill Lynch followed quickly and had to be rescued by Bank of America. Mega regulations were put in place after the crisis to change how these banks could make their money in the future. This was a clear wake-up call that a business that is only predicated on making money is not a good business.
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