This is a guest post by Darren Fell of SME-focused online accountancy service Crunch.co.uk
Everybody is looking to shake up a particular market these days, leave old business models in the dust and entice potential customers with something they’ve never seen before. It’s a great way to attract early-adopters and generate fantastic publicity, but disruption is never smooth and can sometimes be plain nasty.
One unfortunate and often unforeseen side-effect of rocking up to a stagnant market and releasing a disruptive service is that your existing competitors are not going to be happy about it and will do their best to see you off in one way or another.
In a market where there are several large players you may receive acquisition offers or see your service copied. Although it is difficult to see at the time, this is a good situation, as these players are unlikely to take you on; they’re more interested in removing you from the market and keeping you close to them.
If you manage to resist their acquisition charms (and you should) it is highly likely that you will be able to out-innovate any of these lumbering competitors. As for copycats, any attempts to ape your service will ultimately be recognised as just that; companies like that are never a threat and are easy to outrun.
The more tricky problems appear in niche-based business that are deep markets of similarly sized competitors as none will have the capital to buy you out or the expertise to copy your service (assuming you’re playing to your strengths).
Any experienced entrepreneur will tell you that to be disruptive in this situation you have to be extraordinarily innovative to prosper. Saying that, if you’re confident in your product, quality will always prevail.
I was lucky (and strategic) enough to sell my start-up and second time around decided to venture into the could-be-sexier field of accountancy. The idea was to disrupt what I thought was a staid and stodgy business with cloud bookkeeping and online services that streamlined accountancy for customers.
There had been cloud bookkeeping services around for a number of years before my company Crunch was born, but these were still in the hands of traditional accountants who bundled their traditional business with software. It was business as usual, but it was business that was ripe for disruption.
After a long development schedule and gathering some key investors, we finally launched to the public and that’s where the opposition began.
Although you don’t have to be accredited by an Accountancy body to practise in the UK, we wanted to seek accreditation to give ourselves legitimacy. We approached the ICAEW (Institute of Chartered Accountants in England and Wales), but were denied as they simply couldn’t understand our business model.
To be accredited, 51% of your business had to be owned by an Accountant. As the shares were split between me, our head accountant and another co-founder, this wasn’t possible. We were effectively denied accreditation on the basis of their business model, not our business innovation.
Looking back now, this is hardly surprising. The basics of accountancy haven’t changed much in 500 years. This was our first run-in with the world of traditional accountancy, and unfortunately it wouldn’t be our last.
Several months after we launched one of our competitors managed to obtain our client list and sent letters to each and every one of them, trying to lure them away. Fortunately, no one did, but we now knew we would have to face up to an enraged community.
There was more to come. Shortly afterwards a freelancer we had employed (not in an accountancy role) gave a piece of incorrect advice about self-assessment tax returns in the comments of a blog post on an industry website.
A prominent blogger picked up that the freelancer was working with us and phoned our office to ask him about it. The blogger published the phone conversation in detail under the headline ‘Crunch giving wrong advice’.
Baffled as to why this supposedly independent blogger would go after us so vehemently, we checked him out on Companies House, which revealed that he was in fact a 10% shareholder in another of our competitors. As I said in the introduction, plain nasty.
So the gloves were off and will probably stay that way for the lifetime of our business.
Needless to say we still attract attention from traditional accountants on a surprisingly regular basis. Recently a competitor employed an underhand SEO technique to ensure an article where they criticise our service appeared just under our site on Google.
There are many other examples of innovative business models being attacked by the very industry they are attempting to improve. Google News, for example, has faced several lawsuits from traditional media outlets such as AFP and a number of newspapers for indexing and linking to their content – I’d see that as doing them a favour.
Other companies such as Netflix are lucky enough to have their competition roll over and die rather than compete, but few are so lucky. If you’re thinking about shaking up an industry you should be ready for a backlash from the old guard. They may seize on a mistake you’ve made to tar and feather you in public, or they may try more cloak-and-dagger methods.
The real test of a start-up is how they deal with these problems. Although our battles are relatively low-profile, we made sure we handled them with transparency… and just as importantly with confidence.
Ultimately the market decides who wins and loses, and the best response to a nervous competitor’s sabre-rattling is to out-perform, out-innovate and out-match them at every turn. If you’re good enough, adept enough and strong enough you will. If you’re not then perhaps being truly entrepreneurial is not for you.