How To Tell If An Industry Is Ripe For Disruption

There are patterns and they usually highlight entrenched interests that benefit sellers rather than buyers.

Which, come to think of it, kinda sounds an awful lot like Big Tech right now. JL


Todd Belveal reports in Medium:

One of the important signs that an industry could be disrupted is imbalance, or dominance by one side of the economic equation. Entrenched, oligopolistic behavior (despite competition) leads to a greater incentive to preserve the past rather than innovate for the future.Old technology is used not because it’s best for consumers, but because it’s the best way to do things for entrenched interests. Industries where the major players are using old technology are usually ripe for disruption.

Everyone loves a good underdog story.

Whether it’s a 15-seed running deep into your March Madness bracket, or an NFL quarterback who’s working at a grocery store to keep his dream alive, we’re all eager to see the little guy win every now and then.

And some of us get a similar thrill when a startup muscles its way into an industry, going up against established players and coming out on top.

We all want our startups to be the next Uber, the next Airbnb.

Everyone is looking at industries with established companies and wondering how they can topple them.

The question is, is it possible?

Is this industry ripe for disruption?

I’ve founded two startups in two very different industries — rental cars and laundry — and I can tell you, there are some signs. There are things that will tip you off that an industry could use some new blood.

1. Power Is Consolidated

One of the important signs that an industry could be disrupted is imbalance, or dominance by one side of the economic equation.

Oligopolies, where a few companies have consolidated vast amounts of the market share either on the supply or demand side, are often good candidates.

Rental car companies are a great example.

Nine brands control 80% of the market.

Not too bad, right? But there are actually just three companies that own those nine brands. Two of those company headquarters are actually in the same little town in New Jersey.

It’s incredibly consolidated. And that makes it seem difficult to disrupt because the barriers to entry look high.

But that sort of entrenched, oligopolistic behavior (despite competition) generally leads to a greater incentive to preserve the past rather than innovate for the future.

So, when things do change, those huge companies can stumble. They’re big, slow, and often too complex to adapt to new technologies.

That’s where startups shine.

Startups have the ability to work fast, to develop quickly. Speed is their greatest asset, other than their technology.

You may be a small fry, but you’ll likely find opportunities when you enter an industry with these dynamics. A lot of the large companies in these industries have become more self-aware.

You may even find an exit among these important players.

2. Consumers Are Using Outdated Technology

Massive companies often have incredibly complex systems, and that makes it difficult for them to implement new technology quickly.

Creating a smartphone app seems pretty simple, until you realize you have to deal with your complicated backend system and business model. A mobile platform requires simplicity, not complexity.

Industries where the major players are stuck using old technology are usually ripe for disruption.

A good example of this is the laundry industry.

I know, disrupting laundromats doesn’t sound flashy, but that’s exactly the point. Laundry isn’t flashy.

It’s old school.

Whether you’re doing it in your apartment building, or you’re heading to the laundromat, there’s a good chance you’re still using coins.

At best, you might have a rechargeable card you can swipe.

My current startup, Washlava, brings together the machines, the technology, and the users. Consumers can use the app to check which washers and dryers are open, reserve them, and then pay with their phone at the laundromat.

No more hoarding quarters.

No more trying to force your wrinkled dollar into a change machine.

It isn’t the craziest idea anyone’s ever had, but it feels like it because of how antiquated the current system is.

Old technology is often used. Not because it’s the best way to do things for consumers, but because it’s the best way to do things for a few entrenched business interests.

That’s an opportunity for someone to give consumers what they really want.

3. Business Practices Aren’t Changing — Despite Negative Consumer Sentiment

When developing the original concept of Silvercar, what struck me was just how universally panned the car rental industry was.

I was obviously inspired by my frustrations, but I was not alone.

Car Rental has a net promoter score of 23. (Just to give you a benchmark if you’re unfamiliar with the NPS, Apple has a net promoter above 80).

Basically, less than 1 in 4 rental car customers in the US would recommend these brands to a friend.

At Silvercar, we were working to create a simplified experience for renting a car. Something that might not be for everyone.

But for the right person — say, a business traveler — it would feel like a godsend.

Despite the sentiments reflected above, car rental companies did very little to improve the overall experience — either because they didn’t want to, or simply couldn’t due to the complexity of their systems and operating models.

After Silvercar was launched, National rolled out their “choose any car on the lot” campaign. It was a smart move because choosing a car was part of our value proposition, but it was also an easy move.

It wasn’t exactly a game changer, because you’re still choosing from the unexciting selection of cars on the lot.

But that type of fealty to the status quo is exactly why companies are sluggish when they have to respond to changes in the market.

It’s exactly why startups can flourish in those markets.

4. The Research Backs You Up

I always recommend that people spend a lot of time, and even a lot of money, doing research on the industry and the idea.

Why?

Because research breeds confidence.

Confidence in your idea and confidence in your business plan.

Spend what you need to make sure there’s really an opportunity.

Figure out who the competitors are and what they have. You need to know what you’re getting into from a competitive standpoint.

You need to know that your company could truly contribute to the industry.

The research is what will confirm all the other points I’ve talked about. Or it may tell you that breaking in will be tougher than you thought. Whatever the case, put in the time to research what you’re getting into.

It’ll give you the confidence you need to take your shot at disrupting an entire industry.