When I pick up a newspaper, or turn on a business TV show, or look at the news, all I see is talk about this and that and everything else getting disrupted.
What the heck is disruption?
Well, there are a couple of different definitions but according to Harvard Business Review, industry disruption is “a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses.”
According to Patty, disruption is basically somebody coming into your market and doing something better/faster/cheaper than you are. They may have more efficient operations, faster delivery, or a better product or service. Whatever it is, they’re doing something different that’s going to attract customers, and they could be your customers.
When we talk about disruption, there are business owners out there (and I’ve seen ‘em and I’ve worked with ‘em) that think “Not me. That’s not going to happen in my industry.”
I’m like, ”Oh yes, it either will or it already is.”
Because it may not show up right away, but I guarantee there’s something simmering out there that’s going to disrupt your industry. These things don’t happen overnight— Uber and Lyft didn’t happen overnight— but they simmer, and once they prove their concept and get the funding to move forward, they take off and have a life of their own.
Disruption is out there. The questions are what form it takes and where it’s lurking in your particular industry.
Disruption is not the same as innovation, but innovation can and does create disruption in certain industries.
I used the example of Lyft and Uber above, and of course they used technology innovation that allowed them to disrupt the transportation industry (and turn taxi and limo services on their ear).
But technology isn’t the only thing that disrupts. Let’s look at the craft beer movement.
According to a story in the Harvard Business Review, a decade ago there were 1400 craft breweries in the US.
By 2016, there were over 5000.
That’s huge, exponential growth. It’s a movement that capitalized on changing preferences, and it expanded to the point where the big boys started to pay attention.
The big breweries realized craft beer was eating away at their market share and eroding sales (and hey, it’s also a product they can charge a premium for!) So what did they do?
They started to buy craft breweries and add them to their portfolio.
This is just one example of a big disruption in an industry not driven by tech. (If you’re still saying “this won’t happen in my industry,” that example was for you!).
From a financial standpoint, what does disruption look like for a company? Here are 3 key areas:
1. Sales could be eroding. Whether it’s year to year or month to month, sales could be on the decline. When you look at the numbers, they start telling a story— and you want to be paying attention!
2. You experience increased pricing pressure. If your sales folks are coming back saying, “We’re under attack from the competition with this kind of pricing and we can’t compete,” pay attention. When you start to see pricing pressures out in the field, you’ll either see sales start to go away (because you can’t convert prospects with your higher prices) or you’ll have to make price concessions, lowering your revenue.
3. Your bottom line is impacted (and not in a good way). Just like 1+1=2, lower sales + lower margins = lower profits. Plus, you’ll likely need to increase your expenses for marketing and advertising, so if your fixed costs don’t go down as a result, your profits will likely erode.
Do you see any of these signs in your financials?
Here’s what you need to consider to stay in business and turn chaos into profit:
1. Are you really looking closely at your financials so you can read the story? Your numbers would be telling you that story. It’s time to pay attention.
2. Do you have the right tools to be able to recognize symptoms and signs? Do you have the right systems, reports, and dashboards that would give you the red flag you need that says “Hey, Houston, we’ve got a problem?”
3. Do you have enough analytical horsepower in your company to be able to do all these things? Can you read the numbers and recognize them? Is there anyone in your organization who can do that? And now that you’ve seen and recognized the problem, what are you going to do about it?
Internally, you need to know your numbers so you can recognize a problem. What are your normal numbers on a monthly basis? If you’re paying attention and know them, you can recognize when some of this is impacting your numbers if you don’t already feel it in your industry.
4. Get help. Lean on your advisory board for counsel. What kind of internal response do you need or, even better, how can you get out ahead of this? If you’re fortunate enough to have planned out your business and have some kind of innovation that allows you to lead the pack and disrupt your own industry, more power to you!
5. Revise your strategic plan to take these market moves and disruptors into account. Revise your financial plan (which is linked to your strategic plan) so you know what’s going to happen over the course of the next few years with your business. It may impact other business (and personal) strategies…like your exit plan!
6. Take action. What’s your action plan in response to this? Or conversely, if you’re out in front of this and leading the market, then how are you going to keep people from grabbing onto your coattails and holding you back from furthering your efforts as a disrupt?
If you aren’t disrupting, you can be sure that your competitors are (or soon will be). That’s a given. The bottom line is that disruption requires a strategic response, so make sure you’re incorporating that into your planning process.
I’m here to help. I’ve experienced this and helped companies through it. Patty to the rescue!
Call me at 717.925.3270 and let’s talk about how we can get you back on your feet.