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Relationship builder, 40 Under 40 executive and co-founder of Barney, helping entrepreneurs buy and sell great agencies.
What do retail banking, real estate financing, business loans, insurance, investing, and mergers and acquisitions (M&A) have in common?
In addition to the obvious connection to finance, they are also all rife with outdated systems, power structures and business models. Those factors, combined with others I’ll uncover shortly, signal the industry is on the cusp of a breakthrough. In short: Finance is ripe for disruption — and there are steps you can take as a finance leader to embrace and benefit from disruptive thinking and practices.
The Disruption Checklist: When Is It Time?
Disruption has enormous potential to do good. But what are the signs that an industry is ready for disruption? Every industry has its own unique set of determining factors, but the past 20 years of tech have provided a rich menu of signals that tell when the clock is ticking toward hour zero. To recognize “peak disruption ripeness,” you need only look to the hospitality, travel, print media or rental industries. When disruption entered each of these, three sets of conditions were in place. In retrospect, the power brokers should have seen change coming.
What are these three key factors? Let’s dig in and disrupt.
There’s A Power Imbalance
One sign that an industry is ripe for disruption is an imbalance of power. When monopolies and oligopolies are in charge, innovation is waiting in the wings to take hold and shake things up. If four or five brands own 90% of the market share, you can bet a disruption storm will be brewing in the near future.
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Whenever power is concentrated, customer distrust of the system is bound to be high, as well. That dials market tensions up to 11. Eventually, that steam builds and causes ruptures (did someone say disruption?).
Disruption is devastating for the dinosaurs. For consumers, it can be great news. It can give them leverage, open access to better and cheaper services and, as the icing on the cake, give them underdogs to cheer for — at least until those underdogs become the big dogs and the cycle starts anew.
Technologies Are Out Of Whack
You might be thinking: Isn’t every industry ripe for disruption? In a sense, yes. If it emerged in the 20th century, the digital innovations of the 21st are eventually going to turn it inside out.
But if you want to know which industries are on the verge of disruption now, technology is one of the first places to look. The older it is in a given space, the riper that space is for innovation. The reasons for this go back to the first point, about concentrated power. Technology is the way it is in a disruption-ripe market not because it’s the best solution for consumers, but because it benefits the old guard. Give the people what they want in such a market, and watch your shares skyrocket.
Another way technology can be a barometer for disruption-readiness: Markets that are ripe for disruption are often oversaturated with technology. This is the case when products already offer everything most users need and have become bloated with features for elite users. I only share that last bit for educational purposes, though. The financial industry has not yet reached this stage, in my opinion. If it had, you wouldn’t be seeing the rise of fintech transforming finance today.
Business Practices Outweigh Customer Needs
Is the market considered “mature”? Do the established players shrug off consumers’ demand for change? If companies refuse to change despite low consumer confidence, you can bet that if not the apocalypse itself, then at least disruption is near.
In fact, any industry that’s focused more on the business than the people it serves is begging for disruptive innovation. One red flag to look for is when the industry’s spokespersons are paying more lip service to fiscal and operational talking points than customer pains.
Other signs are when the dominant players’ products are virtually indistinguishable, the supplier prescribes how the service is sold or consumed, and most consumers agree that a better model is needed.
Wondering if this is true of finance? Just ask yourself: How much unnecessary expense, red tape and industry jargon is required to complete a transaction? Are nine months needed to do something that would take under 90 days if processes were more efficient and fully digital? Are people’s lives interrupted because they have to do things manually, repeatedly or in person that could be simplified, eliminated or automated?
One example: The music industry in the 2000s. Labels were selling music in album format (CDs) when the public wanted the freedom to buy singles (iTunes). Now streaming services have ousted iTunes — and the beat of disruption goes on.
How To Channel Disruption For Good: The Finance Innovation Playbook
You might have guessed that I have an agenda in writing this piece. My struggle to find competent M&A representation when I sold my first digital business inspired me to found a company to provide the service I had lacked. You can see my story, and this article, as a warning, a call to arms or both. But whatever your perspective, as a leader you have an opportunity (and I believe, an obligation) to embrace disruption. You can be an agent of change. Conversely, you can ignore history’s signs. The consequences either way will be huge.
To be on the right side of disruption, you need to start thinking like a disruptor. Look at your corner of the finance industry and ask: Are consumers being forced to buy services or features they don’t want? Is the product too expensive for large slices of the potential market to afford? If so, introduce one that’s simpler and cheaper, and watch the market go wild for it. Don’t worry about matching every feature of what’s already out there. Just cut the cost — and democratize.
The incumbent probably won’t thank you, but consumers will. And so will history. I look forward to your success story.