This is a guest post by Simon Waldman, author of new book “Creative Disruption: why you need to shake up your business in the digital world“. Waldman joined the Guardian as a journalist to work on some of its earliest internet ventures in 1996. He was launch editor of Guardian Unlimited in January 1999, and became the company’s first Director of Digital Publishing in 2001. He rose to become Director of Digital Strategy and Development at the Guardian Media Group. He now works at LoveFilm as group product director.
The internet enables dramatic change in the way that businesses can operate – this is what I have called the new ‘physics of business’.
But in any given sector, if that change is going to happen, a number of forces need to be working together. The most critical of these is a healthy cadre of entrepreneurs.
Indeed, the commercial story of the internet is also the story of how a remarkably small number of entrepreneurs have caused a remarkably large amount of upheaval, and reated a quite spectacular amount of value as a result.
Larry Page and Sergey Brin, Jerry Yang and David Filo, Niklas Zennstrom and Janus Friis, Mark Zuckerberg, Jeff Bezos, Pierre Omidyar, Reed Hastings, Marc Benioff (Salesforce.com), Andrew Black and Edward Ray (Befair), Craig Newmark and Jim Buckmaster, Natalie Massenet (Net-a-porter),Tony Hsieh (Zappos.com), Evan Williams and Mark Pincus.
The list could fit on the back of a napkin, but this gang have between them created hundreds of billions of dollars of shareholder value. Just as importantly, but they have done so by disrupting the sectors they operate in – from advertising to gambling; high-fashion retail to enterprise software; movie rental to telephony – none will quite be the same again.
Schumpeter [as always] knew this. He was unusual as an economist of his time to realise the human factor in the way that businesses evolved and went through ‘creative destruction’. He pointed out the importance of ‘new men and new companies’ in this process– and he deliberately drew the distinction between inventors – who conceive new technology – and entrepreneurs who then exploit them for profit.
It is the difference in our time between Sir Tim Berners Lee and Jeff Bezos.
He also pointed out that Incumbents tend not to cause upheaval in their industries. Why would they? They are hard-wired to protect themselves. When times are stable it makes them strong. But when there is upheaval, it actually makes them more vulnerable.
We all know that the digital camera was invented in Kodak’s labs, but it threatened the formidable profitability of their three-legged model of chemicals, paper and film, and the innovation was never made a priority.
True change often comes from those who have never operated within the sector. What did Craig Newmark or Jim Buckmaster know about classified advertising? Andrew Black had worked in dozens of places, but never in a bookies when he had the idea for Betfair.
I remember visiting BT’s labs in the mid 90s. They employed some of the biggest brains in the UK, and presented us with all sorts of high end wizardry that has never seen the light of day. The same sort of activity was probably happening in every major Telco in the developed world. But it wasn’t any of them who came up with Skype. It was Niklas Zennstrom and Janus Friis.
In this case, they weren’t complete novices and outsiders – both had worked in the telco world, just as Marc Benioff had worked at Oracle before he set about disrupting it with the launch of Salesforce.com. In both cases, they didn’t just see the potential of the new, the knew the inertia and vulnerability of the old.
Entrepreneurs tend to seize opportunities that defy the logic of ‘experts’ in their sector.
In the mid 90s, the experts in the movie industry believed everything was heading from DVDs to video on demand. Blockbuster thought so – so they signed an exclusive VOD deal with the hottest company of the moment: Enron.
Meanwhile, a software entrepreneur facing a $50 late fee for bringing back a copy of Apollo 13 believed there was a new way of distributing DVDs by post. His name was Reed Hastings, and he created Netflix.
The experts in fashion retail thought there was no way that women would buy high value designer clothes online. A journalist, Natalie Massenet proved them wrong when she launched Net-a-porter as the industry, including the magazine publishers she used to work for, watched from the sidelines.
They also thought that there was no way that people would buy shoes online. Tony Hsieh, who had no retail experience, proved them wrong when he took over the business that would become Zappos.com.
A lot is made of entrepreneurs as disruptors. At Seedcamp this year, there was plenty of talk of ‘disruptive’ models.
Techcrunch call its hugely successful and influential conferences ‘Disrupt’ for a reason.
It is true that the internet has enabled disruption (it’s that physics of business again) and by being disruptive – which Balderton’s Dharmash Mistry once eloquenty defined to me as ‘changing the rules of competitive advantage in your sector’ – can make you a truly potent force for sluggish incumbents to deal with.
It is also true that in terms of identity, it always helps to been seen ‘a disruptor’: as the new little guy on the consumer’s side – versus the big, unwieldy incumbent.
Wikipedia has done this perfectly with Britannica. Arianna Huffington’s scything of Rupert Murdoch in front of the FTC was a masterclass in this; as is pretty much anything that Marc Benioff has ever said about SAP, Microsoft or Oracle.
But not all of the great entrepreneurial ideas are disruptive. And not all disruptive ideas are great. Chasing disruption for the sake of it is sugar-rush entrepreneurialism: it doesn’t create anything of long-term value.
Disruption is best when it is a by-product of creating a powerful new product or service: solving a problem that consumer sometimes didn’t even know was a problem.
These days we can’t live without Google; but before it existed, I couldn’t even have articulated my need for it.
Similarly, I wrote about advertising and throughout the 90s, I don’t ever remember a client or agency ever articulated even a frustration with the limited array of media available to them, that would suggest that within a couple of decades they might have moved a large chunk of their budgets into something that didn’t even exist.
This is how Niklas Zennstrom, described the balance between destruction and creation on stage at DLD at the start of this year.
“It’s not about what you destroy it’s what you create. It’s about seizing changes in technology, regulatory changes, and changes in how consumers are behaving, so you can do something much more efficiently – do it in a completely different way”
Which I think sums it up very nicely.
Entrepreneurs and entrepreneurialism isn’t always the domain of small start-ups. Big corporations can be disruptive when they enter new markets: it is how Richard Branson has always positioned Virgin. Microsoft did this when they entered the encyclopedia market with Encarta; and of course Apple has always been at its best by bringing a more elegant solution into an existing market: PCs first, then portable music, and then mobile phones (in case you needed reminding!).
I write all of this in the safe knowledge that I am not an entrepreneur. I’m a very happy wage slave who is no more likely to start his own business than to climb Everest wearing a silver tutu (no, not even for charity). But I know that the world I live in, and the world I work in would be infinitely less interesting without the entrepreneurs who have sparked so much change over the last decade.
So, let’s hear it for them, the real catalysts of creative disruption…