Startups are increasingly about finding a weakness in an established business, applying some technology and generally doing a good job for customers, either cheaper or better or both.
The process can be sudden and appears to come out of nowhere, or at least from the perspective of the traditional player.
The University of Sydney Business School and Capgemini have looked at the whole process in a study entitled, Digital Disruptive Intermediaries; finding new digital opportunities by disrupting established business models.
Part of that research is to define the types of startups and part was to work out ways of dealing with the threat.
One of the conclusions is that established businesses need to move with a greater sense of urgency and see digital disruption as an opportunity.
“Businesses need to gain a thorough understanding of how Digital Disruptive Intermediaries (startups) change the flow of value in markets and, through this, uncover vulnerabilities and opportunities,” said Ben Gilchriest from Capgemini’s Digital Innovation practice.
“It’s through this that businesses will gain an understanding of where they are prone to disruption and where the opportunities are.”
The strategies recommended in the report are already in play by some of the bigger Australian companies. The most noticeable is the emerging theme of large companies buying into startups, or creating their own innovation business units and investing in accelerator programs.
The Commonwealth Bank this week launched its open-source mobile payment platform called Albert at its Innovation Lab in Sydney. It’s a space operated at arm’s length from the company and uses the startup model to act as an idea incubator.
And last year Westpac tipped up to $50 million into technology-focused venture capital fund Reinventure Group.
Telstra has its Muru-D accelerator program and the NRMA has Jumpstart, a startup program co-ordinated by the Slingshot accelerator and supported by Artesian Venture Partners and PwC.
The report says this is how businesses can prepare for digital disruption:
Think systemically: This is about anticipating a threat. Try spotting meaning in the insignificant. “Maybe disruption is already happening, but potential disruptors are still small and thus dismissed,” the report says. Take a fresh look. “Compare this to trajectories in already disrupted markets. What happened to the market system there? Where would a similar change leave you?”
Engage with customers: Think like a customer. What would it take for your customers to move elsewhere? “Not necessarily your own (customers), but those who choose the alternative,” the report says. “It is their perspective that potentially decides the game, not what the incumbent company believes.”
Create a spin-off or innovation team: Your very own startup team. There are likely to be people already in your company who can see challenges but can’t get anyone to listen. “Get these people to work with you rather than risk having them leave and join your competitor because they are being ignored,” the report says. “Often these people are driven by a burning desire to explore, disrupt and innovate from within. It is far better to let this ‘burning desire’ help you prepare, than be left behind and risk having to react to a ‘burning platform’ when external disruption gains momentum.” The goal is to learn and better understand new technologies. “Evolve the core business and integrate emerging technology where it makes sense.”
Allow experimentation: The report says large companies are built around risk management, failure prevention and compliance. “Ironically, these structures and mindsets become the greatest risk to the business in the face of disruption as they slow the business down,” the report says. “Remember, not only do disruptors see the opportunity sooner, they are also naturally faster in their execution and are prepared to experiment, because they are not bound to the legacy of the current market system.” So an innovation team needs to be managed differently, be allowed to fail.
Empower employees: Remember that big companies also have advantages as well as disadvantages. They “can see with a thousand eyes and draw on the ideas of a thousand people”. Yet a lot of companies don’t listen. “It is important to create openness, transparency and improve the free flow of information and ideas.” There are tools out there, new apps, which enables the flow of conversations across an organisation.