When technological disruption puts you at risk of going out of business, the solution for companies like Hitachi Vantara, Rakuten Kobo and Avant is surprisingly similar: reposition yourselves as brand-new businesses.
In a panel discussion at the Toronto Global Forum this week, both large enterprise firms and emerging startups suggested that despite the hype, disruption rarely threatens a company’s survival in the short term. Instead, it’s about figuring out how long you’ve got to come up with a complementary source of revenue that acts as a sort of backup plan.
“You have to strike a balance between those two competing needs, where a huge part of your profitability comes from an existing business, but you have to bleed that off in a very deliberate way to fuel your emerging area of business,” said Scott Kelly, COO at Hitachi Vantara.
While Hitachi Data System was known for years as a provider of high-end enterprise data storage, for example, Kelly noted that the company has been hard at work over the past year to re-introduce itself to customers following its formation into a new company with Pentaho and Hitachi Insight Group.
“We’ve had to move away from our traditional model and being in a position that we can flip towards an outcomes or an as-a-service business,” he said. Whereas Hitachi Data Systems was largely supplying a product and ensuring it didn’t fail, Hitachi Vantara has to get much more involved with its customers. “We’re now trying to understand their strategies, where we can intersect and create interoperability with regard to different technology and solutions and trying to make an impact on growth, cost saving or the customer experience.”
Though it’s a much smaller and younger company, a similar issue emerged with Avant, a Chicago-based startup that began as a provider of unsecured loans and other financial services to those in the $10,000 to $100,000 income range that weren’t always served by larger banks. That meant Avant was technically a disruptor, but as it started to grow the organization realized it also had an opportunity serving traditional incumbents that it couldn’t afford to miss, according to CEO Al Goldstein.
“We started to talk to banks and realized they had challenges,” he said. These included a huge amount of legacy COBOL code that didn’t work well with modern IT systems, as well as systems acquired from other banks through M&As that didn’t speak to one another.
“As we started to have that dialogue we realized that, because we weren’t lending to the consumers the banks wanted to lend to, there was a lot of complementariness there” in terms of how it could use its own technology to help. As a result, Avant recently rebranded its fintech software-as-a-service (SaaS) tool as Amount and is now actively working with other banks.
The notion of identifying a new customer — or changing how you look at your customer’s customers — has also been part of the journey at Rakuten Kobo, developer of an e-reading device that was originally offered by Indigo Books & Music.
Indigo was more of a traditional retailer that recognized it needed to bring value to those who didn’t want to read print before it was disrupted, Rakuten Kobo president Michael Tamblyn said. Since being sold to Rakuten, however, the firm has had to be thoughtful about the kinds of end customers its publisher partners are most likely to reach.
“It’s not same as MP3s for CDs or downloads for DVDs” where one format made its predecessor completely obsolete, he said. “This may be the first digital device that’s not driven primarily by Millennial-aged men. Instead it’s sometimes more likely to be middle-aged women.”
Laura Buhler, executive director of an organization called The C100 that helps introduce Canadian startups to partners and other resources in Silicon Valley, said any strategy around dealing with disruption requires accepting a certain amount of risk, and having the boldness to change quickly based on new information.
“There’s this adage you don’t actually have to be in Silicon Valley, but Silicon Valley has to be in you,” she said. “I wish we would try more things. People will talk about something like AI and you’ll hear, ‘Oh, it’s overhyped.‘ The reality is, Facebook was the sixth major social network. And Google was by no means the first search engine.”
The Toronto Global Forum runs through Wednesday.