Technological innovation is rapidly increasing, and the barriers to entry across industries are declining at unprecedented rates. Small and nimble teams are now able to introduce digital solutions to multi-billion dollar industries from their garage or basement headquarters. Though these startups are a major driving force of innovation, they can become sources of major concern for long-time established organizations.
These organizations often feel unassailable, believing their experience, brand recognition, historic track records, and business relationships provide all the tools they need to stymie any startup competition. As foundational as these achievements are, they are quickly eroded by the value proposition of new innovation.
Exploring different diets
No one is more familiar with this scenario than us. zu has been leading digital in Saskatchewan for over 22 years. Our humble beginnings date back to 1995 around the same time the internet was just gaining momentum. As businesses began realizing the importance of a web presence, we soon became known as a “website” company. At the time, building a website was an involved process requiring a certain level of technical expertise. But as technology evolved, costs declined, and new tools emerged, someone with limited technological knowledge was given the tools to create a decent looking website. Our market and core product offering was commoditized. Our bread and butter was given away - for free.
So we had to alter course and become a full-service digital and software agency. To get there, we considered the following:
- Look along the entire value chain. With the emergence of services like Squarespace, Wix and other self-help website builders, we realized a large part of the value we provided came from our experience and knowledge of what to build and how to build it, not just the mechanics of it. To have the impact companies expect from their digital investment, good design and a user-centric approach to projects became crucial. We found that our expertise in these areas helped us differentiate and elevate our service to a new market segment.
- Innovation doesn’t always require large teams or huge amounts of capital. What it does require is a specific mindset and a supportive culture. One of the best ways to minimize the risks of disruption is to continue to innovate, but this doesn’t always have to mean new products and services. Consider the supply chain, your business process, or your sales and distribution channels through the lens of emergent technology. Newfound efficiencies and distribution channels can significantly improve your defensibility. At zu, we made progress by switching to Agile in 2010, adapting to this modern process for software development. By using smaller teams who work closely together, we were able to gain efficiencies in multiple areas.
- Business models are rapidly changing, and so should yours. One of the most powerful disruptors is a new business model. After all, if someone is giving away your bread and butter, they (hopefully) have another business model they trust will be more successful. Innovating on business models is difficult for large corporations due to the fear of cannibalizing their existing business. It’s not until external pressures and declining revenues force them to adapt, that they finally take the leap. Take for example, a software company like Adobe, or even Microsoft, that finally moved to subscription models for several core products after years of resistance. Or consider the lucrative opportunities in opening up your platforms to third parties to create powerful marketplaces. Rather than supporting our projects on a one-off as-needed basis, we switched to a fixed monthly support and optimization offering. This allowed us to have predictable recurring revenue while providing clients with better maintained projects and mitigating unplanned expenses.
Disrupting yourself through reinvention
“Disruption” has become an overused and threatening buzzword in many industries. Young startups strive to be disruptive while incumbents fear the impact. But disruption doesn’t need to be negative, and more importantly, it doesn’t need to be caused by an external force - it can come from within. Incumbents have advantages that they can leverage in this area to compete and win. They have the means and the reputation to recruit the best talent, allowing them to execute on emerging technologies. Higher margins allow them to innovate, while large customer rolodexes are conducive to testing new products, services and ideas. When these tests yield positive results, their speed to market is often better because businesses prefer to partner with leading incumbents on new opportunities.
As long as you’re progressing, you’re not regressing 1
The areas of innovation we discussed hold tremendous opportunities for companies to continue—or begin—to innovate. Considerable research exists showing strong evidence for a positive ROI in innovation. This pay-off, combined with the intrinsic advantages of being an established incumbent, should provide the structure to move forward and discover ways to preemptively disrupt yourself. And if someone else does take the first step by giving away your bread and butter, these areas of focus (product, supply chain, sales and distribution, business process) will allow you to innovate and compete.
1 Dwight D. Eisenhower: “Unless we progress, we regress.”