It’s pronounced “E-radicals”, not that you were to know – this is the first time it has been written about as a model of superior commercial value creation.
It’s like E-tailer, before that simply became Etailer.
Eradicals are, though, so widespread and so important, that we will move straight to the confidently mature version, without the explanatory internal hyphen. We will describe exactly what they do and what they do so well.
This is a discussion about key areas of value within certain web-driven companies.
There isn’t an easy existing phrase or word for it.
“Web-driven companies” doesn’t do it by itself. I was sitting discussing these things just this morning with my friend and colleague John in a side street cafe in Macclesfield.
He pointed across the way to a little, upmarket kitchenware shop.
“They’re mainly online these days – it’s what’s kept them alive,” he said, offering an instant example of evolution and sustainability in that most generally difficult of environments, smaller scale retailing.
Whether small, or on a grand scale, the term “Etailer” should be merely process descriptive by now. To thinking people it has rightly lost any inherent frisson of excitement merely by reason of the “E”. The web is a channel; a channel is not the business.
In relation to providers of services online, I don’t think anyone is speaking of “Ervicers”, cutting the “s” off “services”, in the way that cutting the “r” off “retailer” has established a universal currency for itself.
It’s probably because it doesn’t work as Ervicer or E-rvicer as an act of smooth pronunciation in either form. It also highlights that “Etailer” continues to flourish as a term more because of the cuteness of its formation, rather than any overwhelming current cachet in the process of sticking goods for sale into a virtual shop, either instead of, or as well as, displaying them behind a glass window to terrestrial viewers.
The point of all of this is that analysis needs to move decisively beyond envisioning the internet as a de facto and novel value creator by itself, into a much more mature conceptualisation of business opportunity. We need to think beyond the rather arbitrary distinction between products and services and turn much more directly to issues of disruption and value.
2010 and 2011 have been slightly odd times in the digital and web worlds. It’s as if there has been, on occasions, an almost perverse and old time infatuation with “internet companies” to take our minds off otherwise generally troubled times.
Two thirds of U.S. social internet, social media and internet-driven companies which floated in 2010 are now underwater from their IPO pricing. Zynga is just the latest of this sorry band.
The UK has seen some quite bizarre throwbacks during this period. At a national level we have seen at least one online retail story of stunning banality insist on emergent superstar status when decisive and convincing performance remains elusive.
As we consider 2012′s coming online and digital stories, we hear a loud clamour on a regional level from another unremarkable retail story big on vision. We look sceptically for substance in other sets of bolted together assets which appear a triumph of debt financing over convincing momentum.
In some respects it is like 1999 all over again. We seem in the thrall of online and digital. We lack clear, challenging models against which to test our hopes for success and to check our natural exuberance at boundless possibilities (boundless, that is, if we don’t look too carefully).
Hence the term “Eradicals” and a fresh method of looking and assessing, which transcends the credulity of an infatuation with the internet but which also probes its latent and untapped possibilities.
At Funding Enterprise. business growth and business angels specialists, we are currently working closely with four Eradicals and are talking to several others.
Here are the key traits:
1. It’s all about disruption – or, rather, it is all about disruption in key parts of the value chain.
2. It’s about disruption within big marketplaces and in ways that instantly connect: it’s an outpouring of good, old fashioned business sense, without the vanity of build it and they will come.
3. It’s about Minimum Viable Product – fast to market, evolving offerings around compelling customer propositions.
4. It’s about bringing together a slew of cutting edge technologies into bespoke platforms, which enable data and communications as disruptive process possibilities and as marketing weapons.
5. And it is very much about the whole Lean Startup credo: ground-up, fast and agile: if you were to put a big consultancy on this and ask them to design something which works, they wouldn’t come within a million miles (or would that be better put as not within a million pounds?).
Here’s an example we have been involved with for some time and which is currently preparing for its first major external funding round: online property rental leader makeurmove.
Makeurmove finds tenants for landlords. It does so for free on the landlord side. It buries a modest margin within the market rate personal referencing fees which are already levied on potential tenants. It does this by creating bulk economies – it is already the leading online free tenant finder.
Alongside this it is building up a database of tens of thousands of landlords to whom additional and necessary services and products are promoted. This it where it makes compelling commercial sense.
Makeurmove operates on relatively slim margins within a vast, sustaining and renewing marketplace. This is a great position to be in: the margins and the necessary relationships are made possible by the sophistication of the IT platform (built incrementally on limited budgets) and razor sharp management control.
Established marketplace; highly disruptive business model; exceptional management capability; leading edge and bespoked technology allowing the company to create and sustain winning advantage. That’s Eradical.
Here is another example (but not one with which we have worked), also from this region, which is further along its development journey. MusicMagpie buys used DVDs and Games. It is in the long-established sector of recycling cheaper end leisure and entertainment goods; indeed, it is the kind of activity which is traditionally conducted on stalls in town centre marketplaces.
The disruption it brings is convenience (and dissolving the distaste of bargaining with low cost items) and that disruption is not so much a function of the internet but of the sophisticated algorithms that drive the pricing.
Furthermore, it doesn’t just enter an existing marketplace, it is also highly disruptive in that it considerably grows that market. It’s an extension of a mass market for these particular products, coupled with a lean, ultra-clever technology platform. As a combination of simplistic traded product, a seemingly unshakeably dull transaction space, yet a radically disruptive re-appraisal thereof, it is the archetypal Eradical.
Eradicals don’t step up behind existing plays and say “Hey, I can do what you are doing a bit better”.
They redefine what is possible and execute quickly, leaving no easy pickings for would-be followers to feast on.
Not for Eradicals the better mousetrap game……..Yes, I know the existing mousetrap is cheap; yes, I know it’s reliable; yes, I know it does the job of catching and killing mice, but our new mousetrap can do all of these things a little bit better….at a price.
The hallmark of an Eradical is that it instantly delivers a level of commercial and transactional logic that seems as if it should already have been there.
An earlier regional NW success was MoneySupermarket.com. A recent national exemplar is LOVEFiLM.
At the leading edge of technology and business model disruption, forerunners of Eradicals have in fact been around for a long time. Back in the mid-80s Peter Wood changed the insurance markets fundamentally with the introduction of the wheeled red telephone of Direct Line. The capabilities of multi-line call centres were novel in those days – this was powerful technology-driven disruption. The disruptive business process genius was to suggest to the consumer that acquiring insurance was in fact a simple act to be driven by themselves on the values of convenience and cost; it was no longer to be a black art controlled by brokers.
Just this week, the Chartered Financial Analysts Society has called for the history of investment fiascos to be part of the fundamental education of investment professionals. The CFA says, “Financial amnesia disarms individuals, the market and the regulator…..It causes risk to be mispriced, bubbles to develop and crises.”
This kind of rigour and perspective urgently needs re-injecting into all things related to the internet and to TMT more broadly. The expanded digital horizon has led to increasing myopia around business fundamentals.
The history of poorly performing and unsustainable industrial conglomerates tells us that merely stitching together disparate series of assets loosely connected under some technology banner is unlikely to create a long-term commercial success.
The history of a whole host of ventures which attempt to prove future massive profitability through continually unprofitable growth suggests that sanity must intrude sooner rather than later.
The history of IPOs which are priced for world domination at the very start of serious adoption insists that the smart money should rest uncommitted.
The history of startups which play follow-my-leader with only vaguely articulated USPs tells us that without disruption there will be little adoption.
As for Funding Enterprise and our role in helping to build great companies in 2012, we will be continuing to work with Eradicals and saying polite no thank yous to the spend-spend-spend brigade, to crusaders without a clearly articulated cause and to the better mousetrap builders.