- Sizable economic footprint: The probability of a business being disrupted increases proportionately with the amount of money that is spent on that business. Using this template, it is easy to see why financial services (active money management, financial advisory services, corporate finance) and education are attracting so many disruptors and why publishing offers a smaller target.
- Inefficient production and delivery mechanisms: A common characteristic that disrupted businesses share is that they are inefficiently run, and neither producers nor consumers seem happy. Consumers are unhappy because producers are non-responsive to their needs and deliver sub-standard products at premium prices, but producers seem to have little to show in surplus. In education, for instance, students (especially under graduates at research universities) complain that they get a bad deal for the money they spend but colleges collectively seem to have trouble balancing their budgets, as is evidenced by their frequent and frantic attempts to raise money from alumni to cover their unmet needs. Publishers claim that their business models are being threatened by Amazon, while textbooks still cost outlandish amounts of money. Even in finance, where there are a few big winners every period, it is becoming increasingly difficult to find entities that win big consistently, and consumers of financial services are not exactly happy campers.
- Outdated competitive barriers and inertia: If these businesses are so big and inefficiently run, you may wonder what has allowed them to continue in existence for as long they have. The strongest force that they have going for them is inertia, where consumers have been programmed to accept the status quo: that it should take four years to get an undergraduate degree, that you need professional (paid) help to invest and that it makes sense to pay outlandish amounts for new editions of textbooks (on accounting, economics or mathematics) that are little changed from the old editions. Adding to the protections are regulatory or licensing requirements that have long outlived their original purpose and serve to protect incumbents from insurgencies. I have posted previously on how universities have bundled together screening, classes, networking and entertainment into packages that students have to take whole or leave and publishers and financial service companies have their own bundling variants.
The Dance of the Disrupted: The Five Stages
Stage 1: Denial and Delusion
Stage 2: Failure and False Hope
Senvest Surges On GameStop Long While Renaissance Struggles In January Markets
As amateur investors battled it out with hedge funds in GameStop Corp shares in the last few weeks of January, one hedge fund pocketed large profits. Richard Mashaal and Brian Gonick, the managers of Senvest Management LLC, started buying GameStop shares towards the end of last year. Q4 2020 hedge fund letters, conferences and more Read More
Stage 3: Imitation and Institutional Inertia
Stage 4: Regulation and Rule Rigging
Stage 5: Acceptance and Adjustment
My Disruption Plans
As I watch the businesses that I am in face the threat of disruption and respond badly, I plan to contribute to the disruption with small (and perhaps futile) acts of my own.
- In the publishing business, there is nothing more perverse and irrational than the textbook game, where books are obscenely over priced (even in their e-book versions) and old editions are made obsolete with a few selected edits. Of my ten books, four are textbooks and the way they are priced is the reason that I don’t require them in my own classes. The first editions of these books were written more than 15 years ago, and I had no choice but to use a publisher, but if I were writing these books today, I would do things differently. Then again, I am not done writing and will perhaps get a chance to make amends to those who have read my books.
- The finance business is too big for me to even cause a ripple, but I will continue to make the case that investors need to stop paying financial advisors for useless (and often counter productive) investment advice, that businesses should be able to make fundamental corporate finance decisions without calling in consultants and that the valuations that you get from bankers in IPOs and acquisitions are more pricing than value. One reason that Anant Sundaram and I co-developed uValue, a (free) valuation app for the iPhone/iPad is to make it easier for investors/companies to do valuations on their own.
- On the education front, anyone who has been reading my blog for a while knows that I put my regular classes online, class webcasts, lectures and exams included. I will be teaching corporate finance and valuation to MBAs at Stern in the spring, with classes starting on February 2, 2015 and continuing through May 11, 2015. The corporate finance class is the first one in the sequence, offered to first year MBAs, and valuation is an elective. You have four forums where you can take these classes:
|My site (Stern NYU)||Entry page to class||Entry page to class|
|Apple iTunes U||Corporate Finance||Valuation|