Or why Ukraine’s election shows why Disney works so well and why Uber will struggle
Ukraine’s voters elected a new president on 21 April, Volodymyr Zelensky. A political neophyte so new to the political scene that not only had he never stood for any election before, but the only experience of his that you could even vaguely describe as political was as the actor who plays the president in one of Ukraine’s top television shows.
That’s right, Ukraine’s voters chose to make their fictitious president their actual president.
While this improbable story from the edge of Europe may not have caught much attention in the corridors of Silicon Valley and their venture capital backers, it really should have for it holds a very important lesson for all wannabe disruptors.
If the world of tech did consider this Ukrainian tale they may assume that in any equivalence to their world it is they who are analogous to President Zelensky. The disruptor won. That’s what they do. End of story. Right?
Wrong. If they’re not careful, far from being the victorious new president, they risk playing the role of his vanquished opponent, the incumbent, now former president, Petro Poroshenko.
To understand what just happened in Ukraine you have to know what happened after the fall of the Soviet Union. It’s not a particularly long or complex story. The former Soviet superstate collapsed into a number of suddenly independent countries. Russia being the biggest by far, but the others included the likes of, yes Ukraine, as well as places like Kazakhstan, Uzbekistan, Georgia, Belarus and the Baltic states of Latvia, Lithuania and Estonia.
With the notable exception of the Baltic trio, now safely ensconced in the European and North Atlantic protective umbrellas of the EU and NATO, the political experience of most former Soviet states has been remarkably similar. In just a few short years during the 1990s, vast swathes of the economy came to be dominated by a small number of men. We call them oligarchs and these now supremely wealthy men continue by and large to dominate commercial and frequently political life.
The exact roll call of individuals changes a little from time to time and there are takeovers and mergers here and there but as a group these businessmen and the companies they built in the 1990s remain very much in place.
Since independence in 1991 Ukraine has fitted squarely into this mold. The departing president Poroshenko is a member of this select group, with his sizeable business interests spanning everything from television to chocolate, and he’s not considered the richest Ukrainian oligarch by any means.
This group have exerted an outsized influence on Ukrainian politics, not least given their dominance of the media sector, TV in particular, which is how most of the population still get their news. Everyone expected this latest election to be no change to this settled order. But then suddenly, with the emergence and then victory of Volodymyr Zelensky, it turned out to be very different indeed. How did that happen?
Quite simply because Zelensky was already famous to the whole population given his highly successful TV series. This fame enabled him to completely bypass the established routes for climbing the political greasy pole (ring any bells for any other current world leaders…?). Before the establishment, the political incumbency, knew it, Zelensky had the momentum and energy necessary to sweep to victory. His opponents never saw him coming until it was way too late (again sound familiar at all?)
The key lesson is this. The path to succeeding against incumbency is strength in your own field, your own subset, fan base, etc, and then deftly using that as your launchpad.
Incumbency, being the establishment, brings many benefits, many protective walls and levers of power that can be used to fend off upstart rivals. From multiple network effects to huge financial flows and resources, being the top dog brings many privileges that if used effectively can defend that status for a very long time.
There will always be rivals though. Upstart competitors who want to knock the leader off their perch, or at least prise away some of their success for themselves. That is the challenge for incumbents - they have to constantly fight everyone off from all directions. In reality that’s impossible, they have to make choices, priorities. No one can fight simultaneously on every front at all times.
As a newcomer, a disruptor, therefore, you need to use this to your advantage. Avoiding the full power of your target by building your own protective walls under the radar of the incumbent for as long as possible until you are no longer a sparky upstart who can be swatted away. Your own base gives you both the space to build your own strength and a secure area to retreat back to if needed.
For Zelensky this base, this field that none of his competitors could challenge him in, was his TV fame. He was stronger than any political competitors there. In fact he had that space entirely to himself, and at the right time he was able to burst out from it onto the big political stage and beat the existing power.
This rule repeatedly shows up in all areas of competitive life, not just in politics but also business. One of the exemplars of this in business is Disney.
For the Walt Disney Company their base, the subspace that they utterly dominate, is family entertainment. Whatever else they have been doing, whatever brands or business units they have, Disney have always been relentless in ensuring both that the core Walt Disney brand means family, and that its power in entertainment for young families is greater than that of any other contender.
This isn’t easy - by definition young families don’t remain young for all that long, so Disney have to make sure they remain the gold standard for every single new generation of children, time after time. Lose one generation and they might never catch another ever again. And they know it, which is why every iteration of management over the years has always prioritised keeping Walt Disney above all else THE family entertainment brand.
By succeeding so well in this endeavour the broader company has this secure base of revenue and activity. During its darkest days in the 1970s and 1980s, when the company was nearly broken up, Disney still kept its dominance of family entertainment. It was this impregnable centre that enabled it to grow into the giant of today. Still with that family core, Disney have been able to expand into all sorts of other business aimed other groups beyond young families, from the ABC television network, their ESPN sports powerhouse, Marvel’s ever expanding universe and of course Star Wars.
And all the while Disney always and still continues to invest in and develop that family core to remain far and away the number one in that segment, so if needed, they will always have it to fall back on.
It may seem counterintuitive to see one of the most established media companies of today as analogous to the incumbent-slaying new president of Ukraine, but that’s because taking on established players isn’t about being new. That may help and give you a good angle, but nobody chooses anything important or spends their hard earned money on something just because it’s new. There needs to be more than that. Building your brand, your skills and your resources in your own base, your own niche, is where you learn that first before taking things to primetime.
I appreciate there appears to be a gaping hole in this in this concept when we look around today’s tech world. Specifically the giants of Amazon, Facebook, Alphabet, Netflix, etc. They didn’t spend their time pottering about in a niche before going mainstream. They went hell for leather from day one and became number one in their fields very quickly.
These success stories are the exceptions here because of a key factor in each case - there was no incumbent to take on! When Amazon started in 1994, there was no such thing as online retail. Netflix have pretty much had their online film and TV subscription playing field to themselves until recently. Facebook and Google weren’t the first in social networking and search that they built their fortunes on, but those markets were still so new and small compared to what they’ve become that when they started up their early competitors hadn’t managed to establish dominant and secure positions.
However these situations by their very nature are rare. Groundbreaking new technologies don’t come along every day, plus even if you’re fortunate enough to find yourself at the start of a brand new market that you can throw yourself into, you can’t run on that forever.
An exemplar of this is Apple. They were there right at the start of PC revolution, but then lost their way. Fortunately for them they had built a very strong and loyal niche in design and publishing. They were able to just about hold onto that for long enough to stabilise that business with the iMac, before using it as a base to move into MP3 players with the iPod. They then built on that new dominance to expand into phones and, well you know how well things went from there.
Similarly Microsoft never lost their base among business customers. They had lots of attempts to expand into other markers, from Bing to Zune to Slate and all sorts. None of which worked especially well for them, but they always had that business base to fall back on, enabling them to keep on trying new things. With the success of their cloud business and others, new areas of success are finally happening happening for them.
Currently the tech world is waiting excitedly for Uber’s upcoming IPO where the company is hoping for something close to a $100bn valuation. I’m not convinced about the realism of this. Not because I think there isn’t good business in transportation, there is. Nor that electric powered vehicles won’t be revolutionary. I have no doubt that they will be and that the change will happen a lot faster than I think many people expect.
Nor do I think that there aren’t established players unable to fight off competition on every front. There always are. But as I discussed right at the start, the way to pick off these vulnerable parts of the establishment is to have your own base first.
Uber's $12 trillion target
To justify its valuation Uber says it is targeting a $12 trillion dollar potential market which does indeed make $100bn very small change. That $12 trillion includes every kind of transport of any description. That includes a lot of already established players, never mind a huge body of other challengers gearing up to take their own shots, including other ride companies, pretty much all major tech companies, plus every other firm already operating in cars and transport in every part of the world. Whatever else you certainly can’t fault Uber for ambition.
But like just being new, being ambitious isn’t enough if you don’t have a base. Transportation isn’t virgin territory waiting for a big bold player to come along and hoover up all that new business as Amazon or Google could. It’s already very crowded and is only getting more so.
All Uber has effectively done so far is create a cheaper version of existing taxi and public transport systems by taking venture capital money to subsidise its prices. They aren’t first, or even second, and unless they find a secure niche to be their launchpad, they’ll be in trouble when the well of VC pricing subsidy they’ve been drawing on to date runs out as it ultimately must. At which point they won’t be the disrupter, the hunter any more, they’ll be the hunted.
Just like Petro Poroshenko in Ukraine, who was sure he was the future right up to the point that he wasn’t, their Volodymyr Zelensky is building its strength in plain sight.
Because there is actually a company in transportation that is following the niche-launch pad route to success. It’s world’s largest producer of electric vehicles. No, it’s not Tesla. It’s a Chinese company called BYD.
BYD started in the 1990s making batteries for mobile phones and soon became one of the dominant players in this niche, supplying the likes of Nokia, Motorola and Dell. BYD started experimenting with electric vehicles in the 2000s, but rather than aim straight for the mainstream car market, which has both massive entrenched players and at that time a public with very little interest in electric power, they went for a niche. They went for buses.
When transport authorities choose which buses they want to buy, qualities high on the list of consumer car choices, such as coolness, top speed and range, sexy added features, etc, are not important at all. Rather it’s cold hard efficiency that wins the day and cheap electric buses came in on top.
Adding to the non-cool driven agenda of bus procurement managers was the fact that the Chinese authorities were very keen to cut vehicle pollution in their heavily congested streets and so were very supportive of bus authorities who went electric. And now in addition the government is also pushing for more and more taxis to be electric powered to cut pollution further.
The result is that by finding and then securing niches, first device batteries, then buses and other utility vehicles, BYD has become the biggest electric vehicle manufacturer in the world. That’s right. BYD. Not the much sexier, but far less commercially successful, Tesla.
Now BYD is well poised to capitalise on the likely coming explosive demand for consumer electric vehicles worldwide, using its utility vehicle dominance in China as a perfect launchpad.
Who knows if BYD will reap the upcoming rewards of the electric vehicle revolution. But they’ve done better than anyone else so far, and unlike the Ukrainian oligarchs and their new ex-comedian president, we can see this coming if we choose to.