Discover the substitutes in your industry
Are substitutes killing your business?
Pivoting in a business can be like charting a new sea voyage. There are many ways to go and many ways to get there. If there are no winds, to avoid failure, we may need to substitute our old sailing boat for a new jet boat. In business, our ability to pivot and change direction is vital. To survive and thrive, we may have to substitute our usual path for a new one. A new path can help us to save time, enjoy a smoother ride, discover new markets and chart Blue Oceans
Substitutes are the future
As a Strategic Futurist, I speak to conferences on the future of strategy and the future of substitution. With internet shopping reaching maturity, the sheer amount of customer behaviour data available is staggering. This increasing consumer knowledge is driving new levels of innovation. Innovation helps create valuable substitutes that meet evolving customer needs. Indeed, the number of substitutes for your product or service will probably increase again this year.
How can we remain profitable?
Michael Porter has studied the profitability of thousands of businesses. He realised that over time, industry attractiveness keeps changing. Except for a few very stable industries, like soft drinks and airlines. Porter shares that the attractiveness of any industry can be found by examining six forces. The sum of customer power, supplier power, the threat of new entrants, threat of substitutes, degree of rivalry and complementary player effects reveal the attractiveness and likely profitability of an industry.
Do we need to innovate?
Before deciding to innovate, it will be worthwhile making a list of products and services that are substitutes for what you produce. For example, in the car industry, the list of possible substitutes includes public transport, bicycles, skateboards, electric scooters and ride-share. Uber has become a substitute for taxis, owning a second car and limousine services. Uber Eats has become a substitute for cooking a stay at home meal, as well as a take out or drive thru meal.
Business conference example
I recently spoke to 75 garage door dealers at their National Conference, on the future of strategy for their industry. By assessing the attractiveness of the garage door industry, we predicted that customer power, the threat of new entrants and the degree of rivalry would continue to increase in the future. However, the threat from substitutes was less likely to change, which keeps the industry moderately attractive for dealers. The conference assessment highlighted the need to innovate around the customer value proposition. It also reinforced the need to find intelligent ways to handle the increasing numbers of garage door manufacturers and the resultant rivalry.
For your Industry, decide if the Threat of Substitutes is low, moderate, or high. If the attractiveness of your Industry is declining and the emergence of substitutes is increasing, it may be time to pivot. You may need to adopt a new strategic approach. In other words, Your Strategy Needs a Strategy The long term vision and meaning for your business need not change, just the way you deliver on it. To reinforce the point, understanding the various substitutes for a product or service is something every business should do regularly.
Time to pivot?
Knowing when and how to innovate and pivot in response to industry changes is not easy. Pivoting in time is something 67% of businesses fail to do inside three years, and 96% of firms fail to do inside ten years. Substitutes for a product is evidence that others are thinking differently about the problem that product or service was designed to solve. Being able to think differently allows your business to approach the future strategically. If you are unable to think differently, the future will always catch you off guard!
About BLOG Author | John Hale – Strategic Futurist Speaker
John Hale is the founder of Hale Consulting Group and author of The Strategy Book. John has worked as an early stage investor and advisor for over twenty-years. He has worked with leaders from Fortune 500 and mid-sized companies to start-ups and public sector organisations. John has been a Visiting and Adjunct Professor teaching strategy, entrepreneurship, project management and ethics at various institutions including Singapore Management University, Bond University and Melbourne Business School.
John’s popular conference talks include:
Future-Proof – Create a strategic mindset
Future Customer – Shift loyalty to your brand
Future Culture – Nurture workforce talent
Digital Futures – Grow digital wings
If you feel it may be time to pivot or change your strategic approach, contact me at email@example.com, to schedule a free thirty-minute phone call, to help map out your next steps.