Disruption Inside Out

Disruption works in the most obvious ways.

So obvious, that by the end of this article you will be seeing more and industries ripe for disruption. You will be thinking like a “Value Accountant”.

Let’s look at Netflix — they had a smaller list of movies than Blockbuster, it was not cheaper, and you had to wait for the disk to come in your mailbox. If it was about features, Blockbuster would win. Instead, Blockbuster is gone.

Or Uber, they have similar prices as the taxis. No significant additional benefits. In a feature game, the taxis would win, yet the taxis were killed by Uber. What happened?

They were killed by the Accountants. The small invisible accountant in every customer’s head. They calculate the benefits and the costs of every product you sell. Then raise their little hand pointing their thumb up –“Yep, buy it!”, or down — “Nope, we’re gonna go with the other one”.

You show them your offer and they give you the thumb — up or down. Winner or loser. — But why? — What did I do wrong? They don’t say. Just the thumb. Try again later.

They are also not as rational as we expect from an accountant.

They calculate weird things — like feelings, and street credit, and physical effort, or niceness, and also discomfort from talking to representatives, and a whole bunch of weird stuff. They call it Experience as if it is something real.

And they separate the good weird parts from the bad weird parts. And as accountants, they subtract the bad from the good and whatever is left gives you the thumbs up or the thumbs down.

Unlike the real accountants, they like bribing. It makes them feel special. Gives them a good experience.
— But won’t they get offended?— Only if the bribe is too small… and a tip is expected.

Most of them are not very technical (unless they are nerds, but few are). They can’t care less about the technology you are using. They are accountants after all.

So if you start your innovation journey by picking the “technology du jour”, you might be wasting your time. They care about their stuff: Is it bringing a lower price? Is it improving their net experience? Does it bring status points? Does it come faster?

You can improve the deal for them in two ways — by adding good stuff at the top or by removing bad stuff from the bottom. What matters for them is the net value in between.

Most of the companies try to sweeten the deal by adding good stuff at the top, but there are risks. You might be loading on both sides — some good stuff at the top, but more bad stuff below, making your product slow, complex and unreliable which makes your customers anxious.

So, before you add your new shiny feature, be sure that it will attract new customers and/or will be used by the old users, otherwise, you are making it worse for them.

And then you can also improve the deal by removing the bad stuff. *Accountants breathing heavily*

After all, they are not that irrational. They can recalculate everything into Effort, Time and Money. Every effort they put, every line they wait in, every manual they have to read, they’ll be watching you! 
I’m kidding, they will be just staring at you and their thumb will be pointing down. All the effort, time, and frictions are hidden charges they account for, and they hate to pay. They really hate overpaying for your stuff.

Let’s see what is the cost for calling a taxi:

  • Finding the number of a taxi company — time cost. *cha-ching*
  • Calling one or two companies to find an available car — time, talk, repeat. *cha-ching*
  • Get some rough estimation when the taxi will come — time, uncertainty. *cha-ching*
  • The comfort and cleanliness are usually low — discomfort. *cha-ching*
  • The driver’s attitude is unknown — discomfort. *cha-ching*
  • The ride fare depends on the driver’s choice of route — money. *cha-ching*
  • The driver only takes cash and doesn’t have change — discomfort and money. *cha-ching*

With Uber, all of this is gone.

Want to talk about Netflix?
They offered nothing better than Blockbuster. Except for the late fees. And the Blockbusterds knew it - 16% of their revenue was coming from the late fees. They liked it. Accountants were looking for alternatives.

These “small” squeaks, hidden frictions and burdens pile up quickly and can infuriate the customer. The reason so many companies overlook them is that “it’s how this business works”. All the incumbents on the market have the same frictions. Every taxi in the town has the same burdens.

So why should we change?

It is easy when all play the same game and the customer has no alternative, but the moment a better solution shows up, the accountant shows a finger. Not the thumb this time.

Disruption! Surprise!

Without adding any new feature on the top, just by reducing the burdens, the “disruptors” won the accountants. The “cost” got down and the value got higher.

Innovation is not about you beating the competition. It is about you convincing the customer that they will get more value with you. Understanding the “value accounting” of your customers should be the first step in your innovation activities.

Here are the lessons from the little accountants:

  1. No customer can receive more value than his or her needs. This is the top line of the balance sheet. 
    It is like everyone brings their own cup — big or small, sized for their own thirst. Your product gives the same amount of juice to each of them. They pay the same price, but their cups can hold different amount. The rest is spilled out. What is in the cup is ALL the value they perceive. And from there it only goes down.

2. Reduce the burdens and the price. Imagine that with your product (the juice) you also put some ice cubes. You put it upfront in the cups, and it is enough for the amount of juice you sip. These ice cubes are the burdens of your product — similar to the taxi costs above.

It will be probably fine for the customers with the big cups. 
But what about the customers with the small cups? They will get all the ice and very little juice. For the same price. These customers are ready to go to a disruptor. 
Note that if your product is mature the majority of your customers will come with medium sized cups. They will all get diluted juice. They are all ready to go away.

3. New features and random bundles can hurt your business. To continue with the juice example — let’s say you increase the amount of juice you give from 250ml to 300ml for the same price. To cool down the bigger amount of juice you add more ice cubes. What will get the majority of your customers? You got it — more ice, less juice.

In a real product, this is like adding a feature that makes the product more complicated and slow. Few use the feature, all suffer from the burdens.

When you add new feature be sure that there will be enough customers with bigger cups to enjoy it.

How can this juice business be disrupted? Easy — pay only what you’ve consumed. Sell pre-cooled juice, with no ice cubes. Or pre-packaged juice. Zero burdens, maximum value.

4. Pick a Technology for the task, not the other way around. In the case above the solution was simply a refrigerator, not a blockchain or AI.

You will know that you picked the right technology if it either improves the performance/efficiency of the producer or improves the value balance for the customer. In the best case — both.

5. “Bribe” them with the things they like. Those are delighters — not adding costs, just show you care.

You are now expert in the value accounting. Try your skills on different businesses. What are the costs in insurance, banking, public services, etc? What would be the cheapest way to disrupt them?