My friend and fellow investor, Fred Destin, calls the internet a ‘transparency enabler.’ Along similar lines, another friend and marketing guru, Paul Cash, has written a book about how businesses have nowhere to hide in this on-line and social media driven world we live in. Paul believes that the only way for companies to succeed now is to be remarkable in what they do – that they can no longer rely on their size for success and that the playing field is being leveled.
I really like both these perspectives and believe they capture a really important theme of our time.
For so long businesses have been able to exploit their size to maintain a strong position in the market. Size means you can squeeze your suppliers. Size means you can have multiple locations bringing you closer to more customers. Size means you can invest heavily in your all-important brand and distribution. Size means you can spend millions on advertising.
These great benefits of size and scale have made it difficult to compete with the big guys across many industries. The barriers to entry were just too large. Even if you had managed to develop a better product, the costs of getting out there and telling people about it were often too great – especially in the face of your competitor’s multi-million dollar marketing budgets.
The internet is changing all this. Customers now have access to so much information and choice that they can usually find an alternative product or a better price in a matter of minutes.
New businesses can now set up on-line for a fraction of what it would have cost in a pre-internet age. What’s more, they can find suppliers and customers all over the world.
If companies are not making their customers happy, no amount of advertising can make up for the avalanche of negative comments there will be across blogs, reviews, Twitter and Facebook.
We have better information and greater choice than ever before and it feels good, it feels empowering.
Established companies that don’t adapt in the face of these changes will have their market positions slowly chipped away and undermined. I think this is especially true of industries that tend to be inefficient, haven’t embraced technology, spend huge amounts on advertising, have enjoyed virtual monopolies or who really benefit from a lack of transparency. Banks are the obvious targets right now. But there are many others who are vulnerable such as cable companies, music and book publishers, insurance, traditional software vendors, telcos and newspapers. Some of these industries have already been seriously impacted by the force of these changes, others have it all to come.
All this is opening up big opportunities for start-ups to enter established markets like never before. As an investor I’m very excited about this opportunity and love nothing more than a new company who is offering a better alternative to the larger incumbents who no longer have anywhere to hide.