The world is changing. Over the next 20-30 years the economy will change as much as it did during the early years of the industrial revolution. That change will wipe out millions of small and medium enterprises and tens of millions of jobs. Business model innovation offers perhaps the only opportunity, other than luck, for helping those businesses survive.
At the start of the industrial revolution, England was not a bucolic pastoral idyll. It was a highly productive agricultural enterprise. The forests had been cut down for timber for the Navy. Fields had been enlarged and enclosed for large-scale farming, and the hills and moors had been turned over for sheep. Where conditions allowed there were small-scale coal, clay, and stone mines providing the key resources for the towns.
What the Industrial Revolution Did
In a matter of a few decades, innovations transformed farming, the processing of agricultural goods, and then enabled the production of manufactured goods and rapid transport between cities and then around the world. Every business transformed, we moved from living in the country to smoke-filled cities and the power of the aristocracy was shattered as new men took their place.
This revolution will be nothing like that.
There will be no dark satanic mills.
The only similarity is that jobs that millions of people do will change. Many, if not most of the jobs that people do now, will disappear. They will be done by computers.
Think about the industrial revolution and some of the jobs that disappeared, that only required one person rather than a hundred. Sowing, ploughing, picking, reaping, threshing, grinding, driving, herding, slaughtering, pickling, preserving, baking.
What the Digital Revolution is Doing
Some jobs have already disappeared – clerking and typing.
More that are going to go include driving, trucking, loading, delivering, picking, putting, diagnosing, closing, analysing, cleaning, planning, investing, telling.
Anything that can be automated will be. Where we can identify the patterns that humans use to complete a job, find an algorithm to calculate them, and a cheap machine to be attached, then it will be done. A lot of the time it won’t be done well at first. Few attempts will be abandoned. The automation will get better over time.
When we look back at the industrial revolution a few things are clear. Most of the big companies that existed at the start of the digital revolution started in the early to mid-years of the industrial revolution. GE, Unilever, Marks & Spencer, Sainsbury’s, Proctor & Gamble, Shell, Standard Oil.
They found a product that the new industrial economy required, built it into a brand that was known for being better than a thousand competitors, and then grew massively with the advertising and TV revolution of the 1950s.
Creative Destruction
As all these companies did so their competitors were wiped out. This is what Joseph Schumpeter calls creative destruction
“process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”
Joseph Schumpeter – Capitalism, Socialism & Democracy
It’s easy to look back at the industrial revolution with hindsight and see the lessons. Where are we in the digital revolution?
It seems likely that we are at the point where the changes are starting to take off. We are entering a period where the rate of change is the fastest. We’ve had 20 – 30 years of developing the innovations that enable the whole scale transformation of human life. Now people are creating the machines that do that.
If you want a nasty metaphor, it’s the point where the floodwaters are just topping the dam. There’s a trickle going over now. Pretty quickly that trickle is going to force a breach and then the whole dam will rip open.
Cloned Business Models
One of the reasons why this metaphor is accurate is that most existing businesses today have a similar business model. Lawyers all work the same way. So do advertising agencies. So do trucking companies and security companies and so on.
In most sectors, 80-90% of the businesses within them will be using the same business model. This has the benefit of being a known quantity that delivers results. You can take the template and apply it and it will work. Success is based on your skill, where you choose to run it, and general market conditions.
The trouble is that these businesses are like elms trees and bananas. They are all identical and when a new disease strikes them, dutch elm disease or Ralstonia banana wilt, none of them have the antibodies to fight back.
Competence is not an Insurance Policy
Living as I do between the Leicester textile mills and the Nottingham coalfields (none of which still exist) the evidence for the failure of industries with single business models is abundant.
When we look at previous business cycles we can assume that the owners and managers of the businesses that failed were, on average, just as competent, educated and able as the managers today.
They applied the rules that they knew to save their businesses. Working harder and smarter wasn’t enough.
I’m going to say that again
They applied the rules that they knew to save their businesses. Working harder and smarter wasn’t enough.
The ones that survived and flourished were the ones that were lucky or used differing business models that resisted change better; Business models that enabled change to become an opportunity and a driver.
Your Next Steps
So what to do?
Start looking at your business model. Start understanding your industry’s business model. And start looking at how change is happening in your industry.
Start thinking about how you will change your business model.
I have no insight into what your business model should become. What we do have on this site is a lot of information about the process of change. How to find a new business model. How to test it, how to try it out in the market.
Near me is Taylor’s bell foundry. It’s a small factory. It’s the largest bell foundry in the world. The only reason that it has survived is that its industry no longer exists. It serves the few remaining buyers who need large bells.
It’s better than disappearing, but you should be able to do better than that. Good luck!
