What to avoid in a period of super-rapid change

What is going down? How do you spot companies, business models or sectors which are destined to fail?

Article updated: 5 April 2019 12:00pm Author: Michael Baxter

There is a great irony concerning the latest moves to break-up the power of the giant techs among such organisations as the EU, or as advanced by some prospective candidates for the next US election. The argument made to justify their break-up is that these techs are anti-competition, that they exude monopolistic power. Yet, in a funny kind of way, they are actually supporting start-ups and entrepreneurs working on a business idea from their back bedroom or garage.

Amazon creates a means by which you can sell your product to a global audience. For third parties, the Amazon model is super-efficient and you get paid promptly. Facebook, and Google, because of the way their advertising model works, makes it possible to test market a product, maybe run a tiny advertising campaign, targeted super-accurately. Via Facebook, for example, you could spend as little as £5.

The cloud reduces the need to spend huge amounts of money up-front on IT. Instead, you pay as you go. This is the SAS model, software as a service; instead of paying several thousand pounds for a piece of software, you might pay £100 a month, cancellation at short notice. Via the cloud, you can access the latest state of the art technology — neural networks, for example, or when they finally arrive, quantum computers.

Thanks to cloud providers such as Amazon, Google, and Microsoft, or cloud tools from the likes of Salesforce, or distribution from Amazon, or advertising options from Facebook and Google, it has never been easier to create a start-up.

Increasingly, larger companies, understanding this, realising that the threat to their ongoing existence comes from some company they might never have heard of, are trying to adopt the traits of start-ups. Agile has become the watch word. Digital transformation, the new big thing, as companies realise they have to try new ideas more often, test them, decide whether they are worth pursuing (or fail fast, as they put it), and if not, try something else. Many companies are applying this approach multiple times in parallel.

Who will fail? Quite simply ALL (and apologies for shouting) companies that do not apply this approach.

Who to avoid: any company that does not have a strategy for applying AI, that still operates in silos, that talks about a cautious approach to technology, that suggests AI or the cloud, or 5G, or augmented reality or virtual reality are overrated — little more than toys.

Such companies are failing to spot the changes in their midst; they have ‘I am going to be disrupted’ written all over them.

How things will change

Here are examples:

  • Auto industry; the rise of electric cars, made possible by falling cost of energy storage has seen many companies caught napping. The rise of AI, which is enabling autonomous cars, will see a wave of corporate collapses.
  • Energy: falling cost of renewables and energy storage will see more energy generated locally, less reliance on national grids, and the beginning of the end of the age of oil.
  • Banking: low barriers to entry is seeing more and more challenger banks, technology as their friend. The likes of Revolut and Monzo represent a massive disruptive threat to banks. The glib answer is that the banks will buy them out. Maybe they will, but once listed on the stock markets, their valuations might soar so high, that they will soon become out of reach, just as Tesla appears to have become out of reach in the auto market.
  • Retail: forget online shopping, that is so yesterday. Shopping in virtual space, or augmented reality supporting off-line shopping, and AI helping retailers gain new insights into their customers, are what will become big. Many retainers, maybe even most retailers, will fall by the wayside.
  • Contact: augmented reality will support long distance communication in a way that has no precedent, business meetings conducted in a kind of half reality half virtual space, restaurants with global chains, that enable people to eat together, even though they may be separated by hundreds or even thousands of miles.

The list goes on; you name the sector, and you will find ways it is being transformed. Asset management and logistics, agriculture and pharmaceuticals, mining and transport.

Who should you avoid?

I am not saying avoid all these sectors, I might as well say avoid everything. But avoid everyone who does not have a convincing strategy for dealing with this change.

An example

Let me cite a topical example: Saga. Shares are down to an all time-low. With the ageing of the UK population, I can understand why an investor might have reasoned that this is a company with a business model that is just right for the current age. But a big chunk of its revenue, and more to the point: profits, comes from its insurance business. But thanks to the internet, and miss-selling scandals, leading to heavier regulation and fines, this industry is changing. A key part of the Saga model has been made near superfluous, thanks in part to technology.

If you can’t work out how a company might be disrupted by tech, then that may mean you have overlooked something.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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