22 Mar 2017
Disruptors have it easy to start with. Then they start running into predictable difficulties, says Costas Markides
Jeff Jones’s abrupt departure from Uber after just a few months is surely proof that the once seemingly unstoppable disruptor is in serious trouble. Jones was tasked with improving Uber’s brand and reputation.
In the six months since he joined as number two to CEO Travis Kalanick, the company has faced sexual harassment allegations, rows with regulators and legal challenges over intellectual property and tax. “Jeff came to the tough decision that he doesn’t see his future at Uber,” Kalanick emailed staff. The question is: does Uber itself have a future?
Airbnb, another high-profile disruptor, has just raised an extra US$1 billion (£802,700,000) to enable it to expand into new areas such as travel tours and luxury rentals. But while its global business is growing, the company has had its wings clipped after falling foul of regulators in New York, Barcelona and London (where hosts can now only rent out rooms for less than 90 consecutive days). Whether or not the company will be able to fly out of mischief remains to be seen.
Every disruptor has it easy at the start, says Costas Markides, Professor of Strategy and Entrepreneurship at London Business School. “They have a time advantage over the established firms, which take forever to respond – it can take five, 10, 20 years. Their first reaction is to say, ‘We’ll keep an eye on it.’ The disruptor’s market share is so small relative to the established player’s core business that they don’t pay attention to it – and if they ask their own customers what they think of the new model, the response sends them in the wrong direction, because to begin with it’s a new customer base.”
It’s when disruptors start to become established themselves that their problems start. Three things happen when disruptors grow big, says Professor Markides:
1. They lose the surprise advantage. “The established airlines, hotel chains, taxi companies – they’re not stupid. Now that they’re focusing their attention and resources on the disruptors, many of them will come up with good responses to slow down their growth. That’s when the competitive battle begins.”
2. They get noticed by the regulators. “Up until now Uber has had a free ride, not only from all the other players but from the government. Inevitably there’s going to be a backlash because there’s unfair competition. It’s the same with Airbnb. It will only take one or two bad incidents before governments will step in. New regulations will stop their growth.”
3. They go through a natural life cycle. “Just like people, companies grow, mature and decline. They start out small, very entrepreneurial, with the advantage of novelty and a wonderful business model. They grow and grow and then suddenly they’re a big firm, making big money. They put in place the structures and processes required for a big firm and the culture changes. Inertia and arrogance set in, the culture becomes a little less agile. They lose their competitive advantage.”
What can successful disruptors do, then, to stay ahead? Professor Markides offers three pieces of advice.
First: don’t wait for the crisis. “You’re on your upward trajectory now but at some point you’ll get to the maturity phase. Constantly challenge and question the way you operate. Deliberately create positive crises to challenge your organisation. If you’ve had a superb year, aim higher. Set challenging goals; a vision that reaches far beyond what you’re currently doing. Sell that vision to your people to win their emotional commitment. That leads to questioning and challenging and out of that come new ideas and innovation.”
Second: don’t let your company be disrupted unawares. “On the periphery of your business you’re going to see lots of things happening. Some of them may grow to disrupt you, some may not. The problem is, you don’t know which. How can you be ready and agile enough to respond to them? Look at what Google is doing.” Google has made equity investments in 3,500 start-up firms all over the world. “They see someone doing R&D in a garage somewhere and say, that technology looks interesting. I’m going to buy 10%. You might not have Google’s resources but you can still forge alliances.”
Third: don’t let success go to your head. “Companies go bankrupt because the leader, who started out as a good guy, starts making their millions and thinking they’re God’s gift to earth – they become autocratic.” Leaders of disruptive firms need to appreciate that they cannot monitor everything themselves. “You have to decentralise. Give autonomy to people, within defined parameters, so that in different regions people can behave in ways that give your company the agility it needs.”