Archive for the ‘Defendable Moat’ Category

Entrepreneurs: Disruptive Businesses Should Try to Disrupt The Value Chain …

Saturday, March 2nd, 2013

This blog is inspired by awesome entrepreneurs presented @37AngelsNY pitch event on March 1st 2013. Some of the entrepreneurs include Picatic, Bar and Club Stats and HeTexted amongst others. Check them out and the teams behind them.

I often notice smart entrepreneurs who are “disrupting” traditional business models don’t go far enough in disrupting the entire value chain. They always try to “fit” their disruptive thinking within the confines of existing value chain/ecosystem.   I am not suggesting entrepreneurs to extend their idea to include all the key components of the value chain.The entrepreneur needs to thinks through enough about others in the value chain and understand the strangle hold of incumbents in the value chain; figure out who could substitute these incumbents and how they could do the “switch a roo”; foster those substitutes to create a new non existent value chain & then that entrepreneur’s disruptive business model be become a home run. Otherwise, you are hitting singles and doubles, at the most.

Disruptive startups should strive to replace incumbents especially if those incumbents are replaceable.

Case Analysis: Netflix vs YouTube 

For example, when Netflix started their rental business, they sidelined Blockbuster; even though Blockbuster was an incumbents in the movie rental business, they were replaceable. They could not replace the other big incumbent in the value chain – Hollywood, as Hollywood’s premium content was irreplaceable.

In case YouTube, it has managed to replace both MSOs and Hollywood (to some extent – as YouTube has lot more non premium content) in creating a brand new ecosystem of user generated content.

With a disruptive lens, YouTube’s “model” (not necessarily YouTube) is more disruptive than Netflix (or its clones). While Netflix is trying to originate their own content to create bigger “moat” for themselves, Netflix still has to make decisions while being within the “incumbent controlled” ecosystem, where as YouTube has lot more freedom.

To summarize, its probably a good idea to evaluate the following – 

  • Who is in your current value chain
  • Who are the incumbents in your value chain
  • Who are irreplaceable and who are replaceable
  • Look around if the replaceable incumbents could be replaced by “substitutes” who are lot more willing to play ball with a new entrant like you.  
  • Figure out how to replace “replaceable incumbents” with the right “substitutes”

Then, go build your Product, Go to Market and Pricing Strategies around that.