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Sunday, 21 August 2016

How to disrupt an industry (but please don't do it)

So, I've been working in technology for almost six years now. I'm well aware of the 'buzz' around the industry, and particularly the buzz which reaches outside the industry itself, to the wider public.

It's looking pretty sci-fi at the moment, you'd be forgiven for thinking that we're inches away from conjuring objects from thin air and completely transporting people into imagined worlds, or effortlessly across our own.

Well, sorry, but we're not there just yet. We've got some way to go. most of us are simply trying to fill a need, find a niche, create something people will pay for, pay the bills.

Technology is full of people with their feet on the ground, watching those who don't with interest.

So now you understand where I'm starting from when I talk to you about disruption and particularly disrupting industries. It's a phrase which attracts endless amounts of buzz, as we see a small number of companies start to very quickly dominate a field, world wide.

This makes business people to sit up and listen.

First they listen, then they talk.

So many words have been expended on this topic. Financial commentators, entrepreneurs and investors are desperate to reduce this idea to a reproducible formula. The goal seems to be a method where you can pick an industry, any industry, and make a brand new business into the next Uber.

I am not one of these people.

I can not give my perspective on this phenomena in a way that is backed up by economic theory, or conventional wisdom of business. This is just my perceptive, as someone who works with some of the tools involved, observing what's happening in the world around me.

So here's the business model of Uber (as well as AirBnB, and countless clones of both):

  • Do not own what you're selling: Let someone else own it, maintain it, and provide the related services. 
  • Find someone who already owns it (and can provide the service): This is really important, the hardware involved should be something widely owned. Something you would not be surprised to find in any home.
  • Make it easy for them to work for you: Create a platform where work appears in their lap, they have the option to take it, or not.
  • Make it easy to employ them: If your service providers are not employees, but self-employed contractors, their rights and responsibilities are none of your concern. That's easy (and why there's a lot of back-lash against companies that work in this way).
  • Make it easy for people to find the service provider: It should feel effortless, between deciding to use the service, and the service being provided.
  • Make it easy to pay: Okay, this is a lie. The easiest way to pay is to take some money from your pocket, and hand it to the provider. Perhaps this should say make it easy to pay cashlessly, then, of course, take your cut.
So why is this such a successful business model?

The above comic strip, by Randall Monroe describes it incredibly well, but with one important difference.

You make a successful business by taking your cut while while someone else does the work.

Let's look at the business plan of a traditional nation wide taxi company.

  • Start small: Unless you're the child of someone incredibly rich who's willing to give you a small million dollar loan with no obligation to pay it back, you don't have the money to do this all at once. Start in a smaller area, probably a town or city, and serve that area well.
  • Do your market research: You need some idea of how many more taxis your city can support, what people will pay for a taxi, if there's a selling-point that other taxi companies don't have. You also need to know details like how many trips a day a taxi would have to take to pay for its upkeep. There's a lot of very important information here. Here's the rub, if you can't pay for your hardware, your business has failed.
  • Buy your hardware: You need taxis, an office to co-ordinate them from, radio equipment (okay, mobile phones), and multiple phone lines to take commissions. This all costs, and as soon as you buy it, it's an asset. You also need to acquire appropriate licences 
  • Employ some people: If you've done your research, you know roughly how many journeys your company can make, and how many it needs to make. Ensure you have drivers to fill the need, and keep them there by giving them a contract where they are paid enough to pay their own bills. You now have various responsibilities to them, duties of care for their well-being (and this is a good thing).
  • Provide a service: Now you have a company, get to it. Do your business, take calls, send taxis. Go about the day to day business of moving people from A to B.
  • Grow incrementally: Once that business can sustain itself, think about expanding. Perhaps to the nearest city, or somewhere people often want lifts to. With each success, start the next. Eventually you'll be nation wide, even world wide.
So can you spot the difference?

Disruptors delegate their responsibilities to their employees. The key responsibilities seem to be:

  • Hardware: The employee owns the hardware, maintains it, cleans the seats when a punter is sick, fills it with fuel. With no responsibility for the vehicle, a huge expense is ignored. Each service provider only provides the hardware they need.
  • Responsibility to the Employee: Thanks to decades of political and social struggle, workers have rights. These differ by nation, but employers are responsible for their employees and their access to water, for instance, and toilet facilities. Employers are responsible for their employees safety (at work) and well-being.  If they fail in these responsibilities, there are methods of holding the employer responsible. In the disruptor model, service providers are technically their own employer, so no taking care of people is required.
  • Responsibility to the Customer: A traditional company has to take some control over the quality of the service they provide, and has a duty of care to the customer. To see that they arrive safe and well. There are many laws around the behaviour of service providers to the customer. Disruptors delegate this responsiblity to the service provider themselves.
  • Financial responsibility: When the traditional taxi company gets it wrong, they fail. If they provide for more than the demand, they over-pay and lose money. If they can not meet demand, customers will look for someone else who does. When Uber over-supplies, some drivers don't get work, so they don't get paid, and we've just seen how that's their own responsibility. If they can not supply enough rides, they don't seem to mind people being stuck, or going back to traditional companies.
I don't like this side-stepping of responsibilities.

The disruptor business plan is responsible for only one thing, the communications platform they provide.

This consists of two parts, the communication network (there's some hardware here, computers which act as servers, but a small number of these can 

As these responsibilities cost money to fulfil, the disruptors, can offer their services more cheaply, with a smaller cut being passed on to the service provider.

How to succeed in disrupting industries

So, we've established that I don't like the disruptor business model, I find it ethically questionable in a large number of ways. Nevertheless, I've been observing this culture change taking place around me.

I believe efforts to replicate the success of these businesses are always starting in the wrong place.

This model is not going to work for manufacture, as large-scale production coupled with wide-scale distribution, is still much cheaper.

It's not going to work for high-skilled services such as dentistry, or building, or shoe repair, because the skills are relatively scarce, you can't just find a trained dentist on the street, send them a text, and make them work for you.

The key factors of industries where this may work seem to be well known:

  • Many people can provide the service.
  • The required hardware is commonplace.
  • An industry exists to provide the service.
I believe that these factors miss a vital component, that of childhood.

I'll explain, let's look at the main "disrupted", industries:
  • Taxis - Uber, Lyft etc.
  • Hotels - AirBnB and various others
  • Food - Just Eat, Deliveroo etc.
These are all things people do for their children.

For parents, and other adults with responsibilities to children, this means that they are familiar with (often thanklessly) providing these services, the lower-paid casual work model feels like an improvement.

Because these services are provided by parents, most people are familiar with, and comfortable with receiving them in a fairly effortless way. It doesn't seem too strange to grab a lift to somewhere you need to go, or for someone to hand you a meal. Emotionally, this feels like a safe place.

How to disrupt an industry

I called this post "how to disrupt an industry" and I really am going to tell you the secret; just find something parents do for their children
Or, more fully:
  • Find something parents do for their children.
  • Give people a simple method of doing it casually, for low pay.
  • Give people a simple way to engage their services.
  • Take a cut.
With this in mind, I can only think of one service which has not already been saturated with would-be disruptors who and the reason is simple, there is not a (wide spread) industry to provide it now.

If you want to be successful in the Uber business model, start a laundry business

People grow up perfectly comfortable with their clothes being washed for them, and every house contains a washing machine.

Many would pay for the convenience of not having to handle this every-day chore. 

People with time, who need money, who do this task thanklessly already, would become casual laundry service providers.

In fact, this now feels utterly inevitable. Someone is definitely going to produce "Uber for laundry".

I will stake my reputation as "some guy on the internet" that we will see a wide-spread laundry services app in the next 5 years.

So there it is, look at that existing, comfortable relationship within family environments, and I'm sure there's more to find.

But please don't

I've already gone into some depth about how this business model provides a worrying environment where workers rights are bypassed, and they choose to enter into that agreement.

If you choose to enter into this largely empty space by providing connections between ordinary people with washing machines and time, and people who would pay for that work to be done. Please, please, PLEASE! employ your service providers, give them the rights people have been fighting for for the last century.

If you are thinking of starting this business, I can not ask you strongly enough to treat people right. Reject the Uber model and take responsibility.

There are other ways in which Uber has been known to ill-treat both their customers and service providers. So I'll say it once again, feel free to use this idea, but whatever you do do not become the next Uber..

Thank you very much for reading the musings of a day-to-day programmer with his feet on the ground, looking up at a culture he really does not like.