Covid-19 and the disruptive industries: fear, loss & hope
Here’s a look at how our industries were impacted by the global pandemic that has been disrupting many economic activities for the past few months.
As the Covid-19 virus spread around the world, leaving few places untouched, the economic and financial consequences of this deadly outbreak seemed to become highly contagious as well. With very different and diverse sectors being impacted by the changes in our everyday lives, we at Warwick Kickstart wanted to give our readers a condensed look into what this virus and its aftermath mean to the disruptive industries. As this is one of the first articles on our website, we wanted to give newcomers a chance to catch up on innovation lingo and explain briefly what exactly disruption is. Once you’ve freshened up on your business strategy models, we’ll talk about how this particular industry went – and is still going – through this pandemic and what it will mean for it in the future.
‘Disruption’ is the process by which a smaller in size business or company with fewer funds and resources manages to challenge existing incumbent businesses. As the latter focus for the most part on refining and enhancing their products and services for their most demanding- and most profitable- customers, they may overshoot the needs of some segments and ignore the needs of others. The disruptive industry thus regroups the companies that prove to be disruptive by entering the market through successfully targeting those same overlooked segments and providing more suitable products and services, more often than not at a lower price. The bigger and dominant companies tend to not respond quickly or vigorously enough to these new entrants, who then move upmarket soon delivering what the incumbents’ ordinary customers demand. When mainstream customers begin to opt for the entrant’s contribution in volume, disruption has occurred. One of the key points to remember to identify disruption are that disruptive innovations start-off in low-end (where incumbents pay less attention to customers that are less profitable) or new-market (creating a market where none existed) footholds.
We’ll start our assessment on a more positive note, evaluating how these disruptive industries (let it be in FinTech, NewTech, medicine etc…) will cope after the endurance of Covid-19. One theory is that business will continue somewhat as usual. The paradox of disruptive innovation is that it succeeds as incumbents fail. Their whole market entering strategy relies on delivering where more established and better funded companies fails. So as long as there are segments that incumbents ignore (all in good business strategy, focusing on their more profitable and usual consumers being a sound thought), there will be disruptive innovation. Also, it’s relevant to say that historically, disrupters have thrived and flourished even in the most difficult economic times. Growth in this sector hence could hopefully not be affected. Rick Alton, director of emerging research at the Clayton Christensen Institute, when interviewed by INTHEBLACK about disruptive innovation during the Covid-19 era said that “historically we have seen disruptive trends continue to drive growth even during recessions”. He then brought up the example of the smartphone market, which accelerated growth during the last recession. “The revenue growth opportunities available to disrupters are often so large that they are not derailed even by a global financial crisis.” To come back on our earlier point about disruption continuing to grow regardless, Alton also supports this theory: “Low-end disruptions will usually succeed on their own merits irrespective of economic conditions,” he says. “This is because the low end of a market is always there, with consumers who are ready to adopt solutions that solve their problems without the bells and whistles (and cost) of higher-end products.”
Let’s look at the Fintech sector for example: according to a report published by Finch Capital, the rest of the year will be a time of challenges for the Fintech sector, but the post-pandemic era will be prosperous for the industry and its enabling sectors, including IoT, clouds, Blockchain and AI. It predicts that the Fintech sector will emerge as a disruptive winner. Indeed, with a huge increase in remote work and social distancing, plenty of new opportunities are popping up for challenger banks and Fintech apps. With new payment options and online guidance for their consumers, the health crisis provides even more incentives for them to use such features, with the recent emphasis put on social distancing.
However, we must also present you with the less optimistic side of things. This pandemic has meant a slowing down of deals and a transformation in the funding landscape for disruptive startups. Many Venture Capital firms are leaning towards a continued slowing down of activity. Although they maintain their search for innovating startups, they are still decreasing the number and amounts of new investments. Romain Lavault of Partech (an investment platform for tech and digital companies) has said on the matter that “most startups should expect a ‘new normal’ with fewer rounds, more syndicated deals and probably more caution on valuation”. Supply chain disruptions have also meant that even with the most innovative ideas and funds, Covid-19 has represented a massive decrease (or even full-on stop) in production for some tech, food, pharma (and more) startups and disruptors.
Whether this pandemic will mean that the disruptive industry will suffer greatly and continue to pay the consequences for a long time or that it will on the contrary thrive immensely, we have to acknowledge that it will probably represent the best way to fight both the virus and its economic downfalls. In a recent article titled “Fighting Covid-19 through digital innovation and transformation”, the UNESCO highlights the potential of digital technologies to overcome: “Emerging technologies such as Artificial Intelligence (AI) help to expedite the development of a vaccine; predict which public health measures would be most effective; and to keep the public updated with scientific information”. In order to avoid disruption to supply chains like we have seen during this pandemic, modernisation, improvement and disruption will also prove to be necessary.
According to Deloitte, creating digital supply networks will be key to reacting to Covid-19 and building resilience for the future. We now begin to realise that disruptors and innovators that help cut costs by streamlining operations are of the utmost importance. Successful Supply Chain startups include companies such as ClearMetal, which uses AI to permit supply chain transformation, or Velostics, a company that integrates different channels of communication, facilitating business for oil supermajors, shippers, carriers, brokers and drivers.
Needless to say, Covid-19 has shaken up almost every aspect of our lives, including our economic ones. For the disruptive industries, it will bring new challenges as well as many opportunities. How they seize and fulfil these new opportunities will be paramount, as innovators and disruptors will without a doubt be on the frontline of the fight against Covid-19 and our acclimation to the ‘new normal’ which will emerge of the pandemic.