BIG BANG DISRUPTION!

Surviving a business phenomenon
BY Jayashantha Jayawardhana

In 2016, Pokémon Go hit the market with a bang. The multiplayer smartphone game uses augmented reality technology with overlaid digital images on real world environments. 

In this game, tiny monsters known as Pokémon suddenly appear all over the world and threaten to use their fantastic powers of combat everywhere – in parks, city blocks and homes.

Luckily, a dedicated volunteer force promptly undertakes to quell them by using little-known technology embedded in their smartphones to capture and tame these creatures.

Pokémon Go was an instant and spectacular hit; gamers took to it extremely quickly. Unfortunately, it was a ‘big bang disrupter’ whereby it reigned largely uncontested for a limited period of success. But this duration of popularity was much shorter than what’s typically expected of traditional market dominators.

Writing in the Harvard Business Review (HBR), Larry Downes and Paul Nunes cited the numbers of the ill-fated game.

“In the case of Pokémon Go, that period was only a few months. In its first week, 7.5 million players downloaded the game. At its peak only a week later, 28.5 million played for an average of 1.25 hours a day. But 10 weeks after that, the game had largely run its course and Pokémon Go lost 15 million players in a month,” they noted.

At summer’s end, Pokémon Go was gone along with about US$ 6.7 billion in value for Nintendo. By August 2016, the 23 billion dollars that investors had added to Nintendo’s market capitalisation upon Pokémon Go’s extraordinary success had also disappeared.

Pokémon Go is not the only product to suffer a similar fate. Action camera maker GoPro and HR tech services enterprise Zene­fits among others scaled up incredibly quickly, and cooled off almost as fast.

That’s because they weren’t ready with their next innovations. Businesses in such a situation might have few options left to recapture falling revenue since all their resources may be committed to a faded pro­duct or one that’s rapidly on the wane.

This happens due to the proliferation and high volume advancements of digital techno­logies and innovations that continue to penetrate the market rapidly.

The ‘Diffusion of Innovation (DOI)’ theory developed by Everett Rogers in 1962 shows how an idea or a product gains momentum over time and spreads through a specific social system.

Initially, it was a classic bell curve consisting of five distinct adopter categories. Since then, it has gradually compressed into a drama­tic ‘shark fin’ with only two distinct adopter categories: trial users who help develop the product and everyone else.

Two major forces have compressed Rogers’ bell curve.

The first is near instant saturation by new products in a growing number of markets – initially, in consumer goods and software; but more and more, in digitally enabled durable and industrial goods.

With near perfect market information at hand by the time of a product launch – or even before that, thanks to digital media – consumers may adopt or reject it straight away.

The second compressing force is the rapid obsolescence of digital components. Continuous improvements in the price, performance, size and power utilisation of these components result in shorter cycles of new versions and innovations.

Through extensive research, Downes and Nunes identified seven habits of enterprises that are particularly vulnerable to the ‘second act’ crises.

The first of these is being too lean. Committing all your resources to a single product is dicey; because in the event of a flame-out as in Pokémon Go, the response won’t be fast enough.

Apart from this, an inflexible capital structure built on borrowings, losing the business’ founders for experts brought in from outside, an obsessive focus on revenue, mistaking a stroke of luck for a big bang disrupter and so on can cause even the most promising ventures to tank.

Surviving for a second act means to be able to bounce back from a costly failure as in the case of Nintendo’s Pokémon Go. Simply avoiding the pitfalls that are listed above alone won’t be sufficient, and timing the shift from one shark fin to the next is equally critical.

The following lessons from perennial disrupters will help your business survive for a second act.

Abandon the successful product before it runs out of steam. Second act survivors such as Netflix didn’t let themselves to be blindsided by a big bang disruption; they were quick to move on to the next innovation.

Build a platform rather than a product. Most second act survivors launch an ecosystem rather than a single product. Google, Amazon and Facebook et al. are brilliant at this.

Then convert your initial product into a service – because a second act may lie in leasing to others the core infrastructure built for the disruptive innovation.