Predict the Future of Your Business – from the Harvard Business Review
When people refer to Warren Buffett as the Oracle of Omaha, it’s not because he knows that when he drops a potato he knows it’s going to hit the ground. Warren Buffett has earned his nickname because he’s proven time and again that he has an eye for predicting how markets will change and which companies will succeed in the aftermath.
Predictions like this are based on an understanding of dynamics in something business school professors call “value networks” — the system of businesses and service providers that work together to create value for customers. When markets or technologies change, it often requires entire segments of the value network to be reimagined. Take, for instance, the advent of the graphic user interface at Xerox PARC. The GUI challenged the assumption that only computer programmers could harness computers, and gave rise to a slew of new products and businesses.
It’s those types of changes, sometimes seemingly very small in the beginning, that require entire systems to be reimagined. And I’d suggest that anyone can get better at predicting how markets will evolve if we ask ourselves three questions.
What business assumptions become irrelevant?
How could new models take advantage of the change?
Every day, machines are getting better at doing our thinking for us. When Microsoft first incorporated Autocorrect into MS Office, people everywhere realized how capable computers could be at anticipating very routine needs. But today, we’ve reached a whole new level. Technical teams all over the globe are building powerful, context-aware software to predict our needs. And new tools are becoming readily available for entrepreneurs to use in the course of building new businesses.
Today, resources like Watson Anlaytics, Google Predict, and DataRobot are helping companies leverage data to provide insight to their customers. Simultaneously, the widespread adoption of APIs across the internet are enabling seamless data transfer across the digital application landscape. Meanwhile, sensor technology is both proliferating and dropping in cost, allowing the types of data captured by businesses to become ever more contextually relevant. And finally, the cost of data storage continues to plummet, allowing businesses to store everything they might need to make a wide variety of predictions.
The development of these technologies is setting the stage for machines to think. Perhaps we’ll never see strong Artificial Intelligence. But we’ll certainly see machines that are capable of handling many of the traditionally white collar tasks that millions of individuals, sitting in front of computer screens every day, are paid to complete.
We’re just at the beginning of this revolution. In some cases, insightful software will empower the white collar workers that stare at screens all day, the way Palantir makes fraud analysts better at their jobs. In others, the software will be able to think well enough to remove the need for people entirely.
As this trend progresses, we can be certain that businesses will change. The types of tools that developers need will change. The way user interfaces are designed and optimized will need to evolve. What does software look like when you don’t need to click “submit” on a supply request? What type of tools do marketers need when a machine can pick the perfect audience to target?
New Urban Infrastructure
All over the world, city density is skyrocketing. People are emigrating to urban locales for access to education, employment, and amenities. And the resources in cities are compounding in quality. As more people move into cities, there is an ever larger market to support new types of services.
This will dramatically change in the way we do business. The vast majority of modern businesses have been built upon an assumption that customers will be geographically dispersed. The supermarket is a great example. Supermarkets became popular in the 30’s because the mass market had only recently gotten access to cars. Cars allowed customers to travel to a central hub to collect a wide variety of groceries (a far larger selection, in far greater quantities, than they could find at a local general store). And wherever you found a supermarket, you’d find a large parking lot — the repository for the many cars that would close the distance gap.
But today, the resurgence of cities raises the question: will the convenience of a parking lot continue to be the best way to woo purchasers? My guess is that the answer is no. And it seems like companies including Amazon, Postmates, and Instacart agree — each is building a vibrant logistics network that removes the need for a dispersed set of individuals to converge on central locations to buy the food they need.
Obviously, grocery is just one example. My bet is that these shifts in urban density will underpin many changes in the way businesses work. Today, we’re already seeing them play a role in shifting ownership models, conceptions of space, and the architecture of logistics systems. Uber’s a perfect example. Uber and similar on-demand transportation services are becoming indispensable aspects of modern urban infrastructure.
When people are constantly connected and centrally concentrated, it’s an opportunity to rethink businesses of all varieties. Companies like Uber, Amazon Prime, Makespace, and WeWork are all positioned to succeed based on these changes. And as each service changes the landscape for what it is to live in urban environments, we’ll see more change. Despite the fact that the suburbs aren’t going away anytime soon, the entrepreneurs targeting these next generation markets inside urban centers are poised to ride quite a wave.
It’s not about the “on-demand” economy. It’s about reimagining infrastructure in dense, connected, urban locations. Some of the opportunity will be in the development of on-demand services. But some will require different types of solutions to evolve areas of infrastructure like local government, law enforcement, energy consumption and creation, broadband access, and healthcare.
The final trend that I’ll mention is the growth of scalable niches in software and internet businesses. Even as recently as five years ago, many aspects of a cloud-based software platform needed to be built from scratch. While you could access very basic tools through platform offerings like Force.com, companies needed to build their own capabilities to offer file sharing, authentication, communications, commerce, and transactional notifications.
Today, the basic software infrastructure for the internet has been developed. But more importantly, it’s been shared. Companies like Twilio, Box, Zipments, Sendgrid, Stripe, BigML, and hundreds more have invested thousands of years’ worth of developer time in standardizing the basic services that cloud software vendors require. And what’s more, unlike a world of developing for client based systems, these vendors continued to invest an insane amount in simplifying integration, deployment, and the adoption of new innovation for their customers. The end result is now, when you build a new piece of software, you can concentrate on what’s truly critical to your differentiation.
There are a few notable outcomes from this: First, building new applications now requires far fewer people with a great deal less specialization. Second, it’s a lot faster to build applications than it was before. And finally, most costs are now variable — people rent infrastructure instead of buying it — allowing businesses to scale up IT costs only as they drive more adoption around their core product.
The convergence of these factors with the growth of internet users is leading us to a world where products are popping up that are far narrower in nature than the previous generation of businesses. There’s now the option of attacking specific niches in markets that previously seemed unsustainable.
The easiest place to see this is in apps built and designed for specific industries. Emergence Capital famously invested in a company called Veeva (well ahead of when this trend became clear to me or most anyone). Veeva provided a CRM customized specifically for the pharmaceutical industry, leveraging a lot of the innate capabilities built into the Salesforce Force.com platform. In just a short time, it built a behemoth of an organization — ultimately IPO’ing at a capitalization of 3.91 billion.
While Veeva may have been the first company to prove this market, it’s certainly not going to be the last. And it’s not all basic cloud software. Zipments, a company that provides last minute delivery services via bike messengers, has opened up its API for integration into web and mobile app environments. While companies like Veeva, Blackboard, Cvent, Yardi, and Plex are tackling software niches, a slew of niche focused businesses will emerge — taking advantage of newly standardized and modularized infrastructure — to deliver all types of niche services to newly accessible markets. The Internet went mainstream in the early 90’s. That’s really not too long ago. As more and more aspects of our economy are plugged in, we’re going to see a lot of companies focused on what today might be considered smaller niches.
Clearly, the future is going to involve change much broader than the three areas that I’ve covered. But whenever you’re trying to predict the future with any sort of certainty, the key is to identify and articulate the change, identify what services are no longer necessary or optimal for the new environment, and imagine how the world would need to be rebuilt to accommodate the new infrastructure.