1. Stay complacent with your revenue streams
For companies that choose this path, digital disruption has directly or indirectly impacted their core business. Unfortunately, they realized this reality too late and are now racing to get back to the top spot. My assessment is that they require the utmost discipline in their organization to succeed, which may be unlikely given they’ve missed the boat already!
Take, for example, the car-rental industry. On a recent business trip, I wanted to return a car early since I would be stuck in all-day meetings at a hotel. Luckily (or so I thought), there was a rental location close by. After a 30-minute chat on the phone, I learned that the rental company wanted to charge me 300% more to return the car three days early at a hotel location only a few miles from the airport. This reminded me how antiquated and asset-centric (versus customer-centric) most car-rental business models are. Just imagine the possibilities if they could innovate!
When you consider that utilization rates of car fleets average between 75% and 80% for most established rental companies, there’s a clear opportunity to monetize that remaining 20% to 25% of excess capacity by offering vehicles to aspiring Uber and Lyft drivers. Although Hertz (a centenarian corporation) has been considering this for the past year, no one from the old guard in this industry has taken advantage of this opportunity – yet. As a result, a whole new flock of rental-car companies specializing in renting vehicles to Uber drivers has emerged, such as HyreCar and Breeze.
2. Embrace disruption and get innovating
Companies that embrace disruption have also experienced significant disruption to their core business. However, there is one difference: they are also using it as an opportunity to enter entirely new markets. The gloves are off, and innovation is percolating.
Let’s consider Sears. At nearly 130 years old, the company could be thought of as the “Amazon” of its day, originally selling watches to outpost communities in the late 1800s and eventually innovating to become a leader in retail catalog sales. For the time following World War II, the company could be considered a Big Data pioneer. By analyzing U.S. Census data and demographic shifts to the suburbs, Sears decided to invest in numerous mall locations to form a brick-and-mortar retail business.
Fast-forward to today, Sears has clearly been disrupted for a portion of its core retail business by Amazon. As a consequence, the company is now pivoting into an entirely new business: unlocking the value of its vast real estate acquired at dirt-cheap prices in the 1950s to essentially operate as a real-estate investment trust (REIT) across approximately 30% of “super-ZIP” (also known as high net-worth) malls in the United States. Some estimates claim that Sears owns more than 200 million square feet of space – double that of Simon Property Group Inc., the largest mall operator in the United States.
Sears recently spun off a portion of its real-estate holdings, comprising nearly 18% of its square footage, for $2.6 billion under a new publicly traded company, Seritage Growth Properties. By reconfiguring its spaces to house a variety of retailers such as Primark, Whole Foods, Nordstrom’s Rack, and Dick’s Sporting Goods, the company will gain annual revenue from rent that is higher than what a larger Sears store could generate in a few years.
However, it is not just retailers that are renting or buying those “big-box” stores. Some locations are being transformed into large data centers that facilitate the buying and selling of just about everything online. CyrusOne is one such innovator that specializes in this activity with data-center sites in suburbs, former office parks, and retail centers. It’s amazing to see online retailers displacing their large, brick-and-mortar competitors by using the real estate of those big-box stores to create data centers and sell goods online. Things really do come full circle!