Disrupt Yourself

In the mid-1970s, Betamax and VHS were introduced to the market. Over the next 30 years, we experienced the full cycle of an industry. That experience prepared me for what is happening in the jewelry industry today.

Back then, I had a summer job working for a small Chicago retail chain that sold billiard tables. The billiards business wasn’t exactly hopping, and the owner decided to expand the business to other forms of home entertainment. We introduced VHS and Betamax machines, and I learned to hook them up, set the clocks (!), and program them to record television programs. A few short years later, movie studios began releasing movies for home viewing. Billiard tables disappeared from our stores completely, replaced with racks of rental movies and home recording technology. The company was rebranded as a video chain, and we shot up to 14 stores, while independent video rental stores opened in every community in America.

Around that time, I moved to one of our suppliers. We were tasked with stocking the first two Blockbuster Video stores with the ideal movie rental inventory. In the years that followed, Blockbuster systematically wiped out most independent video retailers with its expansion strategy. As video prices dropped low enough to for consumers to buy them (instead of just renting), I was recruited by another company to launch its video catalog business. Then came DVD, which made Netflix possible (if you recall, Netflix’ original delivery system wasn’t digital – it was the US Postal Service). Cheap, ample movie fare without leaving your home (not just Netflix, but also the proliferation of cable channels) ultimately killed Blockbuster. In 30 short years we experienced the birth, explosion, disruption, and death of an industry.

The history of the video industry offers several important lessons for those of us considering our next moves in the jewelry business. Here are a few of them.

1. Don’t Be a Purist (Unless You Can Differentiate It)

Being a purist isn’t a formula for consumer success. In the video world, there were constant, fraught battles between the Beta and VHS camps. People took sides. It’s OK for consumers to take sides in that type of battle, but not business owners. Video store owners and studios (suppliers) who took sides instantly eliminated a large percentage of buyers. The lesson? Give consumers what they want in as many ways as they may want it — unless you can turn your niche into a powerhouse of differentiation.

We see this today in the jewelry industry, as people take purist stances relative to product. Lab grown diamonds, ethically sourced and made jewelry, silver jewelry, plated jewelry, hand-made jewelry, crunchy-funky-designerly jewelry — these are things that consumers want to buy and many retailers still refuse to sell. If you’re such an upscale jeweler that you can differentiate on that premise (question: many $50k+ items do you sell each year? More than 10? 20?), you should be feeding the quacking ducks rather than running around looking for swans.

2. Adapt Adapt Adapt

My boss at the billiard chain was in his 60s when he transformed his stores from selling billiards to selling video — at the time, a bold bet on technology. I watched him continue to adapt to the changing marketplace, keeping his eye on the newspapers and his ear to the consumers. When he got in financial trouble from his rapid growth, he sold the chain of stores to a large music chain and cashed out at just the right time.

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His adaptability is what kept him young, kept him profitable, and gave him an excellent retirement. It wasn’t without struggle, but he made more right decisions than wrong decisions due to his ability to adapt.

3. Don’t Just Expect Change. Anticipate It.

Don’t ever count on things staying the same. If you’re not always thinking about what’s next, you won’t remain relevant. Just last year, a retailer was quoted in an article (in the Centurion Newsletter? I can’t find it now) as saying that he’d rather retire than work this hard. If retirement is a desirable option, that’s great. But if it’s not – either because the funding isn’t there or you just don’t want to stop working yet – then it’s important to accept that change is accelerating. As someone commented in a very lively conversation on Facebook, “the things we all have to know now are staggering.”

I don’t know about you, but I’m not fond of just covering my face and hoping my boat makes it through the rapids. I’d rather act. And that means being a student of business; reading, researching, testing, failing, and trying again. Anticipating change is far more empowering than resisting it or just getting swept up in it.

4. Your Business Model Can’t be Static

Your business model is the design for your business. It includes how you sell, your revenue streams, product types, which customers you target, and how you are financed. When technology disrupts an industry, the most powerful response is at the level of your business model, not just with product selection or prices. In fact, the most dangerous response to a disruption is to cut prices.

The video example we started with is a good one for this. Video started out as a rental industry. Then it became a sales industry. Then it became DVDs in the mail, and finally it became digital online delivery. Blockbuster failed to convert its model quickly enough to compete with Netflix. Netflix started with mail delivery, but always intended to switch models to online delivery as soon as network speeds were high enough. Right now, retail store owners and operators are all asking the question “what’s the future of retail?” The smart ones are looking at how to change their models, not just product selection or in-store experiences.

5. Compete Against Well-Funded Competitors Differently

My wholesale clientele continues to be hounded for “exclusivity” by retail store owners. In an industry that is completely saturated with product – much of which looks startlingly like everything else – exclusivity doesn’t mean what it once did. Sure, some brands advertise more than others and enjoy a modicum of consumer awareness, but even that isn’t enough to capitalize on for competitive advantage at the point of sale.

And yet, negotiating for exclusivity and pay terms continues to be the primary strategy for too many retail operators in the jewelry industry. It’s tempting to think that big boxes, department stores, and retailers in other industries aren’t competing for your customers. But they are. And consumers are responsive to offers and opportunities that make their lives better and easier.

Netflix went up against Blockbuster with business model as a differentiator. They saved all that money on real estate, leases, and fixtures, and invested it in smart marketing. Direct marketing, to be precise. They went after the lists of consumers that direct marketing catalogs had long traded with one another, understanding that people who were already comfortable with getting things in the mail would adopt to their business model faster than people who weren’t. They went after an increment of Blockbuster’s audience. Then, bite by bite, they ate into their market share.

6. Embrace Technology to Become a Disrupter

Technology is at the heart of much (but not all) business disruption. Netflix leveraged a bet about where technology was going (online digital delivery of large files) to start a business, and they won. Today’s entrepreneurs must be students of technology.

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Have you drunk the Kool Aid that makes you believe that you’re too old to become technologically literate? It’s time to get off that drug and recognize that if you have the smarts to run a business, you have the smarts to stay on top of what’s happening in the tech world. It’s not inability, but will, that keeps most people from embracing this aspect of their businesses.

7. Invest in Business Culture as a Differentiator

You can't be the only person in your business focused on differentiation and disruption. You need the participation, support, and ideas of your entire team. The notion that two minds are better than one is not only true - it's essential in today's hyper competitive market.

To get the exponential benefits of many-minds-innovating-together, you must create a strong, positive business culture that attracts the right people, motivates them to contribute to the improvement of the business, and makes them want to remain a part of your team for as long as they can. Get business culture on your radar as an area of primary focus. It could mean the single biggest difference between stasis and success.

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Disrupt Yourself

Years later, after I had left the video business and gone into consulting, I returned to Blockbuster corporate for a year-long assignment. Same store sales and rentals were down across the country, Netflix was starting to look like a real threat to them, and they needed something new.

After completing our initial analysis, my partner on the project (Katie Muldoon) and I wanted to examine their business model (the impact of Netflix was looming), but that’s not what corporate leadership wanted. Instead, they doubled down on product, going after a different, nichier, video product category. In a chain of stores that was already saturated with too much video inventory, they saw product as a way out.

Yes, hindsight is 20/20. But that’s why we have case studies. Disruption, once a word that suggested something out-of-the-ordinary, is now the norm. So as Jack Welch said long before the rest of us really got it, find a way to disrupt yourself. Well, he actually said to do it before someone else does it to you. It’s not too late for you to get creative. The fact is, nobody really knows what the future of retail is yet. That leaves a lot of opportunity on the table for smart self-disrupters. Might as well be you.

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