- Most startups are based on disruption.
Something changed the game and the startups use that
to get rocket-like growth.
But what happened when the iPhone killed BlackBerry
or Netflix crushed Blockbuster?
When is the stage really set for large scale disruption?
And how do we see when the market is ready for disruption
and massive growth?
That's what we're gonna talk about the day
so you could see exactly
when the market is ready for disruption.
This is for "Raw Startup".
I'm the founder of Vivino.
We disrupted the $300 billion wine industry.
We changed the way people buy and drink wine.
With over 50 million users around the world,
we sell wine for hundreds of millions of dollars
every single year.
I learned a lot about disruption on this journey
for the past 10 years,
and that's what I'm gonna share with you guys today.
We're gonna look at the three stages of disruption
and if you're thinking about building a startup,
you must watch this video
to see when the stage is set for disruption.
What needs to be in place
for an industry to be ready for disruption.
Doing it too early or too late
can be devastating for any startup.
In this video, you'll also learn a new word: swarp.
I just made it up
so you can not have heard about it before.
Stay tuned to see what swarp means.
Although we disrupted the massively big wine industry,
now that my co-founder and I
were actually from the industry.
We saw something broken in the industry
and saw some technology that potentially could fix it.
In fact, most people in the industry said
that what we were gonna do could not be done.
They said that building a wine database
of all wines in the world was impossible.
There's just too many wines out there.
So the point is,
you don't have to come from an industry
to actually disrupt it.
Sometimes it's good to be an outsider.
It's good not to know the limitations of the industry.
Being a bit naive and not knowing the industry in detail
can be a good thing.
With that, let's get going and look at the first stage.
Stage one, a shift in technology, legislation, or behavior.
Like I said, there's always some kind of shift
that drives disruption.
Technology is a big driver of disruption
and there's always a new technology out there.
It can be AI. It can be AR.
it can be all kinds of different technologies
that can be used for all kinds of applications.
In very, very different industries.
Technology is by far the most common way of disruption.
I'll show you a few examples of the disruption
that were not driven by technology.
The original idea for Vivino wasn't that disruptive.
It was just an idea to build a database of wine
inspired by things like IMDb.
What created the disruptive idea for Vivino
was the smartphone.
Just like thousands of other startups,
there was a big shift with the smartphone.
One device replaced digital mobile phone,
the camera, the music player,
and of a lot of other stuff
that were already built into a computer.
A person that went to the supermarket to buy a wine
was now carrying a supercomputer in their pocket.
The computer was online with the camera
and that's what created an opportunity for Vivino.
Technology shifts never stop. They just keep coming.
Sometimes, it's a totally new technology.
In other cases, it's a new way of using an old technology.
So keep an eye on what's changing in technology.
Make sure you do this in the right order.
You should have a problem first and then a solution.
Sometimes people think, "Ooh, I have the solution.
Let's find a problem for it."
That rarely works.
Moving on from technology, there are also other shifts.
Let's start with legislation.
Usually, it's some kind of new law that changes things.
Something used to be very controlled is now less regulated,
and the market opens up.
This happens on a regular basis.
As an example, there was a big shift
with the US Airline Deregulation Act.
Suddenly opened up the market and changed the way we fly.
The market opened up
and suddenly anyone could compete in the skies.
Changed everything. Total disruption.
Another example is consumers' changing behavior.
One example is the new generation
moving from a less meat-based diet
to a more vegetarian diet.
That creates big opportunities
for anyone in the food industry.
Sometimes it's even a combination.
It can start with a technology
and then moves into legislation.
Take Uber for example, it started with technology,
but then pushed the regulation in many markets.
There's one more thing you should know about disruption.
It usually starts very, very slow
and then suddenly goes into warp speed.
First slow, then warp.
I've made a graph to illustrate that.
Take a look at this graph.
On the horizontal axis, we have time,
and then vertically, we have penetration
of the product or technology.
First, it moves very, very slowly.
There's little penetration.
It can take years and years,
and then suddenly it goes into warp speed.
The key point here is when the speed changes.
When does it go from slow to warp speed?
I call that point swarp,
when it goes from slow to warp speed.
As a startup, you probably want to be there
when it's still in the slow stage,
but you don't want to be there too early.
Because if you're too early,
you'll end up working with a technology that isn't mature
with very few users.
You want to be there before the swarp but not too early.
Launching after the swarp usually doesn't work.
By then, competition is too far
and you're too late for the market.
Take self-driving cars.
We're still in the slow stage,
but we don't know when the swarp's gonna happen.
First, we thought it was gonna be 2020,
but we all know that that didn't happen.
Then maybe 2025.
But actually, right now, it's most likely 2030.
By then, Google will have spent 20 years
on building their self-driving car.
No other startup would have been able to do that.
They would have run out of money a long time ago.
Only Google's unlimited warp chest
could handle coming in this early.
So get in there before the swarp, but not too early.
I've talked about technology, legislation,
and behavioral shifts.
Let me know about other shifts in the comments.
Other shifts that can create real disruption.
Stage two, industry does not follow.
This happens all the time.
The industry does not react to the shift.
The industry chooses not to use the technology
or whatever the shift is.
The industry is making a lot of money
in the industry as it is.
They do not want anything to change.
They know how to make money in the current industry,
but they don't know what it's gonna be like
after the shifts.
So they just ignore it and wait.
They usually know how to make money in the old world,
but would rather have everything stay the same.
Stay in a world where they know how to make money.
They might not see the shift,
but could also be in denial and think everything is good.
Seeing the shift can be hard because first, it's slow,
and the industry says, "This is fine, but it's small."
And then the swarp happens and suddenly everyone can see it,
but by then, it's too late.
You've lost the disruption game.
When the shift happens, the industry has to be ready
to cannibalize their existing products.
There is a famous and very important quote from Steve jobs,
and he said,
"If you don't cannibalize yourself, someone else will."
So the point is you have to cannibalize yourself,
otherwise someone else will
and you're totally out of the market.
When Apple launched the iPhone, they had the same question.
Should we really launch the iPhone,
because it will cannibalize the very successful iPod?
It was obviously a fantastic idea to launch the iPhone,
but it did also take market share
from the very, very successful iPod back then.
If Apple hadn't launched the iPhone back then,
someone else would have come along,
taking that market share from the iPod,
and they would have been out of the market anyway.
Let's stay with the smartphone and talk about BlackBerry
or Research In Motion, as the company is called.
The BlackBerry was the first smartphone
to do a lot of the things that we do
on the touch-based smartphones we have today.
They were immensely successful in this zeros,
especially in the US.
If you went to a business meeting in the US,
there'd be a BlackBerry in front of every single person,.
They had all this success
and suddenly, boom, they fell off a cliff.
Went down from massively successful to basically nothing
in only a few years.
True disruption happened.
The iPhone and Android had totally taken over the market
in a very, very short time span.
When people look back, they say,
"What happened? Where they blind?
Could they not see what was happening?"
Look, these are not stupid people.
They had a very, very successful product.
And sometimes when you have a successful product,
you can't see what's happening till it's too late.
When you realize you're in trouble, it's just too late.
The swarp has happened and the race is over.
Let me show you literally what happened.
Here's a graph of BlackBerry's revenue and profits
in the years that the iPhone launched.
The iPhone was released in June of 2007.
Look at what's happening to BlackBerry in that period,
they are growing the revenue and making more and more money.
It's not until 2011,
that things start flattening out
and their growth slows down.
And by then, it's already too late.
The iPhone has already won and they just don't know it.
So from 2007 till 2011,
BlackBerry is growing and making more and more money.
Why should they worry about this small player in Cupertino
with a phone that's too expensive
and really doesn't work that well,
which was the case with the early iPhones?
Obviously, BlackBerry wasn't the only one
to miss the iPhone.
So did Nokia.
And Microsoft CEO Steve Ballmer famously said this in 2007,
- [Interviewer] Steve Jobs goes to Macworld
and he pulls out this iPhone.
What was your first reaction when you saw that?
- (laughs) $500? Fully subsidized with a plan?
I said, "That is the most expensive phone in the world,
and it doesn't appeal to business customers
because it doesn't have a keyboard."
- All that success that BlackBerry had
ended up leading failure.
They were drowning in revenue and profit growth.
And when they realized something was coming,
they were already doomed.
So sometimes too much success, too much confidence
can lead to disruption and you'll lose the disruption game.
If you look at the graph again,
the swarp happens around 2010.
At the time, BlackBerry is still growing fast
and still has growing profits.
When profits started going down, in '12 and '13,
we're already at swarp speed, the game is lost.
It's easy to say that BlackBerry should have seen it,
but when you're in it, it can be hard to see.
And when you see it, it's too late.
Generally, I also have a pretty cynical view of this.
In most industries,
the old industry doesn't want to see it, never sees it,
but then it creates a lot of opportunities
for the rest of us.
There's one case
where it can be really, really hard to disrupt,
and that's when the industry is controlled
by, say, two or three players,
especially if you rely on them to help you
to disrupt the industry.
That can be really, really hard.
Let's take a look at the music industry.
It's controlled by three big players:
Sony, Universal, and Warner.
They control all the content.
It's very hard for any startup to do anything
without a license from all three players.
For the past 20 years,
people have tried to disrupt the music industry,
but it's been hard and they haven't really been successful
until now.
Spotify is a true disruptor of the music industry.
However, they are a black swan.
It is a miracle they were so successful.
They did incredibly well,
and they knew they needed all three major labels,
so much they ended up inviting them on board
as investors in Spotify.
Spotify probably realized that there was no way to do this
without the three major labels,
so they just invited them on board.
Pretty damn smart move.
The point here is that 99% of all the companies
that tried to disrupt the music industry failed.
And 99% of the money that was invested was lost.
My point is, be careful with trying to disrupt
these industries that are dominated by very few big players
and you need their help.
It can be very, very difficult.
Just ask all the founders
that try to disrupt the music industry and failed.
And there's a lot of them.
As a comparison, take the wine industry.
It has hundreds of thousands of different players.
That's gonna take a lot of work
to get all those things together,
but it's just work and there's no dominant player
that can stop the disruption.
Stage three, a new product solves a problem
considerably better.
Now we're getting to the hard part,
build a product then uses the shift.
First, be aware that marginally better is not good enough.
If you want to do true disruption,
you have to improve things radically.
Peter Thiel introduced the term "10 times better"
in his book "Zero to One".
I really liked the term.
Doing things marginally better just won't work.
It is incredibly hard to change people's habits
and things have to be 10 times better
or people won't change their habits.
Let's take Vivino as an example.
You can take the app to a wine store,
take a quick photo of a label,
and you know everything about any wine
in a matter of seconds.
What was the old solution here?
How would you solve that problem before?
It would probably be Google the wine
while in the wine store.
Now that's a slow process,
and the chances of actually finding a website
that can tell you if this wine is good or bad
are actually quite slim.
And even if you find that website,
that's gonna taking minutes rather than seconds.
So yes, the Vivino is 10 times better
than the old way of doing things.
Be aware that when you build a product
that's truly disruptive, it's a different process,
because nobody's really built this product before.
It really does require a specific way of thinking.
I've done two videos on this process.
One of them is "How to Evaluate a Startup Idea"
and the other one is "How to Find the Product Market Fit".
Make sure you check them both
when it comes to building the product.
Then we have the timing,
something we know that can determine
if a startup as a success or a failure.
If we look at the graph again,
we want to be there before the swarp, but not too early.
We really don't know how long this period is.
For self-driving cars, it might be 20 years.
For the smartphone, probably three, four years.
Try and get the timing right.
Be there before this swarp. Not too early.
If you're too early,
you will run out of money before the swarp happens.
You probably don't have 20 years like Google.
Okay, let's look at the three stages
before I give you a final, crucial advice on disruption.
First, we have the shift, then the industry doesn't follow,
and finally fantastic founders see the opportunity
and build a product that uses the shift
and disrupts the industry.
Finally, when we launched Vivino,
there were 600 competing apps in the app store.
Yes. I said 600 different wine apps.
Now, why is that?
Why were there suddenly 600 wine apps in the app store?
Well, because it's pretty obvious
that it's a great idea to build a wine app
after the shift happened.
The point is that when the shift happens,
there's gonna be lots of competition,
because it's gonna be obvious to a lot of people
that something is up.
We know that.
Companies like Uber have competitors like Lyft and Juno,
and lots of others.
We have the Lime bike
and there are 500 different scooter companies
out there right now.
People see the shift and go for it.
You're not the only one getting this idea.
Big obvious shifts create a lot of competition.
So don't expect to be the only one to see this shift.
Basically, when there's a big shift,
there's lots of competition.
And if there isn't a lot of competition,
it probably isn't a big shift.
To win, all you have to do
is do it better than everyone else.
Execute better than everybody else. Good luck.
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