Time to Grow Up

Young industries no longer have the time to grow up.

The cycle of maturation has long been accepted as  a fact of life when a new concept becomes a business. There are a few pioneers (defined here in Texas as the guys lying on the ground with arrows in their backs.) As the product or service finds its market, leading companies emerge. Eventually, consolidation reduces the number of influential competitors to a handful.

A “mature” industry becomes akin to an oligopoly, such as automobile manufacturing or consumer products. There are a few dominant players (Procter and Gamble, Unilever) a few second tier (Clorox, SC Johnson), and hundreds of niche players with specialized offerings.

That model seems to be disappearing, or perhaps it is just happening so fast that the development cycle goes by in a blur.

Today, the new player who has the best story, who can attract the most capital, simply crushes or acquires its competitors. The process seems almost instant, and the Internet has made it into a “winner take all” game. Google, Amazon, Microsoft, and FaceBook are examples. They have competitors, but after 40 years Apple still holds only a 7.5% market share in personal computers, and Yahoo a 12% share of the search engine space. MySpace (yes, it’s still around) suggests that you use your FaceBook or Twitter ID to log in.

The employee benefits arena provides the hot example from 2015. Zenefits attracted investment at a multiple of 45 times projected revenues. (Their multiple of earnings is infinity, I guess, since they don’t have any.) That drove a flood of venture money into the online Human Resources industry. By some estimates over 200 new online HR companies were funded in 2015 alone.

Kiddie race carThese 200 companies will not have time to grow. A couple will continue to attract enough new capital to keep up. If the pattern holds true, in two or three years a dominant online player will emerge, with a handful of others in the also-ran category. The rest will go away, either snapped up by the wealthier players, or by having their money lifelines cut.

Where does that leave the garage entrepreneur with a great idea that isn’t based on the Internet? Is there still a place for building a better widget or a personal service, spreading by word of mouth, hiring employees one at a time, and building a national market player in something other than the technology industry?

The answer is no. Not because new ideas can’t be successful, but because there is no longer time to grow up. Like it or not, all businesses are tech businesses.

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3 Responses to Time to Grow Up

  1. John Meetz says:

    WOW what are we doing in the TAB business? Are board meetings and coaching sessions obsolete? Maybe they should all be done on SKYPE! Is the ExitMap engagement a dream beyond the basic assessment, appraisal, and action reports – do they really have time or want a consultant in the process?

    • John F. Dini says:

      John,
      Most TAB members have no intention of building a national market-dominating player. As I said in the beginning of the piece, there’s always room for hundreds of differentiated small companies. In the past, some of those would grow up to be regional players, then national ones. The odds of that happening are much longer now.

  2. Richard H says:

    Couldn’t possibly disagree more. I assume that’s the response you were expecting.

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