It’s said that nothing is certain but change.  Look at almost any industry these days and you’ll find it facing disruption from changes that are coming from multiple directions.  You really don’t need to look far for examples — just open up the business section of the newspaper. Oops. Wait a minute. You don’t get the newspaper anymore — do you?  Because as of the beginning of 2011, more people now get their news online than from reading a newspaper.  How do the newspaper companies feel about that? Disrupted, that’s how.

Ask the music industry how they initially felt about mp3s and digital music back in 2001. They were in the process at that time of making lots of money getting us to re-buy all of our old albums on CDs. They fought against digital music for years by suing college kids who were downloading songs over Napster on fast internet connections from their dorm rooms.   You could say that when it came to their business model, they’d ‘rather fight than switch’. (For the younger advisers out there, that’s a reference to a 1960’s Tarreyton cigarette commercial that you can watch on YouTube. By the way, since we’re talking about it, the tobacco industry’s business has also been disrupted — by industry regulations and societal trends.)

And when it comes to disruption, companies who have enjoyed success as a result of their business model often believe that their model can prevent them being disrupted. They believe that they’re invincible – kind of like Superman. Eastman Kodak had the market cornered on selling film, disposable cameras, and film processing equipment until smartphones got cameras. That was Kodak’s Kryptonite. Now people share photos almost instantaneously over Facebook and Instagram.  No more film. No more disposable cameras. No more selling expensive processing equipment to Walgreens.  Goodbye Kodak. You thought you were Superman, but you’ve just been disrupted.

Successful companies and industries can’t stand still.  They must continue to innovate. Even some of the shine has been taken from Apple recently as Google’s Android phones have been embraced by those who want a less expensive solution that also offers more control over how they may use it. And, disruption will continue. How will the automakers deal with the threat of Tesla and its amazing electric car (which is so safe that it broke the safety testing meter) as Tesla begins making more affordable cars for the general public?

I think you get my point.  If you’re a financial adviser who is complacent and you continue to believe that our business will look the same in the next 10 years as it does today, you are heading for the same fate as Napster, Kodak, and most of the small newspapers in our country.  So what can you do? You’ll need to adapt your businesses for the future by seriously thinking about what factors will cause disruption to your existing business model.

Disruptive changes come primarily from four key areas (and I’ve tried to include a few examples from our industry to help explain these factors):

1.     Industry Forces – Competitors (e.g., trends toward ensemble practices), new entrants into your business (e.g., will online robot advisers replace you?), substitute products and services (e.g., which products or services from another industry could replace yours?) changes in suppliers (e.g., to what extent do you depend upon a certain company to provide products or services?)

2.     Market Forces – Changes in market segments (e.g., where will the largest growth potential be?), their needs and demands (e.g., what are they trying to get done), revenue attractiveness (e.g., can they purchase less expensive services elsewhere?)

3.     Macro-Economic Trends – Global market conditions (e.g., how will financial market and economic changes affect your business? Remember 2008?), changes in capital markets (e.g., will your firm be able to get capital or credit if needed?), economic infrastructure (e.g., access to suppliers and customers), changes in costs of resources (e.g., human capital, benefits, etc.)

4.     Key Trends – Regulatory trends (e.g., will you have to become a fiduciary?), societal and cultural trends (e.g., will clients want to pay commissions or fees?), technology trends (e.g., desire for quicker access to data online), socioeconomic trends (e.g., changes in future disposable income and spending patterns)

Should you wait until these outside factors change the shape of your business model by pushing in from all sides, or would you rather proactively adapt? Is it possible to observe trends that are taking place and attempt to predict how they will affect our practices? Although it may not be easy, let’s continue to discuss business model innovation and how we can manage and adapt to the disruption that will inevitably occur in our business.