Editor’s note: Raghav Sharma is Co-founder and CEO of GuideVine, which helps consumers find and engage with financial advisers. He was an entrepreneur, consultant and banker in previous lives.
In the tech world, everyone aspires to “kill” something.
At least, that is what you would think from the media coverage. “The death” of gamification. Of cable. Of video games. Of the Detroit auto industry. Real estate, car dealers, money, paper – all the victim of business homicide. However you cut it, we love slaughter.
And we love chaos. How else to describe the obsession with “disruption?” TechCrunch itself publishes profiles of more than 30 new startups a month, many of which want to “disrupt” the incumbent industry, not to mention its TechCrunch Disrupt events. It’s the highest compliment someone can give you, to say, “You’re disrupting the space.”
Why thank you, I do intend to destroy the current companies! Would you like to give me a hand as I blow stuff up?
Here’s the thing. As a CEO, I’m personally not aiming to cause the death of anything. Sure, a good startup should make people sweat. It should cause a lot of scrambling and soul searching among the inefficient, the outdated, and the complacent.
But in the end, instead of destroying and recreating a profitable industry, a successful startup aims to modernize it, up the game of the current players, while fundamentally improving the customer experience. I’m not saying there won’t be some casualties, but I’d like to focus on making things better for people, not killing something. And by giving the end consumer better information and the power to use that information, you make the current industry fundamentally better.
It would help to think about what we really mean when we say disruption. When Clayton Christensen coined the term in 1995, he meant an innovation that creates a whole new market, eventually displacing an earlier technology. The old companies, deprived of customers and revenue, fade out.
However, Jill Lepore disagreed with Christensen’s theory last year in the New Yorker. She posited that his framework was the result of cherry picking case studies that later ended up proving him wrong anyway. According to Lepore, companies that are supposedly unable to innovate are perfectly fine making incremental changes to their product in order to keep up with technology.
Whatever you believe, real disruptions are remarkably rare. For every Netflix (R.I.P Blockbuster), Craigslist (nice to know you, classifieds) and WhatsApp and Skype (goodbye international phone cards and “long distance”) that actually supplants the original, there are hundreds of startups that peter out or end up running alongside the traditional industry. Instead of dying, the current players stick around, letting the startups take on all the risk, then use their ideas to modernize their own offerings by reverse-engineering or buying the startups outright.
Let’s talk about the sexiest, most well-respected, world-changing startups right now. Twitter didn’t replace journalists; it just disseminates information in a different, complimentary way. Trulia and Zillow didn’t replace real estate agents; now people just come to their agents with a few listings in already in hand and let the professionals take it from there. No one “destroyed” the car dealer. TrueCar and AutoTrader have made it easier for consumers to find and compare cars, plus allow dealers to better price vehicles and manage inventory.
Most websites now list PayPal as an option alongside traditional credit card companies. ClassPass just allows consumers to try out fitness studios. ZocDoc connects you with regulated doctors. And the only thing Seamless disrupted was the pile of paper takeout menus slipped under your door (for which I am eternally grateful).
Even Elon Musk has stated that he’s not trying to replace Detroit with the Tesla. He’s going to need Detroit’s help to make electric cars standard and ubiquitous, so he made the patents public. Maybe he’s on to something.
It’s the companies that are really gunning to take down entire industries that seem to be struggling. Nowhere is that more true than in financial services. While Accenture issued a dire warning to the traditional banks last year, saying that four in 10 young customers would consider switching to a branchless bank, that leaves six in 10 super-connected, hip customers who would not.
All customers really want is some seamless technology, which banks can either build out themselves or get from a partner. That partner might be Dwolla, which linked up with BBVA this month after struggling with regulatory hurdles, following in Simple’s footsteps.
Or take LearnVest, which had big plans to disrupt the financial planning space. It was acquired by Northwestern Mutual last month, who hopes to benefit from LearnVest’s technology (though I doubt they plan on overhauling Northwestern Mutual’s current infrastructure).
Andy Rachleff proudly planted the disruption flag on his robo-adviser company, Wealthfront, last year, using the word no fewer than 40 times in his thought piece. It is pretty cool that the top ten robo-advisers have more than $9 billion under management. Sadly, though, that’s still a long, long way from the $64 trillion under management globally in 2012 – one hundredth of 1 percent, to be exact.
We might never get a chance to see if the percentage under management by insurgent robo-advisers will grow, because Schwab rolled out an offering last month that is remarkably similar to Wealthfront. Wealthfront’s current CEO Adam Nash lashed out at Schwab, saying their fee structure was unethical. But that seems to be a distraction from the real problem: Schwab just “disrupted” Wealthfront right back.
No wonder there’s chatter about the death of robo-advisers.
It seems pretty clear that when it comes to important, skilled tasks like finding you a home, managing your credit, getting you in shape, prescribing you drugs and, yes, managing your assets, there will always be a role for a living, breathing expert.
That’s not to say startups don’t provide a great value to society. New technology has the benefit of forcing the underperformers – companies and professionals with bad customer service, substandard products, and inefficient processes – out of business and leaving behind the most valuable and useful ones. It’s not about disrupting, so much as modernizing and curating the industry for consumers.
Most of the startups that recognize this opportunity to build off the industry, instead of naïvely attempting to kill the industry, are the better long-term bets.