written by
Tom Husson

6 reasons for the death of your current business model.

7 min read

What does the explosion of exponential technologies mean for our business models?

In our previous article, we've noticed that the rate at which exponential technologies drive price/performance curves are pushing this century forward at faster and faster speeds. We've simplified this phenomenon with a concept coined by Ray Kurzweil, namely the law of accelerating returns. The law itself broke out in two aspects: Information enablement of many different business processes & the exponential advances in hardware that carry those information-enabled processes. If all these things seem like a bunch of jibberish to you, feel free to check out the previous article). Now, we're about to dive deeper into what that exactly means for your business model.

The natural follow up question with exponential acceleration would be, where does this lead to? What does this mean for me and my business? Continuous, exponential acceleration is nice if you're able to keep direction and avoid crashes. In this article, you can think of us as your co-pilot making you aware of the twists & turns in the road so you can make all the right steering choices and focus on harnessing the acceleration.

A thinking framework for the exponential age

Of course, to get all the twists & turns mapped the specifics will be different for every industry & organisation - and mapping this is for sure something we would be happy to help you with - but there are a couple of meta twists that are transforming the game for everybody. To continue our metaphor of the co-pilot, let's start with getting a birds-eye overview of the road ahead. Peter Diamandis's 6D framework brilliantly describes what we view as those meta twists.

Digital business model

Digitising, numbers as the fertile ground of the 21st century.

Today many of our relationships are digital. We're taking this further and further by turning all sorts of crazy aspects of our lives into ones & zeroes. For example, there is a startup in Israel called beyond verbal. They can take 10 seconds of your voice and are able to asses your mood by 85 % accuracy. Constant new worlds of possibilities & opportunities are being opened up at an accelerating pace. And it doesn't look like it's about to slow down.

Anything that becomes digitised (it can be represented in ones & zeroes) enters the same exponential growth we see in computing. Digital information is easy to access, share & distribute. It moves at the speed of the internet.

So a digitising world means an exponential acceleration for current markets but not less important, the creation of entirely new ones that by design operate at this speed. Those new markets are complementary to those already accelerating pre-existing ones, which accelerate the exponential acceleration even further. A pure manifestation of the law of accelerating returns, - see the previous article.

It's is beyond obvious that a business that is still not thinking about digitising all of their processes has signed the death warrant of whatever business model they are operating today. In a hyper-connected world, and we're just at the beginning as you can see in the graph above, being digital is a bit like having legs & arms to operate in this world.

Disruptive business model

Disrupting, every business model at a time.

A perfect example is the Kodak story. The whole story can be summed up in a comment made in 2008 by Steve Sasson, the Kodak engineer who invented the first digital camera in 1975, when he reflected on the response of senior management at the time:

"But it was filmless photography, so management’s reaction was, ‘that’s cute—but don’t tell anyone about it."

via The New York Times (5/2/2008)

What ended up happening was the scarcity-based business model that Kodak was thriving on, namely every couple of clicks done on a camera would mean a film sale for them, was entirely disrupted when the marginal cost of a camera-click dropped to zero with the digital camera. If you can also, snap, store, and share a photograph, why buy a camera and film? This drop in marginal cost shifted the space from a scarcity-based business model to an abundance-based business model. This commonly shifts the business model need to fill from a classic production-sale need to a filtering need, hence the rise of Instagram etc. But we'll get back to this!

Business model disruption quote

Every business operating from a scarcity standpoint needs to consider that it might be disrupted at some point or the other. Another twist that comes with this is that we have no clue what a job might look like in 5 years, so figuring out a way to build a resilient, self-learning workforce are one of the many things that this disruption-turn brings to current business model setups.

Demonetisation business model

The drive to Demonetisation, a cliff-death story.

Money is increasingly removed from the equation as the technology becomes cheaper, often to the point of being free. Software is less expensive to produce than hardware and copies are virtually free. You can now download any number of apps on your phone to access terabytes of info and enjoy a multitude of services at costs approaching zero.

It used to be that as an internet startup in the late 1990's - early 2000's, set-up costs alone would be close to the $ 100.000 as you were required to set up your own servers infrastructure & pay for all the overhead that came with that. That's a big bet to make upfront.

That changed when in 2006 Amazon launched its AWS service. Now internet startups can test traction at a marginal cost of zero.

The same is bound to happen for our mobility. Soon cars will be electric & self-driving, the price/performance of solar is also on an exponential pace meaning that the actual cost of moving around in a car will be close to zero.

Newspaper business model demonetised

A very clear example has been the publishing industry. That deflationary cliff enabled by the technological exponential pace is probably an important fact to take into account when questioning your current business model.

Democratised, and we do mean everybody.

From the moment something is digitised, more people can have access to it. Powerful technologies are no longer only for governments, large organisations or the wealthy. Any entrepreneur can come in with a beginners mindset & disrupt the whole industry.

This increases the possibility of disruption even further.

One exemplar of that pending disruption is teenager Jack Andraka, who at the age of fourteen single-handedly developed an early-stage detection test for pancreatic cancer that costs just three cents. His approach (awaiting peer review) is 26,000 times cheaper, 400 times more sensitive.

Understanding that really anything is possible is a key consideration to make. Relying on expert information being proprietary in your business model is probably an increasingly unsafe bet to make. Anybody can figure out anything today with the tools available.

Deceptive exponential business model

Deceptive, don't believe your intuition.

Exactly. Don't believe your intuition because it is probably linear yet when something starts being digitised, its initial period of growth is deceptive because exponential trends don't seem to grow very fast at first. Doubling .01 only gets you 0.2, then .04, and so on. Exponential growth really takes off after it breaks the whole-number barrier.

This makes developing intuition about the rate of acceleration really hard but not impossible.

In the 1980s, when mobile telephony was clunky, unreliable and expensive, the renowned consulting company McKinsey advised AT&T not to enter the mobile phone business, predicting that there would be fewer than one million cellular phones in use by 2000. They were out by a factor of 100 – there were 100 million cell phones in use in 2000 and McKinsey’s recommendation meant that AT&T missed out on a huge opportunity.

Dematerialisation leads to business model opportunities

Dematerialised, less is more.

Separate products are removed from the equation. Technologies that were once bulky or expensive - radio, camera, GPS, video, phones, maps - are now all in a smartphone that fits in your pocket.

These increasing capabilities present a huge opportunity and are the reason for success for companies like Waze and many other applications that leverage the continuous increase in capabilities of a singular device that is upgraded regularly by consumers.

What to remember from this article

Concluding on what the exponential technology explosion means for the way a business is managed, we would argue it all comes down to this:

A shift from scarcity to abundance is fundamentally changing the business model that a majority of businesses still operate on today.

All this might mean the death of your current business model, but it certainly is not the death of opportunity. Once you learn to master these turns & twists opportunity is more abundantly available than ever, as this infographic of the increasingly crowded unicorn club demonstrates. A unicorn is a company that is valued at over 1 billion.

We would be more than happy to help you make sense of all of this even better tailored to your organisation specifically. Reach out for a workshop or a coffee!

Have a look at our Website or follow us Instagram, Twitter, Facebook or LinkedIn.

Or leave us your info and we'll reach out to you!

Newsletters suck... Ours don't! Get the best of Raccoons by email. We won't spam you!
Sign up for our newsletter