Disrupting Disruption




Interrupt (an event, activity, or process) by causing a disturbance or problem.


It’s worn as a badge of honour, a symbol that what one is building is distinctive and important. What was once the purview of the startup world has now expanded to the whole business world…everybody is trying to find something to disrupt, disrupt others while avoid being disrupted themselves, or even disrupt the disrupters.

But is being a ‘disruptor’ always positive?

When setting out in a new venture, it’s tempting to be different for the sake of being different – separating from the herd garners plenty of attention, as a new solution to age-old problems seems vibrant and fresh. But disruptive founders tend to want to go beyond different – they want to “change the world.”  

Of course, when it works, the payoff is huge. Airbnb changed tourism forever, and it’s now valued at over $31 billion.

And certainly it’s this ambition that leads founders to take big risks and lead lives less ordinary and secure. However, the number of companies who have failed in trying to become the next Airbnb is huge, and their fatal error may be an unnecessary focus on disruption for the sake of it, rather than a focus on innovation and improvement, even if it means collaboration.

We touched upon this a fortnight ago – in industries such as finance, the big win for growing companies is to facilitate the success of the industry, rather than build a new industry.

Consider tourism. Airbnb is an outlier. It altered the sector forever. But, despite this massive disruption, the tourism eco-system, consisting of large hotel chains, cruise companies, online travel agents etc. remains robust. Last year Hilton and Marriott announced record earnings. Sure, they are being forced to innovate but, given their reputations and capital reserves, they have the leverage and means to adapt.

In fintech, the payments industry is a fast developing sector, especially in London. New kids on the block, led by sexy new technology, are trying to disrupt the system – but the old guard refuse to be diminished. VISA’s earnings continue to beat estimates, despite being ‘old tech’. In the face of blockchain, mobile banking, challenger banking, the likes of VISA and MasterCard grow and flourish.

VISA is a great example of a brand and company (with a rock solid balance sheet and reputation) that will put a load of disruptors (with short runways and few customers) out of business long before they are in any way disrupted.

Nassim Nicholas Taleb coined the term antifragile, stating some things grow stronger in times of disturbance and disorder. Diverse, established companies might not seem antifragile at first glance with their high cost-bases and slow moving corporate machinery, but their global networks mean they are in fact able to grow during turbulent times and come back stronger for the next battle.

Disruptors are not able to adapt in the same way. They are fragile. They focus on one sector, often short on resources, customers and runway, and they pick fights with the most powerful opponents. In a downturn, (particularly one that hits the venture market) it’s these brave disruptors who will be under threat, whereas the incumbents and the system march on.   

A recent report from the World Economic Forum states: “fintech start-ups have fallen short of their ambitions to upend the competitive landscape in finance, driving innovation but failing to capture large market share.” And, despite some outliers, for the majority, this is as good as it gets for disruptors in finance. They have made headway but they haven’t reached the heights hoped for.

Of course, there is potential for future development but, for now, disruption in fintech hasn’t removed or even greatly challenged the incumbents. The WEF report concludes: “Although fintechs have failed to disrupt the competitive landscape, they have laid the foundation for future disruption.”  So whilst disruption hasn’t won yet, the game is far from over.

With this in mind,, it’s important to understand the fundamentals of the financial services industry, noting that the case against disruption isn’t down to risk aversion. Rather, it’s down to a fundamental understanding of how the industry is structured.

Finance is dominated by key players – financial institutions and banks – who are specifically endorsed by regulators, and have centuries worth of reputation and trillions of dollars of capital and talent waiting to be deployed. Their special relationship with governments, consumers, and the fabric of our economic system is not going away anytime soon.

Despite all this, they are clearly facing significant challenges – the likes of which have been chronicled ad nauseum over the past 10 years. In this world, disruption for the sake of it isn’t necessarily the answer. By identifying their problems and working together to help solve them, we can still pioneer change, increase competition, reduce friction, and champion a better experience for customers, even while building a valuable enterprise as entreprenuers.

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This article was created in association with Origin Markets, directly connecting dealers and issuers in the primary marketplace for the first time. 

Edward Playfair