Disruptive Markets – Inherent value and dangers

Read the article in Smart Business Magazine.

As a lifelong entrepreneur, Steve Peplin has started and operated numerous companies in the specialty building trades and building products industries. With a heritage as a third-generation manufacturer, he started Talan Products in 1986 with $2,100 and two partners. Talan today is an industry leader in manufacturing for the renewable energy and building products industries.

I always get a kick out of reading about a high-growth, world-changing, paradigm-shifting new thing that is widely praised while being labeled “disruptive.” I had a lot of experience with that adjective in my childhood, and I turned out OK, just as most disruptive markets do.

It’s easy to be captivated by the siren song of disruptive markets. Who doesn’t want to be on the good side of a skyrocketing growth curve? What many gloss over, though, is the other side of the equation. First mover advantage can rapidly turn into first mover disadvantage. Does anyone even remember MySpace, or GeoCities? One needs to be an internet historian (or check the Wayback Machine) to even find these early social media pioneers now.

The specific disruptive industries I’m familiar with include solar energy, LED lighting, single-ply roofing and electrification of transportation. In the early days of mass acceptance of solar energy, it looked like solar thermal (generating heat from the sun, as opposed to generating electricity) was going to achieve the widespread adoption it has in Asia or Europe. However, very low-cost natural gas quickly put an end to that industry in the U.S., while PV (photovoltaic) solar is the lowest-cost way to generate electricity in most countries today.

The LED lighting market grew from a niche of virtually zero to $100 billion annually in seven years. No downside here unless you were a supplier to a company that didn’t make it to the maturity the industry enjoys.

Single ply roofing, a disruptive product pioneered in Europe in the 1960s, came to America in the 1980s. Soon after, it was 8 percent of a $25 billion market, and today, it’s 80 percent of a $33 billion market. Not a bad ride, especially if you had the right partners. While there is a whole litany of roofing system companies that aren’t around anymore, the strongest ones emerged winners.

Discounting the earliest electric vehicles that were around when the auto was being invented, it’s now the early days of the electrification of transportation. One thinks initially of electric cars, but the whole industry of moving things is undergoing revolutionary transformation. Scooters, motorcycles, cars, planes, personal flying devices, trucks, buses, boats, even outboard motors, are all being electrified. Of course, many of the pioneers in the electric vehicle space have already run out of juice. The auto manufacturing landscape is littered with the carcasses of dead EV manufacturers.

The “slow and steady wins the race” crowd (all the major vehicle manufacturers) are going to be there to pick up the pieces as the industry explodes. Having been in the industry for a long time, fostering relationships, building experience, etc., should help some of the pioneers this time.

However there are many times the first mover initially has — and goes on to maintain — a long-term advantage. A recent example of a disruptive technology is the insulin pump, which is changing lives for the better, offering those with diabetes an easier way to manage the disease — in essence, their lives are less disrupted by the addition of new technology. Masks are another recent example of a necessary disruption. They are so ubiquitous now and they are made and sold in such huge numbers that whole factories have been built to satisfy the unprecedented demand.

I wonder if my childhood teachers are around to see how “disruption” can be a positive and how it has paid off for so many.

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