Aug 23, 2016

Dealing With Disruption

Disrupters are lionized. Companies like Uber and Tesla are held up as heroes. But they’re anomalies.

Chances are your company is not a disruptor, but it is facing disruption.

This was my challenge when I joined my family’s business. My parents founded an IT staffing agency in 1989. Through the nineties and early 2000s the business boomed, but when I joined the company in 2004 we were dealing with disruption.

We could see it in our sales numbers. In the nineties each of our sales reps closed a deal a week on average. They were successful, because they were diligent with their calls and developed solid client relationships. But in 2004 something shifted.

What used to take our sales guys a week to achieve was now taking them a month. Instead of closing 50 to 60 deals a year, they were closing 10 to 15 deals. It was a dramatic decline.

My mandate was to turn the business around. This lead us to reposition and rebrand the company, as well as develop an entirely new approach to business. Within a year of the rebrand the company rocketed back into growth mode, and we chased that wave until we sold the business in 2013.

The experience of rebranding my family’s business still weighs heavily on my mind. We weren’t being opportunistic or disruptive. We rebranded the company as a matter of survival. Our market was disrupted, and we had to evolve or die.

Disruption Demonetizes Industries

The recruiting industry is still reeling from the disruption we faced a decade ago.

Job boards, Google, and LinkedIn tipped the balance of power in the recruiting industry. In the nineties a staffing agency’s database was its competitive asset. Today resumes are cheap. Almost every resume is accessible in the public domain via LinkedIn.

The cheap, immediate access to talent had two devastating effects:

  1. Surge of competition. Technology reduced the barriers of entry in the industry.
  2. DIY Movement. Technology made it cost effective for companies to bring the recruiting function inhouse.

It was a double whammy. Not only were we competing with a host of new startups that were more than happy to undercut the market, we were competing against our clients.

The impact of the disruption has been alarming. In the nineties an average permanent placement agency (a recruiting agency that specializes in placing full time employees) was $10 to $25 million in revenue. In 2016 the average is less than $500,000. Basically, two Bobs in a basement.

Disruption is scary, because it can demonetize your industry.

Disruption Sparks a Chain Reaction

Peter Diamandis, author of Bold, defines the three stages that follow a disruption:

  1. Demonetization: The removal of money from the equation.
  2. Dematerialization: The removal of goods and services.
  3. Democratization: When costs get so low the industry becomes free.

For instance, look at the map industry. A decade or so ago people bought maps. An AAA or CAA membership was valuable, because it provided useful mapping services such as tailored trip plans and routes for your vacation.

Not anymore. Everyone has access to enterprise class mapping systems. Google Maps is amazing and it’s free. Maps have been democratized.

Disruption triggers a chain reaction:

  1. First it erodes the profitability of an industry, demonetization. Uber and ridesharing services are undercutting the taxi industry.
  2. As the bottom of the market falls out we see the dematerialization of the industry. No more service providers. Check out the travel industry. Expedia and online booking services have largely displaced travel agents.
  3. Finally the industry just shifts to free, democratization. Kodak did not survive the democratization of photography.

Dealing With Disruption

It’d be nice if your company was a disruptor, but it’s unlikely. Chances are your company will be on the receiving end of a disruption. And with the current pace of technology it’s more likely your company will be disrupted multiple times.

Being on the receiving end of a disruption is disconcerting. What I went through with in my family’s business has left lasting and a permanent marks. It’s made me acutely aware of what’s shifting in my marketplace and I constantly ask, “How do we win when the rules keep changing?”

Dealing with disruption is like executing a strategy without a map. You can’t rely on the lessons of the past, and you can’t predict the future. You have to navigate in the present. You can do this by asking three deep questions:

  1. What do you want?
  2. What won’t change?
  3. What conventions can you challenge?

The three questions help you see the playing field from another angle, and help you redefine your brand and value proposition.

What you’re looking for is a new path to relevance. When your industry is going through the chain reaction of disruption — demonetization, dematerialization, democratization — it is challenging the very relevance of your business.

When the rules change you can either evolve or die.

This is a complex topic, but one that we are all dealing with. I’d like to hear your thoughts. Send me an email or a comment on Twitter, Facebook, or LinkedIn. How are you dealing with disruption?

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