According to the theory of diffusion of innovation, only 2.5 per cent of the general population are innovators. The rest of us simply follow. But reinvention—those little steps that you can take right now to improve your business—is something everyone is able to do.
Last week I joined the Innowave Summit in the Bulgarian seaside city of Varna. I first participated in the event before the Covid-19 pandemic, back in November 2019. The summit’s vision is to unite the digital leaders of Europe and boost the innovation ecosystem so I was happy to join again, this time to talk about how easy it is to kill a start-up or business.
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When we analyse past Fortune 500 lists, which rank the largest 500 United States corporations by total revenue, it’s always interesting to see just how few of those companies still exist today. In the case of the original 1955 list, only 60 companies are still in business. Almost 90 per cent are gone.
Why? In a lot of cases because of their arrogance and overconfidence.
Too big to fail
Think about Kodak. At its peak, the company sold 90 per cent of all photographic film and 85 per cent off all cameras in the US. Kodak went bankrupt in 2012.
Another one, Nokia. My first handset was a Nokia and I still remember the 3310 model. You could replace the outer frame. I really liked the phone. At its peak Nokia controlled 40 per cent of the global market but in 2013 it was acquired by Microsoft to save it from its own collapse.
Yet another one—Blockbuster, an American video rental chain of 9,000 stores. In 2000, the founder of Netflix met with Blockbuster’s CEO to propose a partnership. Netflix would run Blockbuster’s brand online and Blockbuster would promote Netflix in its stores. The founder of Netflix was laughed at.
The list goes on—MySpace, Enron, Lehman Brothers, and WeWork, the office-sharing company, which filed for bankruptcy earlier in November.
They all have one thing in common, they all suffered from a corporate disease and brought about their own downfall. The symptoms are evident. Number one is arrogance as these companies and their management simply think that they are superior, untouchable and unsinkable, or too big to fail. Number two is excessive attachment to past success—they were successful in the past so success must be in their DNA.
But in this rapidly changing world past success was their enemy.
And third, an inability to recognise the new and emerging reality—they are so used to doing the same thing over and over again that they don’t see that they live in a world that is changing at an unprecedented pace.
Like the Titanic
This is also why the Titanic sank. She hit an iceberg but was it the iceberg that sank her?
The largest man-made moving object at the time back in 1912 was considered unsinkable.
When she was approaching the iceberg, the crew was warned six times. Radio operators received warnings, but they were so focused on helping the richest passengers that they ignored the messages.
The crew had had no training as the ship’s construction was completed just days before the first and last voyage.
The first officer William McMaster Murdoch, who was behind the steering wheel as the captain was already asleep, was known for his cool head and quick thinking and had a fantastic track record of avoiding ship collisions.
The crew members on shift in the crow’s nest did not have binoculars. They were locked in a storage room that no one had the key to.
Of course, there was also the iceberg. In the case of companies, the iceberg is new and sneaky competitors, overbearing regulations, delayed supplies, new technologies.
Companies that never go out of their comfort zone to acquire market information, don’t have enough time for reflection, strategising, creative thinking and proactive action, keep on saying, ‘we have always done it this way and it worked,’ always blame their failures on someone or something, suffer from Titanic syndrome.
And the current global circumstances, defined by volatility, uncertainty, complexity, and ambiguity (VUCA), make it even easier to kill a company.
Reinvention is key
Looking back at the US market, at the times of the men who built America—people like Andrew Carnegie, Henry Ford, John D Rockefeller, and others, it was way more difficult to kill a business simply because companies enjoyed long and happy lives. The life cycle of an average business was about 70-75 years. This meant that a company could slowly achieve its top financial performance and milking the cash cow could go on for decades. If any disruptions occurred, the management had plenty of time to deal with it.
Then came the late 1980s and the early 1990s. Geopolitical changes, the collapse of the Soviet Union, the opening of China, the dot com boom and the tech boom reduced that life cycle from 75 to 15 years.
Now, the median life cycle of a business model is only two to three years. More than 16 per cent of all businesses today have to reinvent themselves every 12 months—or quicker.
It is clear that there is now more start-up activity than ever before, and those start-ups also continue to die at a high rate. Only a third survives the 10-year mark.
Today, a business can be killed by Titanic syndrome or by the extreme speed of change and disruption. Or both.
Reinventing a business is the only way to protect a company.
Albert Einstein allegedly said that imagination is more important than knowledge, as knowledge is limited. Imagination encircles the world. We need to use our imagination and think outside of the box.
We are all fixated on innovation. I googled the word innovation and got 3.6 billion results.
Innovation is a far-reaching goal and, according to the theory of diffusion of innovation, only 2.5 per cent of the general population are innovators. The rest of us simply follow. But reinvention, which is all those little steps that you can take right now to improve your business, is something everyone is able to do.
Focus on reinvention, not innovation.
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