Founder Turnaround Talk
August saw many companies scrambling to get their tax affairs in order as the first deadline for provisional tax filing was set. This left companies looking towards the second half of their year and possible adjustments in the budget to accommodate for sectors which need more attention than others.
Risk profiling, or risk analysis, is something that companies are spending significant budgets on since the beginning of the Covid-19 Pandemic. A lot of attention is being given to trends that will cause disruption; however, how much time and human capital is spent on root cause analysis? What is driving change?
I read an interesting blog post which tries to get to the bottom of this.
A new approach
The blog post points out that, disruption is a new way of doing something that exists. That’s about it.
The emergence of new technology is often cited (confused?) as what drives disruption of an industry or business. But that’s rarely the case. Startups/innovative companies disrupt established companies by disjointing the customer value chain.
The blog post points out that it is easy to not notice the underlying details which render technology merely as a tool. Just because it is interesting and sexy to read and hear about new technologies, it need not necessarily be the next game changer.
The internet and mobile phones are two classical examples of disruptive forces. The blog post points out that, if you look at two sets of companies, incumbents and disruptors, you would notice that disruptors would have lesser resources to invest in the newer technology and leverage it enough to disrupt an incumbent.
So why do we see so many incumbents being disrupted? It’s a battle of owning the customer/end user.
The blog post points out that, to own the customer, you need to understand the customer value chain — looking at your (potential) customers and mapping out all the activities that they are in need to do in order to acquire products or services. It’s that simple. Disruption is eliminating or simplifying some parts of the customer value chain using a tool (which often turns out to be technology).
Healthcare
The blog post uses an example of the Indian healthcare system.
India has over 600 million young people. Each of them is subject to falling prey to lifestyle-based diseases which would require them to take at least two to three pills/day before they turn 40. They need to go to the doctor, wait in long queues, consult the doctor, get a prescription, get their meds, go home and sort them out as per the various time slots (after breakfast, before dinner).
Photo By: Forbes
Let’s consider this process the customer value chain. The next process is to segregate each of the activities in the chain by putting them into specific brackets:
- Activities which create value.
- Activities which make the customer pay for the value.
- Activities which can be done away with because they are the necessary evils.
The blog points out that, for the specific case we ’re discussing, taking the pills is a value-creating activity; paying for medication and consulting the doctor are the activities which make the customers pay for the value while waiting in the queue to see the doctor and physically going to buy the meds are two necessary evils.
Most of the healthcare innovation in India has been around discovering the best doctors in your vicinity and facilitating the setting of appointments. This is simplifying an existing pain point. Much like purchasing airtime through a banking app has simplified the process and has eliminated the need to physically go to the shops to make a purchase.
E-Hailing
The blog points out that disrupting a market also means rapidly acquiring a sizeable amount of customers/market share from the established players.
Let’s try and analyse this part. Customers who wish to buy products or services, do so using three tokens (currencies) — time, effort, and money. Convenience is an effort cost which was tackled beautifully by Uber, Bolt and now DiDi. The value in e-hailing apps is that it’s cheaper than getting a conventional cab. This is because e-hailing services subsidize the costs of transporting consumers from Point A to Point B.
To fully appreciate the disruption of e-hailing, we need to couple the cost saving with the reliability of these services. The blog post points out that Uber never started out as a technologically sound company. In its infancy (in other countries) if you had to book an Uber, you had to text/call them which was handled by an Uber employee who then tried to call the car operators to send a car your way.
Photo By: Uber UK
The blog post adds that Uber didn’t start with anything supernatural, all they had was a GPS and a phone. They identified a customer pain point and stuck to addressing that — a move which might well be worth billions in the future.
Don’t reinvent the wheel
The blog post points out that Jeff Bezos highlights the Uber example with a classical explanation. The only things that remain stagnant in business are customer needs. All the tools you use to make the company successful will change with time, customer needs remain constant.
Therefore, if you find a way to cater to their needs and provide them with convenience, they will pay. And once they start paying, it doesn’t really matter which technology you use.
Many companies who are in financial distress will find that they have to reset, re-imagine and restart their companies.
As BRPs, it is important to remind these companies that the key towards returning to a profitable core is not to replicate something which the established players have done but to find an area which the consumers are not satisfied with. If you find a way to satiate their needs, you will lure them away from the incumbents. The way to do that is by helping them with convenience, saving their time or offering it cheaper. The way to do that is by using innovative business models staying on the right side of the law and leveraging existing technologies.
