Change Agent - Issue 34

I could almost empathize with the executive who was sitting across from me in a fancy leather chair at a huge conference table.

The Internet was ruining his life. He had spent more than 20 years carefully crafting a business, and now that business was crumbling. And why? In his opinion, it was the result of media hype, greedy day traders, and a few nerdy kids in Silicon Valley -- a place, by the way, that he has never bothered to visit.

Lowering his voice, he leaned across the table and asked, "Seth, when do you think that all of this will settle down?"

I thought, Wouldn't it be great if it actually did settle down? Then we could all get back to building businesses on a stable foundation -- to focusing on fundamentals, rather than on being distracted by a seemingly endless series of shifts, rifts, and tremors.

But sadly, I couldn't tell my friend what he so desperately wanted to hear. I told him the truth: "It's never going to settle down." The fact is, the wild oscillations in our business life will continue to get wilder and wilder, probably forever.

Today, entropy rules. It's as much a law of the new economy as it is a law of science: Things rarely become orderly on their own. As Stephen Hawking has pointed out, while it's possible for a cup to fall off of a table and break into a million pieces, it's pretty unlikely that those million pieces will ever leap back onto the table and reassemble themselves into a cup.

This "Internet thing," as my executive friend calls it, has shattered the old shape of business. And some important structural factors lead me to believe that the cup is never going to put itself back together. Shift happens, so get used to it!

Here are five things that existing companies are good at -- and that are lying on the floor in pieces.

Distribution. Go to Toys "R" Us, and you'll find boxes of games from Nintendo and Sega. Go to the A&P, and you'll find a huge shelf of laundry detergent from Procter & Gamble. Go to Barnes & Noble, and you'll find a stack of books published by Simon & Schuster. Big companies know how to sell tons of stuff because they have existing relationships with big retailers.

Access to distribution used to be a huge competitive advantage. If your products were in a store or if your sales force had access to purchasing agents, then you could shut out the competition and charge more for your products. But what happens when the purchasing department at Ford starts shopping online instead of making deals on the golf course? What happens when people start buying their music online, where every CD is in stock, rather than shopping at a big-name music store, where they must choose from among those CDs that Warner Bros. has decided to promote.

Access to capital. When a market leader needs to raise $10 million, $50 million, or $500 million, that company's high-powered CFO makes a couple of phone calls and gets Goldman Sachs to float a bond issue, and -- boom! -- the money appears.

What happens when the cost of entry to a market goes down -- when you can get started in an old market without wheelbarrows full of capital? And what happens when, at the same time, the availability of speculative money goes way up? You've got it: Access to capital is no longer a barrier for anyone who wants to steal a market from a Fortune 500 behemoth.

Brand equity. Everyone has heard of such big companies as Nike and Starbucks. If you're a big company and you want to roll out a new product, just slap your logo on it -- instant brand recognition.

Not anymore.

For some reason that I don't pretend to understand, Web consumers resist existing brands. Time Warner threw every magazine that it owned onto the Web, and yet Pathfinder still didn't attract a whole lot of consumers. Yahoo! News outdraws cnn.com every single day, despite CNN's relentless promotion of its site -- all day, every day -- on the number-one TV news network. As Tom Peters once wrote in the pages of this very magazine, "It's a new brand world" ("The Brand Called You," August:September 1997).

Customer relationships. Thousands, sometimes millions, of people buy from industry leaders on a regular basis. And the local plumbing-supply store counts on that same kind of behavior, only on a smaller scale. That shop doesn't spend money on marketing, customer service, or business development, because it figures that the plumbers who have always shopped there will continue to do so.

Here's the sad thing: When those plumbers stop coming in, when they find a cheaper, faster, friendlier alternative online, it's too late for the local shop to improve on customer service. Too late for the store to satisfy customers whom it used to take for granted. Too late for the store to develop ways to save its customers time and money.