7 signs an industry is about to be disrupted

Every entrepreneur wants to build the next Airbnb, the next Warby Parker or the next SpaceX, the inventors, innovators and digitally advanced startups in an otherwise controlled corporate industry that can disrupt the norm. At the same time every corporate leader hopes they are not going to be the next in line to be disrupted, holding tightly to the structures in place where they dominate the market.

‘The Disruption theory’ was first proposed by Clayton Christensen in his book Innovator's Dilemma. The concept is that an outsider, usually a startup or SMB comes into an established industry and shakes things up with usually a digitally advanced alternative or sub category of an existing model. In the process, they are threatening or replacing the complacent legacy players (incumbents). Examples of this phenomena can be found in business, politics and even national security.

The Disruption theory has seen its fair share of criticism for being biased towards success stories supporting the theory and needs a wider explanation of its full capabilities and pitfalls, which happens in all forms of business.

Regardless of where you stand on the disruption theory debate, change is inevitable and is impending across all industries as digital 4.0 takes effect globally. The fact that Airbnb has a higher valuation than the Hilton group, without owning any rooms (tangible assets) can't be ignored. Another example of a digitally advanced extension of a well seeded business model is the fact that it’s cheaper and more convenient to take an Uber than a taxi - revolutionising the London taxi industry causing riots and putting existing taxi drivers out of business.

Disrupting an industry means more than just startups gaining market share from incumbents. Disruption is a shift in 'business as usual'. It’s a shift in the money flows and value propositions. Broadly speaking disruptions squeezes out the inefficiencies and those profiteering from lack of transparency, pushes the industry forward, offers a more convenient, digital option and brings real competition to a stagnant market that needs liberated into Industry 4.0. ‘The Disruption Theory’ is meant to serve both as a chronicle of the past and as a model for the future. To build successful companies we need to build, educate and allow for entrepreneurs to understand which industries are ripe for disruption and what digital design will be adopted the fastest, causing mass disruption in the Industry.

Corporate leaders need to understand if their industry is under threat of disruption to deploy immediate countermeasures or have an inhouse digital corporate innovation that can rival and protect their market stance against the new kid on the block from infiltrating the market.

There are 7 common patterns for industries that are ripe for disruption:

1. Consolidation at the top

One of the most important signs that an industry could be disrupted is consolidation at the top. This manifests through imbalance, or dominance by one side of the economic equation or power and dominance from one specific corporate company. Oligopolies, where a few companies have consolidated vast amounts of the market share are either on the supply or demand side, are good examples.

Airbnb first became profitable during the second half of 2016 and its revenue grew more than 80% from 2015 to 2016. Coincidently (or not) in the same year consolidation in the hotel industry started ramping up too.

Looking ahead based on this argument, one can conclude that the automotive industry's legacy business model, ie: car ownership, is about to get disrupted by a new business model, ‘cars as a service’. Consolidation at the top in this sector has just begun with the deal the two archrivals Daimler and BMW singed for car-sharing services.

2. Customer experience is depreciating but most legacy companies aren't making any real changes.

This particular symptom usually happens in industries where the consumer is stuck to a legacy provider out of necessity and the lack of options. The taxi industry is a perfect example of this stagnation and was exactly in this situation when Uber was introduced, offering a real, convenient alternative.

3. Losing customer contact to adjacent-industry players.

Losing customer contact can very well spell the beginning of the end for some companies. In an era where data is the new oil , companies that lack the resources or no longer have access to this vital resource will severely affect any players ability to build new products.

An example of this is Banks fearing that they will only become a provider to Amazon and in the process lose any hopes of getting any form of customer insight, Norwegian banks have teamed up to create a mobile payment solution. Vipps (a Norwegian mobile payment application) will allow the banks to stay competitive through customer insight, independent of where their customers have their actual accounts or what they choose to purchase.

4. The industry is part of CB Insight's researches.

Professor Steve Blank - A Silicon Valley Entrepreneur who was at the forefront of the Lean Startup movement which is customer developed centric defined that

‘Disrupted = your industry is part of a @CBInsights chart. Dead but don’t know it = mgmt response is “We have a corporate accelerator”

5. Opaque costing structure.

This particular pattern is more prominent, but not limited to, industries where from the point of origin of a good or a service exchanges multiple hands (middleman) before making it to end consumer. Generally speaking the middleman adds low to no value to the end consumer, but has a clear impact on the final retail price. A good example of this is the mattress industry, where the startup Casper disrupted the entire industry with a direct to consumer business model.

To some extent Tesla did the same to the auto industry using a direct to consumer business model - unlike the other players in the industry.

6. High Regulatory Entry Barriers

Industries with high regulation often suffer from complacency. Companies in these industries fail to innovate and improve due to an acute lack of competition which can be rife in the corporate world. The big fortune 500 companies for example become compalicent as they don’t have to worry much about customer experience or optimizing operations as in their minds eye they have already dominated and won the customer over in their chosen market.

Telecommunication carries felt safe under the regulatory umbrella. They failed to realize how new technologies and devices could disrupt their ‘bread and butter’ products: calls & sms. But companies such as WhatsApp didn't fall under the incidence of the regulations and took advantage of a sleepy industry to render the SMS service totally obsolete.

7. Customers are using outdated technologies because the majority of legacy players are relying on legacy infrastructures and ignoring the pull to digitally innovate.

Incumbents have legacy IT infrastructures which makes it hard to break the mold. Trying to build a mobile app seems pretty straight forward in this day and age, however once a corporate product team attempts it they will soon realize how complicated the backend system is and how negating this urgent detail has stunted the servers potential to grow and easily allows for startups to infiltrate with their tech savvy alternatives.

Challenger banks like N26, Chime, Monzo pose a real threat to the incumbents because they can build the product that customers want without having to worry about the legacy infrastructure, breaking the mold at a faster pace with real technical skills for the digital era.