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- How information replaced capital as the basis of “wealth and power,”
- How Jerk companies use information and abrupt change to disrupt markets, and
- How established companies can better compete with upstarts.
Triumph of the “Jerks”
A new crop of companies is seizing technological trends to disrupt time-honored ways of doing business. These enterprises are Jerk companies, named for a concept in physics where “jerk” describes a sudden change in an object’s condition. You experience a jerk when you hit the brakes in your car or your elevator jolts to a stop. Many mature businesses have suffered a similar shock at the hands of upstart Jerk companies taking advantage of information technology.
“In physics, jerk represents an extremely rapid change in condition – violent, uncontrolled and difficult to contain.”
Maverick firms such as Uber and Airbnb recognize the commercial value of analyzing mountains of data that billions of people generate daily. Such uses of data have changed the economy from one where capital is the foundation of wealth to one where information is the foundation.
“You could be the greatest golfer in the world, and it won’t matter one iota if the game suddenly changes to water polo.”
Jerks in Action
As a taxi company that doesn’t own any taxis, Uber exemplifies the new breed of Jerk companies. Uber doesn’t focus on capital, such as owning rolling stock. It focuses, instead, on the information it collects through its app about the locations of its drivers. It connects that data with information on the location and needs of customers. It then collects more information – such as customer ratings – during and after each ride and it analyzes that data to create additional value.
“The fundamental shift happening today is the change from a world dominated by capital (or money) to one dominated by information.”
The “New Normals”
Jerks are adept at disruption. They recognize that technology has transformed the playing field. Old-line companies flounder because they still rely on the processes they developed to compete in a world where capital formed the basis of “wealth and power.”
“Our communications on the Internet are the raw material of the information economy.”
Capitalism’s spectacular success carries the seeds of its own demise. Ironically, the problem began as companies became adroit at meeting customer expectations. In the latter half of the 20th century, competition demanded constant improvement in quality. Continual improvement worked as a strategy for decades, until companies got so good at quality that customers no longer valued quality as something extra; they expected it. Quality became one of the New Normals – the minimum that customers will accept.
“Context, or our place in space and time, is perhaps the most valuable part of the information that we all use.”
“Ubiquity” and “immediacy” also became new normals. Customers now expect to be able to obtain services or products anywhere, any time. Having quality, ubiquity and immediacy as three new normals led to a fourth, “disengagement,” which is the greatest hazard for traditional firms.
“Information grows fat from moving around through social media, creating new ideas, new knowledge and new context as it goes.”
Customers today don’t care how well a business satisfies their needs. All they care about is getting what they want. Brand loyalty is becoming a thing of the past. Either you provide quality, ubiquity and immediacy, or consumers will disengage and find a company that can.
“Jerks invert economies of scale and scope by using the scale and scope already deployed in the world to create the mass customization that people have discussed for 20 years “
New Desires
After quality, ubiquity and immediacy became minimum requirements, customers developed a new wish list including:
“While supply chains are great for an analog, capital-centric world, they are exactly wrong for the digital, information-centric world we are advancing into.”
- “Intimacy” – Modern customers don’t want to feel like just another average consumer in the mass market. They want personalized, individual attention.
- “Purpose” – Customers want to feel that they are making some kind of difference in the world through their choices as consumers. They will pay more for fair-trade coffee because it feels good to contribute to the well-being of independent farmers in Africa.
“Today’s youth know dramatically more about how the world will work than the people who want to manage them know how it now works.”
Companies that focus on information have become better than traditional firms at ferreting out consumer needs and at determining how to meet them. Because Jerk businesses don’t have an enormous capital structure to support, they can move quickly to meet evolving buyer demands.
“As businesses get better at measuring nearly everything, whatever is left over will be the source of whatever unpredictability is left.”
The Internet Changed Everything
The Internet’s endless ocean of seemingly unrelated information is the basis of a new economy. Jerks figured out how to turn this raw material into wealth by building businesses that could use it. They correlated unrelated data and deployed it to disrupt the old capitalist model.
“Jerks know that historical data has only one use: making better predictions of the future.”
The Internet lowered the barriers for entrepreneurs who want to exploit this free raw material. No longer do you have to raise seed capital or figure out a distribution system to start a business. No longer must you persuade investors to back your idea. You can disperse your idea to billions of people in an instant. Your firm can start making money right away and scale up to meet demand.
“Jerks are hyperfocused on where they are going, and not so much on where they have been.”
The Jerk Formula
Jerks reject the mechanisms of “capital-centric” businesses: bureaucracy, process and rules. Instead, they use radical tactics and mechanisms to compete in the “digital economy,” including:
“To win in a market that is already dominated by others, you have to play a new game, by new rules, preferably in a new stadium.”
- “Use other people’s capital” – Companies such as Uber and Airbnb create wealth by mining data to find needs that existing products and services don’t meet.
- Value information as more important than capital – Once Jerks launch a business, they neglect capital to focus on the collection and analysis of information. They gather massive amounts of raw data. Airbnb, for instance, collects data about the people involved in each booking, the property and the area. They correlate this data to serve future customers more effectively. Facebook collects data daily from billions of people who help correlate it by contributing likes and comments. Then Facebook sells this information to advertisers.
- Value “context” over “content” – The earliest successful Internet companies, such as Google, Apple and Amazon, were content providers. Today’s new Jerk companies focus on “context” – information about information. When you contextualize information, you describe how it changes from moment to moment, such as showing where available Uber passengers and drivers are in space and time. Uber creates value by correlating information about the context of passengers and drivers. Forward-looking content firms capture context with such initiatives as Google Glass, Apple Pay and Amazon Dash.
- “Eliminate friction” – To realize the value in information, you must act on it in a flash. Jerks avoid capital-centric bureaucratic mechanisms, like meetings, committees and approval processes, because they slow down action.
- Replace value and support chains – Instead of linear supply chains, which aim to control capital, Jerks construct “webs” to collect freely available Internet-based information, which they then contextualize and correlate.
- Turn mass production into “mass customization” – Capital-centric companies used economies of scale and scope to bring quality, ubiquity and immediacy to a mass market. Jerks disrupt the market by discovering and fulfilling individual consumers’ needs.
- Make your customer a partner – Jerks reject the capital-centric view of customers as merely the end point of the supply chain. Jerks form relationships with their customers, persuading them to glean, correlate and share data. Jerks mine data that their buyers provide, like the ratings on Amazon or Uber, and share the benefits with those clients.
- Create “fiat currency” – Jerks turn information into a kind of ersatz currency. Traditional businesses do this with loyalty rewards, such as “points, stars” or “nights-stayed.” These rewards are currency because you can trade them for other things of value. Jerks create a similar effect when they give loyalty rewards, with the added benefit that they reap still more wealth-producing correlated data as customers use the rewards.
- Create new rules – Jerks don’t play by the same rules as capital-centric companies. Traditional companies whose leaders don’t understand this will try to fight back by attempting to impose their rules through lawsuits or regulatory actions. The traditional gaming industry, for instance, tried to fight the online gaming site FanDuel by having regulators send cease-and-desist letters. FanDuel retaliated with a move not found in the traditional playbook: It mobilized its users to swamp regulators with protests. The regulators eventually backed down.
- “Hightail it” – Capital-centric organizations design their products and services to meet the most common needs – the high point of a natural distribution curve. Jerks focus instead on the fringes of the curve, meeting the specific needs of their customers. A traditional cab company lets its taxis drive around with the hope they’ll find customers. Uber’s Jerk solution lets you use its app to find a nearby cab whenever you want one, summon it and track its progress toward you.
- “Do, then learn” – Traditional businesses believe that, to innovate, you must study all the possible variables and assess all the potential risks first, and then apply what you’ve learned to your project. Jerks believe that you learn from your attempts at innovating. They believe that every failure provides information you can use to move closer to your goal.
- Focus on the future – Unlike capital-centric companies that expend a lot of effort in producing and reading reports on past performance, Jerks focus on the future. Capital-centric companies study the past for guidance on current decisions. Jerks focus on the present to extract data for their predictions about customer needs.
“Digital Dashpots”
Analog companies are generally too bulky, slow and risk-averse to outmaneuver Jerks that challenge them. But even the most staid company can slow Jerks down by using a dashpot, a device that absorbs energy and transforms it to something else. For example, a car’s shock absorbers are dashpots that absorb the energy from bumps in the road and convert it into heat.
Traditional companies can use six Digital Dashpots to buffer the impact of an approaching Jerk:
- Phase shifts – Capital-centric companies must devise a new approach to the three-phase “DIE” paradigm of change: “Discovering” a new territory or idea, “infiltrating” this territory to learn about it, and “exploiting” it for profits. Traditional companies are most comfortable working on improvements within each phase, because the transitions between phases are full of risk. Jerk companies focus on the transitions. In the taxi business, for instance, a traditional company might feel comfortable enhancing its return on investment (ROI) by upgrading its fleet to more fuel-efficient vehicles. Jerks such as Uber develop a new way to connect drivers and passengers. Traditional companies enjoy a capital advantage over Jerks. If you focus that advantage during the phase transitions rather than within phases, you can beat the Jerks at their own game.
- “Rewrite your books” – Interphase investing won’t appear sensible to your accountants if they try to fit it into traditional ROI models. You’ll need to force them to include new variables in their models. Try changing a model’s input, for instance, by dramatically ramping up production goals. Your financial people will need to rejigger their models to fit the new reality.
- “Break your rules” – Standards that supported organizational growth in the past may not serve today’s new normals. For example, the old rules were designed to ensure consistent quality. Now customers expect quality as a matter of routine, so rewrite your rulebook to focus on customer-support needs if your product or service fails. Revamp your guidelines so customer-service staffers can fix problems without going through an approval process.
- Reprocess your processes – Get rid of outdated and counterproductive processes by setting goals that require radically new procedures. Turn old processes from comfortable procedures into constraints that people will strive to break. If your old processes produced incremental improvements in customer satisfaction, undermine this process by setting an outrageous new goal, such as tripling the improvement rate in less than a year.
- “Fail fast” – Many traditional companies minimize risk and mistakes, but the best way to ensure ultimate success is to fail frequently on the way there. This is how NASA engineers built spacecraft that would perform flawlessly – by trying thousands of designs and learning from their failures until they knew enough to create the perfect design.
- Surprise them – You will be less of a target if you become unpredictable. Take actions that appear illogical according to the rules of capital. You’ll feel uncomfortable, but such tactics are effective because Jerks count on the predictability of traditional companies.
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