'Disruption' Does Not Define Success. Here Are 5 Principles That Do.
By Jeff Margolis
As an entrepreneur, you are most likely looking to change an industry -- either by improving its current operations or by introducing a new product, concept, service and so forth. I support this noble, somewhat crazy pursuit, as a card-carrying member of the serial entrepreneur club. Yet, I can’t stand idly by while the concept of “disruption” seems to be propagating among entrepreneurs.
The literal definition of "disruption" is to interrupt a process or event. And while you may think that is your desired outcome, I venture to say that the actions behind this trending word often do not lead to success. My intent here is not to provide a lesson in syntax, although I fancy myself a grammarian, but rather to share five principles that define success and challenge the perceived necessity of disruption.
1. Understand and respect the “as is” industry.
Humor me with a “throwback Thursday” moment … When I was a guitarist in the University of Illinois' jazz band, there was a sign on the wall that said, “To be truly innovative you must first be steeped in tradition.” At the time, I did not fully appreciate the significance of this statement, but it couldn’t be more applicable in today’s fast-paced world.
What often happens in business today, I believe, is that people confuse intelligence with innovation. You must first be knowledgeable about the industry you are trying to serve before you innovate within it. From a system/science perspective, this means understanding all the moving parts -- the players, stakeholders, flow of money, etc. Take the healthcare industry, for example; we have health insurers, doctors, providers, government, employers, consumers and so on. Now, think about how much knowledge it takes to understand all those things. You can’t blindly enter this market and be successful.
The same is true of the entrepreneurial space: To build a successful company -- even if you're going after a targeted niche -- you need to first understand the different aspects of your industry and respect its current state. Only then will you be in a position to drive change.
2. Create a new kind of workforce diversity.
My favorite business book is Execution. It asserts that there are only three processes in a business: the strategy process, the people process and the operations process. What I've come to learn in my 30 years of experience is this: While the strategy process is not easy; there is usually somebody in the organization who has reasonable control of it. When it comes to operations, there are plenty of people in the world who can execute as long as they know what to build.
But, getting the formula right for the people process is extremely difficult.
You need to create the right mix -- specialists who bring a required expertise; Millennials who have a different learning and work style; finance people who understand how you're trying to generate returns and so on. Most early-stage companies will stack the deck with the typical roles and functions, but that does not serve every company's needs. My own company is a B2BC (business-to-business-to-consumer) company, so we have expertise at the health-plan level, behavioral science, gaming and user design. We also have a strong female employee base since our end users are health consumers -- and studies show that women are the primary decision-makers in health care.
My advice is to think carefully about your "people mix," beyond the prototypical multicultural and gender mix. I’m talking about a new diversity that reflects the customer you're trying to serve and the product/expertise you're putting into the market.
3. Understand the difference between gadgets and information technology.
There is a universal fascination with gadgets -- from any Apple device to Fitbits to Google Glass. I am as guilty as the next party, with multiple devices sitting in my drawer, on my wrist and in my pocket as I type. But gadgets are not information technology.
An illustration from my own company: We are currently working with IBM Watson, which is cognitive-computing technology. That's a technology you can build a very big business with. It thinks and learns and grows with the consumer, and has endless potential and application. It's also technology that requires massive processing power of structured and unstructured data, geo-location, temporal and spatial technology and more. It's clearly something that a "gadget" cannot do on its own.
So, feel free to purchase the next great device. Just don't get too captivated by gadgets and point solutions if you're trying to build a big company. I guarantee: A better gadget will come along to quickly replace it.
4. Avoid headline distractions (stay focused).
This is somewhat related to the previous principle. In health care, for example, many start-ups react to headlines: Apple's developers' tool HealthKit is launched! Obamacare is passed! -- and immediately pivot their businesses. But you shouldn't follow their example. Don’t lose focus. Don’t follow the trends. That’s when innovation falls flat.
You need to be confident that the principles you're building your company on are important enough to transcend politics, the latest announcement from big tech or the newest fad.
I’m not saying that those things are unimportant -- refer back to "respecting your industry" -- but you shouldn't turn the boat too quickly. You may find that you burn a lot of fuel that way, instead of staying true to your principles.
5. Be properly capitalized (and have the right investors).
Why do many promising start-ups go out of business? Mainly because they didn't stay ahead of the curve. My rule of thumb is: Never raise cash when you need it; always raise cash before you need it.
That kind of timing will free up your mind to make the best decisions for your business -- one of them being, don’t just spend the cash because you have it.
Finally, if you’re going to be an entrepreneur, and you're just getting on the road, you really need to know what you're in for and have the right backseat drivers with you. Let’s say you follow Principle #1, and your idea is based on a good knowledge of your industry, as opposed to basing your idea on your intelligence (because when you're smart, everything seems like a good idea). The road ahead looks really clear, and you start driving on it. You are building your idea, and if it's really a good idea, more cars will come on the road and some may even pass you.
But don't get distracted. What you need to think about, as you're trying to build a business, is your level of “stick-to-it-ness,” and that of your investors. Do they want to get up that next hill with you, and the hill after that? Or is their focus on getting off at the next exit as quickly as possible? Or possibly even saying, “We've done enough, and it’s time to stop.”
Mind you, having the courage to stop sometimes is as important as having the courage to know how to go forward, but for the right reasons. Additionally, do your investors have experience in the industry you are entering or the type of business you're trying to build? Investors should be helping you navigate on the road, even if that means waving the yellow flag from time to time.
In closing, I salute you for taking on the awesome responsibility of moving this world from the “as is” state to the transformative “to be” state. To do so, you need to respect you industry, have the right people mix, understand the power of IT and be in good company.
Once that car is properly assembled, you are going have a smoother ride and lot of success getting to where you want to go.
Original article appeared in Entreprenuer Magazine in March 2015