In 2011, Dan Preston launched Metromile, a new entrant in the market for consumer auto insurance. In March 2015, Root Insurance was founded, also selling auto insurance. Just one month later Lemonade, Inc. was organized to sell homeowners insurance. Incredibly, all three companies quickly achieved coveted “unicorn” status followed by successful IPOs. Last month, Lemonade turned six and already enjoys a $5B market cap with more than one million customers.
How is it that three insurance startups could enjoy such disruptive success in
what Reuters called in 2015 an “already overcrowded market” with established titans?
The simple answer is that Metromile, Root, and Lemonade identified unmet customer needs...needs that could be uniquely exploited with disruptive data strategies. Metromile sells “pay-per-mile” insurance made possible through a small device that plugs into your car. Root uses smart phones to gather data on driving behaviors, any less-than-safe habits, and mileage. The company differentiates itself by selling “fairness” to low-risk drivers and offering substantially lower rates. Lemonade competes on “trust”. Founders learned that, in a digital world, trust is correlated with “speed and convenience” not the large, symbolic buildings, employed used by their dated competitors. Lemonade employees AI and chatbots to help customers signup within 30 seconds and recently set a world claim-to-payment speed record by processing a customer claim in less than three seconds.
Of course, Metromile, Root, and Lemonade aren’t alone. Netflix disrupted Blockbuster with a better digital distribution strategy and is now disrupting the entire media industry with better viewer data, recommendation engines, and even predictive techniques to ensure the highest ROI for licensed or self-produced media. Amazon disrupted e-commerce with world-class fulfillment and distribution automation. Uber used data and automation to disrupt the ride-hailing industry and is now disrupting food delivery, package delivery, and couriers.
Think it’s too late for you or your industry? Think again. I’m in the fortunate position of speaking regularly with executives from a broad range of industries and company sizes. In my view, we are just entering the golden age of digital disruption. The first generation of data-driven companies - the Lemonades and Ubers - have proven that data, AI, and automation can be used effectively to dismantle established industries seemingly overnight. Currently, I see is no shortage of opportunity for new and disruptive data-driven business models in nearly every industry.
For CEOs who want to take advantage of this golden age of digital disruption, the rewards can be incredible, but so can the risks. The companies I’ve shared are a biased sample of winners who made it look easy. What you don’t see is that for every success, there are hundreds of failures. What did successful disrupters do right that the failed companies didn’t? We’ll never have a perfect or complete list, but here are my top five reasons for failure...my “five deadly sins” of digital disruption:
Not having a digital strategy or, worse, assuming you’ll create it when the threat arrives — In the past 12 months I’ve worked with executives at call centers, media companies, gaming companies, pharmaceuticals, telcos...even leaders from such unlikely industries as food trucks and hub-cap manufacturing. Digital disruption is top of mind for the majority of CEOs. In a recent survey, 77% of CEOs acknowledged that AI and automation will increase the vulnerability and disruption in their industry. To put it more bluntly, if you’re not the disruptor, you’re likely about to be disrupted because everyone is thinking about it. Deadly sin #1 is simply not having a clear, easily explainable digital disruption strategy and assuming you’ll have time to respond when it happens. One thing first-generation disrupters have proven is that by the time your competitor launches their disruption strategy, you’ve probably already lost the race.
If you don’t have a digital strategy, create one right now.
2. Building a technology-first strategy instead of a customer-first strategy —
The primary reason for failed digital disruption is taking a technology-first approach...identifying interesting technology ahead of customer value or differentiation. The technologists in your organization...in any organization...have a unique tendency to put “cool tech” or “tech I want to learn” before customer needs. It’s not intentional. It’s not malicious. It’s our genetic makeup. If your digital strategy starts with something like “migrate to the cloud” without explaining the clear customer value of doing so, you know you’ve started on the wrong foot.
Like Lemonade, always define your corporate strategy first — both differentiation and growth strategies. Define the customer needs. Define the capabilities and processes that serve those needs. Decide how data, AI, and automation can be weaponized to support those. Then, and only then, figure out what technology gets you there.
3. Hiring a team of “data scientists” -- I passionately despise the term “data scientist”. It oversimplifies the complex skill requirements necessary for true, focused, disruption.
The digital technologies to support your digital strategy can take many different forms: IoT, data wrangling, data lakes, dashboards, chatbots, data governance, robotic process automation, AI, process mining, predictive analytics, prescriptive analytics, just to name a few. The idea of a “data scientist” who is an expert in every piece of tech you require is ridiculous. I’ve personally identified 20-30 specialized data skill sets and new skills sets
to my list regularly.
If you hope to compete through digital disruption, create a descriptive digital disruption strategy, narrow the technologies you require, then build a permanent data team optimized for the specific skill sets and technologies you need. Your optimized data team will almost certainly be a combination of full-time employees, with skills you need consistently, mixed with highly specialized, very expensive, but short-term skills offered by outsourced contractors.
4. Forgetting to build “value validation” into every project — Teams often get so focused on “If” they can build disruptive technology they forget “Why” they are building it. The forget to validate (and constantly re-validate) that the thing they are building creates real value for the customer. If you’re launching a new product, use Lean Marketing or Agile mythologies with a focus on regular customer validation. If you’re disrupting established
processes with digital automation, consider forming a Kaizen team and following supporting methodology. However, you do it, build a team and project methodology that puts value validation front and center.
5. Ignoring governance issues — A recent study by global analytics firms FICO and Corinium discovered that 65% of companies couldn’t explain how their AI models make decisions or how predictions are made. According to FICO Chief Analytics Officer, Scott Zoldi, “Organizations are increasingly leveraging AI to automate key processes that — in some cases — are making life-altering decisions for their customers and stakeholders. Senior leadership and boards must understand and enforce auditable, immutable AI model governance and product model monitoring to ensure that the decisions are
accountable, fair, transparent, and responsible.”
Most CEOs have a vague understanding of data privacy issues covered by the EU’s GDPR and California’s CCPA protections, and yet we regularly find serious violations in launched products. Somehow, in the heat of launching a new product or service, governance regularly falls through the cracks. Last month, the EU launched a draft of new artificial intelligence regulations that will make governance even more critical putting CEO accountability front and center. Teams are too often rewarded for timely launches but only held accountable for governance and compliance issues when something goes wrong legally or in the press. Compliance must become a top priority for CEOs and be considered a core part of a disruptive digital strategy.
Still think your company has what it takes to be the next Lemonade, Root, or Metromile? Now is the time to act. The Golden Age of digital disruption is here. But if you take that leap, follow the proven model for digital disruption: Correctly craft your digital disruption strategy; Define your company’s differentiation and growth strategies and the specific processes, capabilities, and performance levels required to compete in a new way; Identify the specialized technologies and skill sets that your strategy requires; Constantly validate and revalidate that you are creating value for the customer, and that you’re not just playing with ‘fun technology’; And finally, never underestimate the latent risk of poor governance. Avoid the five deadly sins of digital disruption and you might just be the next digital disrupter.