When’s the last time we all enjoyed a good “Lazy Stupid Company Destroyed By Tiny Upstart” story? It’s been way too long.
Sure, there was Netflix destroying Blockbuster. Everyone in the tech world liked that one. “Dumb” Blockbuster, which ran thousands of videotape-rental stores, was famously blindsided by nimble Netflix. The story is made even more delicious by the recent revelation that Blockbuster passed on the chance to buy Netflix for a mere $50 million. (Today, Netflix is worth $143 billion dollars.)
And what about Amazon’s beating Barnes and Noble? That was a classic! (If you’re too young to remember what Barnes and Noble was: it was a retail store that sold physical books. I shit thee not.)
Entrepreneurs love David and Goliath stories, and tech entrepreneurs most of all. These stories give us hope. Here we sit, in our shabby cubicles, eating Ramen noodles in threadbare hoodies, dreaming of the moment that our tiny, overlooked startup will be catapulted into the big time! All those executives at Stodgy Company X will rue the day they passed on acquiring our Turn-A-Photo-Into-An-Emojii app. They could have bought us for a cool fifty mil, but they neglected to reply to our email, damn them. (Well, okay, the email bounced, because the CEO’s address wasn’t on the web site, and so we just guessed; but, still, you get the point.)
The thing is, these Huge Fat Lazy Industry Destroyed By Startup stories are weirdly rare. Blockbuster was delisted from the NYSE in 2010. Barnes and Noble closed its original store in 2014. So — what is that? — two stories in an entire decade? Putting those two aside, where are all the other inspirational David Beats Goliath stories? Uber changed the taxi industry, no doubt about it, but it’s not clear Uber’s business model will outlast the oncoming regulatory counter-attack, or that it’s even a sustainable business model in the first place.
And yes, Tesla is trying to “disrupt” the automobile industry, but the jury is still out on whether it will survive, let alone succeed; my money is on Tesla’s nameplate being acquired for a pittance by one of the big automakers.
And what about the Tech Giants we all fear today, Facebook and Google? Strangely, they didn’t disrupt any industry at all. They invented entirely new ones.
And so, when you really think about it, you realize that the tech industry is lying to itself — telling itself fables. We’re not disrupting lazy, hidebound industries. We’re building apps, or SaaS platforms designed for… other technology firms, come to think of it.
In the last decade, venture capital has poured nearly one trillion dollars of cash into technology startups. In that time, we’ve had two successful David-beats-Goliath stories (Netflix, Amazon), a handful of David-still-fighting-Goliath-but-Goliath-not-giving-up stories (Uber, Tesla). And a lot of Emojii Apps and Email-Marketing-For-Other-Tech-Companies stories.
People smarter than I have pondered where all the Disruption Has Gone. Some say laws passed at the beginning of the decade, like Sarbanes-Oxely, have made going public so unattractive that companies now prefer selling out to corporate sugar daddies rather than destroying them. According to this theory, countless Netflix-like companies quietly sell themselves to their respective Blockbusters, rather than loudly competing with them.
Others say that Western capitalism is in its death throes, that economies are naturally prone to aggregation and concentration, and that we need the light touch of government to break up monopolies and ensure “fair” competition. (As someone who has personally enjoyed the light touch of government, more than once, I am dubious about this theory.)
But what if the answer to the question “Where Have the Disruptors Gone?” is not outside forces we can’t control (government regulation, End-of-Days Capitalism), but rather, something closer to home? What if the reason that industry disruption is rare is that we tech people are just plain lazy — as lazy as the companies we make fun of?
The thing is, it’s hard to destroy an industry. Industries don’t simply appear, fully formed, like Athena springing from Zeus’ head, fully grown and dressed in armor, lumbering around and ready to be disrupted.
Industries evolve. They start at point A, then move to point B, then address customer needs at point C. Industries and companies have benefited from a Darwinian natural selection, a co-evolution of customer need and vendor response, a waltz from one local optimum to the next. Structures that seem stupid or inefficient to outsiders who think they know better were created through an iterative process of real people solving real problems with real money on the line.
To put this into human biology terms: just because you can’t explain why your abdomen has an appendix, doesn’t mean you should rip it out in order to “disrupt” it.
If you study any industry, you’ll find a lot of these appendixes — that is, a lot of weird inexplicable organs that don’t seem to add much value, and which are crying out to be “rationalized” or cleaned up, but which are unfortunately attached to other parts of your body that are not so extraneous. I’m sure Elon Musk looked at the auto industry and saw a lot of dumb processes that could be done better or differently — from manufacturing, to retailing, to financing. But then again, those processes evolved over a hundred years of automobile production, and were the result of a lot of hard-learned lessons. Maybe Tesla’s Model Three production is troubled not because Tesla can’t produce enough batteries, but rather because Musk disrespected a century worth of industry knowledge, from inventory management to shop-floor design.
And there’s another thing. Disrupting an industry requires a deep, intimate knowledge of the industry being disrupted. Silicon Valley doesn’t like to admit this. It likes to tell itself that “management” and “technology” are two skills that are not industry-specific — that any good executive can parachute into any company, in any industry, and fix it. You can see why venture capitalists like that story: VCs are living, breathing embodiments of it! What, after all, is the typical VC curriculum vitae, except this: an executive hits a “home run” in one industry, and then suddenly feels qualified to pass judgement about the mettle and prospects of other executives, in other — possibly far afield — industries.
Which is preposterous, really.
Indeed, the only thing that is more preposterous is the idea that a twenty-year-old kid, just out of college, ought to be an executive at one of those VC-funded companies asked to disrupt that hundred-year-old industry the VC is looking to destroy.
All of these reasons explain why Silicon Valley is mostly stuck building SaaS email platforms, and emojii apps; and why VCs are funding these masturbatory ventures. Because doing the hard stuff, like destroying entire industries, is actually, you know, hard… and vanishingly unlikely.
So we tell ourselves stories, don’t we, about how we’re out to destroy entire industries, and overthrow traditional companies! About how we are building the next Netflix or Amazon, or Uber!
But for most of us, who are busy building web pages that help other web companies do web-ish things, these are merely stories. Twenty year olds aren’t going to disrupt anything, except perhaps my sleep, and neither are the VCs that fund them.
Meanwhile, all the grown ups will continue to provide real service to real customers, in unglamorous industries most twenty-year-olds have never heard of, and never will.
P.S. Hey, if you want real disruption, come check out Collective2. We’re actually destroying a real, fat, lazy industry — hedge funds — by building something better: the world’s first Internet-based, distributed hedge fund.