Buying into disruption

Disruptive businesses are as old as the concept of business itself, with new innovations constantly threatening the status quo.

Darwinian theory rings true as much in business as it does in nature – those who fail to evolve risk extinction. But in this equation, disruptors have the potential to catalyse the process, altering the market so quickly and so drastically that others will struggle to survive. We are referring to how an existing industry, market or technology can be ‘displaced’ with something new, more worthwhile and efficient. It’s a bit more radical that ‘innovation’ per se, in that it suggests a sharp left turn, a whole new way of looking at a business model.

Businesses can start by asking how they can radically offer better value for the customer. Simultaneously, they ought to analyse where the risk lies through competitors upsetting their business. Both of these ought to be important considerations within one’s business acquisition strategy, too.

You need only look at what online streaming services like Netflix and Spotify have done to their progenitors such as Blockbuster or HMV to see how quickly a business’ fortunes can change when a rival firm creates a more convenient, cost-effective way of delivering a product or service. But how can a business acquisition help to emulate these successes, or at least avoid this same fate?

The Great Disruptor
Amazon has long been hailed as one of the greatest disruptors in the modern era. From the day it sold its first book online in July 1995, the company has grown to become an online retail giant that was recently voted by consumers in a YouGov poll to be the UK’s most useful brand.

Its creation of the ‘one-click purchase’ in 1997 is credited with propelling it beyond its competitors, making ecommerce quicker and faster. More recent additions such as Amazon Prime for next-day deliveries and Amazon Studios service – supported through the acquisition of LoveFilm – for streaming TV and films have given it even greater market dominance.

Amazon carved out its success by constantly growing the range of items it sold, building a competitive market of suppliers for cheaper prices, and using technological innovation to make the online shopping process as quick and easy as possible. In a recent article for Forbes, ecommerce expert Jeff Barnett described Amazon as “the great disruptor”, saying that it had achieved a “seamless blending of online, offline, personalised, social shopping”.

However, Amazon itself now risks being disrupted. Scott Galloway, founder of L2 Research and a professor at the NYU Stern School of Business, said earlier this year that Amazon “could not survive” if it persists as an online-only retailer; he notes that the current trend is that retailers are merging online and offline commerce, with companies selling via both a physical presence on the high street and a website.

Accounting For Disruption
As a company that changed the face of an industry but now finds itself under threat from new disruptors itself, the story of Amazon over the past two decades provides a great lesson for businesses. Moreover, time will tell whether it also offers a cautionary tale for people buying a business in a market prone to disruption.

Disruption must be factored into an acquisition strategy; buying a business without planning or accounting for the way the market could be destabilised or disintermediated could be disastrous. Thorough research into market trends is just as important as having experience of the sector one is buying into. Keeping constantly abreast of industry developments will prevent a buyer acquiring a business only to find twelve months down the road that its products, services or delivery methods have been rendered obsolete.

One way of accounting for disruption as a business buyer is, of course, to simply not buy a business that is likely to be disrupted. But doing so could rule out a large proportion of target companies that could still prove profitable, should the right strategy be in place. Should one necessarily ‘keep out of retail’ on account of internet vendors? In fact, buying a business as a bolt-on acquisition can be a good way to safeguard against disruption or help evolve the business in light of what rival firms are doing – this is classically what big technology companies have done, as with Facebook’s acquisition of WhatsApp or Microsoft snapping up Skype.

Take taxi company Addison Lee as another example. The company, like the rest of the market, was left floundering following the emergence of Uber – an app that allows consumers to hail a taxi via their smartphone. And although Addison Lee remains Britain’s biggest minicab firm, it was losing customers in the areas of the business that overlapped with Uber.

Addison Lee’s response was to try and evolve its own services so it could match its new rival; it did this through business acquisitions. In April this year Addison Lee bought Cyclone VIP Cars & Couriers, which has 100 drivers and a portfolio of corporate clients. This in turn has strengthened the company’s position to serve business passengers, thus further safeguarding it from its more consumer-focused competitor Uber. It has just launched an API to allow bigger customers to integrate the booking function into any application or website.

Be The Disruptor
Another approach is to be the aggressor; to buy a business that (on its own or as a combined operation) can provide the key to fundamentally changing the market. If there is a bolt-on acquisition opportunity that would open the door to a way of delivering a product or service in an easier, cheaper or altogether different way than is currently possible, or then it could prove hugely profitable.

Understand that it is rare for a product, or even a technology to be the disruptor; it is the business model that is disruptive. This is makes it hard for an existing business to get into this space on its own. It would need to pivot its whole existence, throwing processes and relationships away to start over.

An entrepreneur may have a business concept that they predict would be extremely disruptive but they need a surefire and quick way to make that vision a reality. Buying another company or start-up could provide the brand, IP, skilled personnel, equipment or simply the physical space required to launch a disruptive business. And remember that a disruptive competitor is very likely not to be your old adversary, but a small start-up with low overheads, smart minds, energetic owners with nothing much to lose.

The ‘buying into disruption’ approach is illustrated by the recent merger between online-only bank Moven and management consulting services company Accenture. The two firms have come together to develop new digital banking services.

Moven chief executive and founder Brett King said of the merger: “We set out to change what the world thinks of as a day-to-day bank account, starting from scratch with mobile, and providing customers with advice on spending and savings. The alliance with Accenture will be invaluable in helping us mobilise our services globally as we grow to tens of millions of users in a dozen countries.”

Business never stands still; those that embrace change and innovation have the opportunity to create their own path to success, while those who respond quickly enough can follow in the trailblazers’ wake. And by providing a quick route to market or the assets a company needs, a business acquisition can be a great way to become a disruptor or protect against the risk of being disrupted.

Share this article

Latest Businesses for Sale

View more businesses for sale