There are backyard business terms, and there are — how shall we put it? — more elevated notions.
Any kid with a lemonade stand grasps supply and demand.
But notions like disruption and business model innovation tend to be the landscape of the business literati. If you know what they mean, you’ve either been to business school or read a few dozen articles (perhaps even in Build) on the topics.
This is why a recent post on TheNextWeb.com caught our attention. Sangeet Paul Choudary, author of Platform Scale, used the very friendly term “supply” to frame what, in our eyes, is a kick-ass theory on the often complex notion of disruption.
Choudary explains that the key to Airbnb’s disruption of the incumbent hospitality market — that is, hotels and inns — was its ability to challenge the incumbents’ traditional source of supply. “Airbnb enables anyone with a spare room and a mattress to run their own B&B and benefit from a global market of travelers.”
It would be one thing if Airbnb were the only upstart disrupting incumbents by challenging traditional supply sources. But in Choudary’s eyes, Airbnb —along with BuzzFeed, Upwork and YouTube — fits into part of a supply-challenging pattern. What do these companies do differently?
Here’s Choudary’s list:
- They create new sources of supply. No one previously imagined an inventory of travel accommodations composed of urban households with spare rooms. Likewise, the idea that a global audience would find amateur videos (as is often the case on YouTube) appealing would have been scoffed at years ago.
- These new sources of supply tend to be inferior to and less sophisticated than previously existing ones. As the case study of Airbnb suggests, the average listing initially doesn’t compare to established hotels in service quality and targets a price-conscious traveler. The same dynamic applies when comparing YouTube with traditional broadcast media.
- Over time, the supply on these platforms evolves to compete directly with mainstream competitors. As the platform finds greater adoption among consumers, it attracts mainstream producers, as well. As a result, the production quality improves as the platform gains consumer traction, something that we’ve seen with Airbnb, YouTube and many other platforms.
So where does all of this leave you? If you’re a midmarket exec, think about what your company supplies. Remember: Your future challengers are thinking about cheaper, off-the-radar ways to supply the same thing. What can you do about it? Two things:
- Consider the long-term vulnerabilities in whatever it is you supply. How might a new business capitalize on these vulnerabilities?
- Take a step in this direction, even if it’s just a mental step. What can you do to remain nimble and competitive, if suddenly your customers can go elsewhere — and pay less — for what you supply? A larger company could simply make an acquisition. A midsize company might not have such fiscal flexibility.
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