Disintermediation and the Future of your Industry

Airbnb and Uber are two companies causing serous disruption in their respective industries.

Airbnb and Uber are two companies causing serous disruption in their respective industries.

Disintermediation is a long fancy word that means essentially cutting out the middleman (intermediaries).  Granted, the phrase “cutting out the middleman” has become a bit of a cliché and anyone who claims that their business does this should be looked at with skepticism.  That being said we are in an age where there is huge potential for disintermediation in many industries.

The supply chain for many industries came about for a purpose.  There is a reason why we have multiple layers in many industries.  Even if we think we can remove some of these layers, in many cases we find that intermediaries serve a very important purpose.  However, the advent of new technologies particularly the internet are starting to cause disruptions in industries every day.

We have already seen mass disruption of the media, retail, and general communications industries.  Technologies like Uber in the taxi industry and Airbnb in the hotel space are showing how disruptive mobile and the internet can be.  Retail has already seen huge changes with competing business models and e-commerce like Amazon taking market share from brick and mortar stores. How will 3D printing, big data, and arduino to name a few, bring about further disruptions?

In the immediate future, business financing and real estate are two industries in which we could see dramatic change.  We are already seeing the effects of crowd funding with the advent of Kickstarter.  Equity crowd funding will further challenge the current paradigm for small business financing.  The real estate industry could see a big change if the internet can provide a connection from landlord to tenant.  This could potentially reduce the opacity of the industry as well as the relevance of the venerable real estate broker.

The point here is not to predict the future but to know that many industries are ripe for disruption.  What business models and professions can be augmented with better information?  I believe it is important to think about this when building your business and investing your capital in existing supply structures.  Many of these changes will favor the small business entrepreneur.  This is just a continuation of “The Long Tail” concept in many ways, wherein companies like Uber, Airbnb, Etsy, etc create a platform in which small companies and individual proprietors can succeed.

To give you a real world example, small time inventors can now easily access contractors to build 3D and CAD images for their products through a multitude of online freelancing sites such as Elance and Odesk.  Through various platforms they can locate locate rapid prototyping facilities. Further, they can identify manufacturing facilities with excess capacity.  Finally inventors can jump on a retail platform like Ebay or Etsy and immediately gain access to customers or they can run a Kickstarter campaign to get consumer input and raise funding for the next phase of mass manufacturing.  Think of the hoops and gatekeepers you previously  needed who can now be circumvented to bring a product to market.

The last point I will make is that with disintermediation come massive opportunities.  Every industry builds up barriers to entry.  No need to list all of them, but we all know the relevance of this.  When an industry gets disrupted it becomes much more accessible to the start-up small time entrepreneur who may or may not have access to large amounts of capital.  Gaining access to capital is also becoming easier for small time entrepreneurs.

The advantages that a large company has built over time are all surrounding the old business environment.  When that environment changes, organizations need to change in kind.  Systems that have been developed and refined over years need to change.  People either need to be fired, retrained, or hired.  The culture of a company overall which was extremely successful in one business world does not necessarily cut it as the industry goes through changes over time.  A recent Wired article regarding how Microsoft is changing their business culture discusses this well.

This provides immediate opportunities and advantages to those who start off fresh.  It is an advantage to the entrepreneurs who are not hampered by the old way of doing things.  It’s an advantage to the businesses that build their cultures in this new environment.  All disruptive technology simply changes the game and with any change comes great opportunity for those that can move quickly and nimbly.

It is my belief that in the not too distant future the majority of the populous around the world will be self-employed or work for small businesses not massive corporations.  This will not happen overnight and the massive corporations will use every tool in their arsenal to maintain the status quo.  I do not believe that this shift will be held off forever.  Not only is this my belief, but it is my hope.

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