August 26, 2013
What Every CEO Can Learn From Silicon Valley

Who remembers life before the Internet? Wasn’t that long ago, was it?

Look how much has dramatically changed in 15 years; we bank online, watch sports online, book travel online, vote online, get our news online, most of our businesses are dependent on the internet every day, and as much as it’s an oxymoron we even “socialize” online. The Internet has transformed pretty much every aspect of life — in just 15 years.

At the advent of the Internet era we were all told we needed to get our businesses online. We spent huge amounts of money on company websites, sometimes with capabilities to conduct business online too; so called eCommerce.

We bought most of this “technology stack” from Silicon Valley. “Who was our competitor” was readily accepted and agreed by the management team. If we were a bank, we knew the other banks serving our target market, likewise if we were a retailer, we knew very well the other retailers we competed against. If we owned a chain of restaurants, likewise we tried to figure out who the competition was.

Technologies promised all kinds of business improvements: CRM software to track our customers, business intelligence software to analyze their purchase/consumer activity over time, and big databases to store all the information in. The problem was our competitors also bought similar technology to try to get ahead of us. In the end neither gained any sustainable competitive advantage. It was an expensive arms race, and Silicon Valley was the arms merchant.

But something’s been changing in Silicon Valley. It’s not an arms merchant anymore. It’s moved on. What it does now affects nearly every industry globally, and nearly every business globally, both large and small. Silicon Valley more and more is launching it’s own businesses to compete with the very industries it once sold software to. Think about it. Apple sells music, Netflix sells movies, Google sells phones, Facebook sells advertising, Zynga sells entertainment, Intuit sells financial services, Airbnb sells you a place to sleep, Uber sells you a ride home, Zipcar sells you a rental car, Square lets you be a payment processor, Craigslist sells you a handyman (or worse). All very big, very successful Silicon Valley companies.

Silicon Valley is no longer an arms merchant, it’s a mercenary. It’s building armies, putting them on the battlefield and grabbing land from the very industries it once just sold IT to. Silicon Valley has shifted from “high tech capital of the world” to “industry disruption capital of the world.”

There is an enormous concentration of mobile-oriented companies in Silicon Valley; so much so that it’s fair to say it’s now the mobile capital of the world, with no second place on the horizon. Why? It’s not actually a mobile phone. It’s a computer; the value of your mobile device is in the software experience and all the apps, right? Silicon Valley has been making great software for a pretty long time. Oh, it’s also home to Apple and Google. I’d say there’s an 80 percent chance that phone in your pocket right now is an Apple iOS or Android.

That smartphone in your hand changes retail forever. During the Internet era we didn’t drag our laptops into the stores, open them up and do a price check. Now we do, and there are literally dozens of mobile price check apps. Scan and scram. That phone just exposed cost overheads of running a traditional physical storefront versus doing it online. So consumers either choose to pay 20 percent more to have the item now, or wait a day or two for a big discount. Will shopping malls and storefronts ultimately become museums with changing rooms?

Mobile devices are changing financial services forever as well. More and more mobile payment solutions will be coming online in the next few years. More mobile-based financial transactions, less hard currency.

What’s happening?

It’s pretty simple. A combination of the Internet, smartphones running inexpensively produced apps, societal shifts towards more online activity (“social media”) and business model innovation have all combined to tap into an “information layer” that exists in every business. To quote Netscape founder Marc Andreessen: “Software is eating the world.”

So what can you learn from Silicon Valley’s strategy? Here are three questions that may spark some insight into how you can run a more relevant business:

  1. Is an “information layer” growing in your industry? Chances are if you are in financial services, mobile, automotive/transport retail, media, entertainment, hospitality or healthcare then you’ve already started to see disruptive businesses encroach on you and your traditional competitors. The competition isn’t always who you think it is. More and more, you may see new entrants to your industry, and often they have fundamentally rewritten conventional assumptions about how your industry ought to work.
  2. What’s your top-line growth rate? What’s your company growth rate been over the last three years? What’s your industry growth rate over the same period? It’s irrelevant how fast your company is growing if it’s not in the context of the growth of the industry you’re in. If you’re not growing as fast as the industry, by definition, you are losing market share. Why?
  3. What’s your “new ideas” capability? Do you have an executive team that can drum up new ideas to strategically grow the company? How good are they at spotting big trends? How about at defining new products and services? How savvy are they with the way technology is transforming your industry?

Software companies throughout the world are trying to disrupt industries, but it’s Silicon Valley that has the critical mass of serial acquirers, serial disruptors and clusters of industry verticals forming that continue to shape the future of many industries.

Don’t think of Silicon Valley as just “high tech stuff” — that’s a dated (and dangerous) notion. Study how it combines technology and business model innovation, then accesses that layer of information in your industry.

Be the hunter or be the hunted.

Mark Zawacki
Mark Zawacki is the founder of 650 Labs, a strategy consultancy which helps non-technology multinationals understand and react to industry-wide disruptions emanating from Silicon Valley. He has advised more than 300 clients globally on a myriad of growth and revenue-related initiatives including business strategy, innovation and disruption, business and corporate development, alliances/partnering, go-to-market strategies and international expansion. Mark tweets regularly at @markzawacki.