The Unintended Disruptions that Disruptive Enterprises Cause….

To be an entrepreneur is a serious act of courage, that too of a disruptive enterprise. The word ‘disruption’ has assumed such a cult status today, from all its old world baggage of causing destruction, discontinuity, disturbing etc. Its risen to becoming the most aspirational facet of any thing new – enterprise, organization, management, whatever – just go and disrupt, and fame should be on its way! .

When one observes a no of interesting Start Ups, that are going about disrupting businesses, consumer habits and business systems – they are also causing some possibly unintended “disruptions” that seem to catch up with them.

Disrupting the Business Logic:

All businesses are created to give a return, value to the stakeholders. In short earn a profit to exist. Disruptive enterprises seem to follow the logic of just doing what is disruptive, make it big, bigger and bigger … buy customer franchise and loyalty and don’t you worry of earning, or making a profit. Fuel your disruptive enterprise, on the basis how consumers are adapting and changing the way business is done, and there is perception of huge value for it. Lets raise a round of funding, then another, then another … Series, A, B, C, D, E, F… Fund Raising Ad Infinitum! …. And then we go A to Z, Tom, Dick and Harry through a listing to fund further growth. Its heady, what a great world to be in where you can spend, spend, and spend to achieve your dream disruptions and not worry about profits. There are enough examples where, cash flow is confused with profit, and consumer franchise is understood as net worth! … This new syntax is worrying, it disrupts conventional logic of any business has to make money.

The answer is in bringing in some sense, if a disruptive enterprise does not make money to break even in 3 or even 5 years…. Talking about the long term, is habit causing where you keep seeking funding, and more you get, more you spend and make the enterprise so large that is becomes attractive enough for an acquisition.

Disrupting Regulation:

The regulatory framework of laws, that govern commerce, business, transportation and all are conventional. Disruptive enterprises are learning an expensive lesson later in life; just as the taxi hailing Cos is doing about regulation. Its true that the legal and regulatory frameworks have not kept pace with the innovations and disruptions, and are lagers. But, laws have teeth and can deliver painful bites to these disruptive enterprises.

Take the enormity of the disruption that e-commerce is causing. Billions of dollars of business is transacted every day cross border on the AliExpresses of the world where consumers buy in small parcel sizes, in order sizes of $ 1,2,5,10, or 100. Most countries import and trade laws allow for consumers to bring in duty free products for own use, some countries allow this up to limits of $ 300 / 400. Now with the millions micro orders, the conventional retail and distribution networks are disrupted with a large order processing platform directly transacts with consumers world over. No duty, No serious customs checks etc., Airlines, Postal &Courier services are bursting at their seams and all of this is happening below the line of regulation. Countries will perceive revenue loss and will claw forward with new regulation, yet another bite is on the way.  

I am all for disruptions in technology, and enterprise that bring positive change and make this world a better place, improve the quality of lives of people. Indeed, progress depends on embracing disruptions. However, it would be great if disruptive entrepreneurs pause and make some shifts in there governing logic:

Some Take Aways :

-      Make business plans that aim for a breakeven and profit within 3-5 year band. Too much of longer term, is dicey and in the very long terms everyone dies!

-      Pinch yourself, to learn that acquiring customers is a means to an end and not an end itself.

-      Revenue no’s, and cash flows, reflect only the momentum and churn – and don’t confuse them with the bottom line.

-      Learn about regulation, if there is no regulation or a loophole; Governments are not proactive but hugely reactive when it comes to a revenue opportunity. They will bite you hard.

-      Last but not the least, drop the magical words “ will get out!”… At the right right time. When you build an entire business on the  “just get out at the right price”, you might get caught. If you build a business to stay and make money, you may naturally attract a takeover.

-      The desire the build a lasting enterprise – being compliant to law, and caring for its customers, will make disruptive enterprise truly the change agents and value creators.