Disruption Insurance

Protecting Your Company’s Future

by Fred Schonenberg | 2020–09–16

424 companies have gone bankrupt in 2020. Gold’s Gym, Brooks Brothers and Hertz to name just a few; making it the worst year for bankruptcies since the Great Recession, according to a new report from S&P Global. Yet other companies (Peloton, Shopify, Zoom) are riding high on explosive growth. It’s clear that the coronavirus pandemic has accelerated disruptions and corresponding ascents.

But were these fates inevitable? The incumbents, tied by organizational inertia to their outdated business models, squeeze out small gains to appease Wall Street. Meanwhile, the startups re-frame customer needs, re-imagine ways to solve challenges, and seize emerging opportunities that eventually disrupt incumbents. The way for incumbents to stop this history-repeating narrative is disruption insurance.

What is disruption insurance? Traditional insurance provides protection against a predictable event that arises unexpectedly. Providing protection and mitigating risk is the simple motive of insurance. Isn’t disruption a “predictable event that arises unexpectedly” for most businesses? No one could have predicted the pandemic, but those companies that were already preparing for disruption are not only surviving the pandemic, but in many cases are using it to create distance from their competitors. Let’s take a look at 3 ways large companies can exercise disruption insurance to protect their future.

Enable the Disruption: Run product innovation competitions or corporate accelerators that invite the disruptors to work with you to solve consumer needs. Early stage problem solvers and innovators often struggle to get off the ground. By giving them the initial wind beneath their wings, you create a relationship that makes your business part of the solution and an enabler, rather than the target of disruption. Success comes from the blending of strengths between your company and the startup. Netflix open-sourced algorithms to increase show recommendations. Target runs multiple accelerators each year looking for new retail opportunities. If Gold’s Gym had run an accelerator, wouldn’t they have seen the in-home workout trend and been able to leverage their in-gym, training staff and massive reach to create Peloton before Peloton existed?

Monitor and Partner: The pace of change continues to accelerate, making it increasingly difficult to monitor all of the emerging threats and opportunities within your business focus, much less outside of your silos (which is where the real magic occurs). You need an external partner or internal unit entirely focused on seeking out what’s next and finding ways to partner with these discoveries. AB InBev’s Beer Garage and Comcast’s LIFToff are two programs that seek out new solutions to immediate challenges of their various business units. By being early to try emerging solutions with minimal risk, you separate from competitors (and the status quo) and can identify disruptions across your areas of business.

Invest Early: A common occurrence in this system of disruption is that an incumbent company is forced to pay an exorbitant sum to acquire an established disruptor to protect its kingdom. Examples include Microsoft buying LinkedIn, Unilever buying Dollar Shave and Target buying Shipt. In these cases, the acquisition may be cheaper than the inevitable catastrophic bankruptcy, but significantly more expensive than if the companies had invested early in the growth of these disruptors. For example, the Alexa Fund provides up to $200 million in venture capital funding to fuel voice technology innovation. See also Comcast Ventures, SalesForce Ventures, and Google Ventures.

Overconfidence in a secure future or the ability to manage challenges makes many believe that insurance is an unnecessary expense. Yet there’s a reason why insurance in its various forms is required. Unforeseen things happen, even to healthy people and companies. Luckily, it’s been proven time and again that simple, low cost steps today (disruption insurance), strengthen companies not only to manage the catastrophic events of tomorrow, but to ensure long-term resilience and success

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