26 May

Dragons of Idea Age

Dragaons of Idea Age

In the last five posts, I argued that we have just entered the idea age, another renaissance, and what can we do to prepare for it. This post is about the unique risks that idea age is bringing to your business/career.

Exponential Growth

Exponential growth is a double edged cutting sword. If you not on an exponential growth, or if you are on a slower exponential curve, someone else will set up so much of lead over you in a short time that you might as well go home and hand your boots!

Different-exponential-curves

The graph above shows two exponential curves, one growing at just twice the rate of another. But the difference is startling even after a short growth run. WhatsApp, which is a company designed for the exponential era, has half the market capitalization as Tata Enterprise. WhatsApp employs just 55 people and is 5 years old. Whereas, Tata enterprise employs a small country and it is more than a 100 years old.

Because a competitor growing at faster exponential rate can set a very large lead over others, the slower growing company will soon be marginalized and fail to be of any significance to anyone.

Agility over Accuracy

Early-exponential-start

Because exponential curves grow quite quickly, a delayed start is worse than slow start! In the exponential era, agility in terms of quick start and quick execution is more important than getting things right. Time and again, companies and countries have proven that being faster (Thailand) is better than being right (India). Among the exponential companies, everyone is expected to be reasonably accuracy. But that is just the entry ticket. The real differentiation is the speed at which they execute their business.

Software is Eating the World

marc-andreesen-software-is-eating-the-world

Marc Andreeson (of Netscape fame) famously told that ‘software is eating the world’. Everything is getting digitized. Healthcare is the next industry that is dangerously close to getting disrupted by digitization.

Giants like IBM, Google, Qualcom, Apple, etc. are working on solutions that will record better health data, analyze it better, do better diagnosis, do cheaper diagnosis, etc. They are all in the verge of producing a working commercial solution over the next few years. When they are rolled out, the current healthcare model will be stood on its head.

Other disruptions that are already under way are Uber and Airbnb. Uber is disrupting taxi services all over the world. They own no taxi cabs (only thing they own is an app), but there are talks in the rumor mill that Uber is going to be the next $ 100b company. By the way, when self-driven cars become common place over the next few years, services like Uber will kill automobile manufacturers too.

Airbnb is disrupting hotel services all over the world and it is already valued around $10b. Airbnb too doesn’t own a single hotel room. Only thing they own is an app!

If software companies can disrupt taxi services ‘and’ automobile manufacturers, what do you think they will do to your business! It is a question that is worth pondering over hard and fast.

Network Externality

Network-externality

Imagine you invented fax machine. Just after you made the first fax machine, when there is only one fax machine in the whole world, the utility of the machine would have been zero. After all, who would you have sent a fax to!

But then, when you made the second fax machine and put it in someone else’s office, your own machine will become valuable. Thus, with the addition of every fax machine in the world, the value of your own machine goes up. Not only that, when a new fax machine is added to the network, the utility of everyone’s fax machine goes up too!

The value of fax machines around the world keep going up when more people start using it. Eventually, the utility of fax machine becomes so high that no one can afford not to have a fax machine. In other words, the network effect becomes so strong that it traps you inside it. The cost of breaking away from the network is too high that the network becomes self-perpetuating.

That is network effect or network-externality.

Software companies are much more dangerous when it comes to exploiting network externalities. Because the cost of servicing an incremental user is next to nothing, software companies can quickly grow the network of their users. That’s why in software, the leaders like Windows and Oracle have always had upward of 90% market share!

What we must take note is that all software-enabled services, like FaceBook, Google Maps, Airbnb, Uber, etc. are also enjoying the advantage brought to them by network externality.

So, if and when your business is going to be digitized, you can be sure that it will be yanked so fast and so definitely that you will have no option but to walk away. What is really bad about it is that the software company that is going to eat your meal doesn’t even have to have an office in your country!

What now?

Ask yourself these questions:

  • If Google (or Airbnb or Uber) wanted to get into your business today, how will they do it?
  • Can I do what they would have done?
  • Do I have the capability in me to manage an exponentially growing business?
  • If my answer to one or both the questions above, what can I do to acquire the missing capability? Or, what would be my Plan-B when someone starts digitizing my business?
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