Disruption and the little beer shop
When I was a student living in a student house, I ran a small shop for 2 years together with my friend Mads. We sold beers and soft drinks to the whole student house and also provided the occasional parties (i.e. at least once weekly) with their needs in beverages of all kinds. As customer centric shopkeepers we would usually attend those parties to observe the supply and demand situation first hand, so that we could adapt our product range and manage our stock to match the current trends. This proved to be quite successful although the market analysis did require some recovery time.
Being a student-owned shop there was a natural succession of shop-keepers as we all eventually decided to finish our studies and leave the student house to pursue other careers. Mads and I thus inherited the shop from two other students, who had done a great job with it for some years, but were ready to move on. We had always admired their work and the shop, but as soon as we took over, we knew we could do better.
Sales were stagnant and everybody was simply convinced, that the market was saturated. There was not a huge variety of beers back in those days, but nonetheless there were a few different types, but in general people bought the usual standard lager, but not the premium brands. We realized, that it was simply a matter of visibility. The premium beers were in the back and people forgot about them. Some shelves for display with some attractive spotlight to guide the thirsty students changed the buying habits significantly. Premium was selling again.
We had also noticed that some students had decided to buy beers from the large supermarkets, because these chains could dump the prices way below our purchase price. This was obviously attractive to poor students even though they had to transport the beers much further (we are talking crates of bottled beer here, not a bottle or two). Our response to this was two-fold.
1. We invested in technology.
The breweries offered a volume-based discount scheme, but in order to benefit from that, you had to order at least 2 pallets (= 90 crates with full bottles) and return the same number of pallets (= 90 crates of empty bottles) for recycling, all to be ready at 7 AM for the delivery. Our shop was in the basement and delivery would be at ground level. We had an old wooden ramp with some serious friction and we realized that our old technology was preventing our business from growing. So we invested in a simple, manual, conveyor and once it was mounted it changed everything. We re-configured our supply chain, so that we could benefit from the volume discounts and due to our new technology we could do more with the same resources (i.e. ourselves).
2. We invested in customer loyalty.
We created a competition between the 18 units (called kitchens) of the student house with a prize for the kitchen, which had bought the most before the annual midsummer party in June. This entirely data-driven process kept track of purchases and shared the current positions regularly to keep the game afoot. Obviously the data was only attributable to a kitchen, not to individuals and while we hardly changed the behaviour or consumption patterns, we did manage to recover the sales, which had gone to the big supermarkets.
After the first year the shop was in great shape. We had everything under control and our studies were also requiring more and more of our attention. We managed the shop by our routines and even skipped the market research part in the weekends. When we finally decided to hand over the shop to the next team at the end of two years, the new team knew they could do better.
Apart from being a fond memory from happy student days and great friends, there is another reason I am sharing this story now. Recently the great Clayton M. Christensen passed away and this naturally led to a lot of writing about his thoughts and work with disruption being a key theme. One of the best pieces I read was an interview with him by Karen Dillon in the MIT Sloan Management Review (read it here). I recommend reading the entire interview, but one thing in particular stuck with me:
“The forces that combine to cause disruption are like gravity — they are constant and are always at work within and around the firm.”
Clayton M. Christensen
As a tech startup co-founder it is easy to be enthralled by the story of the heroic startups who are going to disrupt the world with technology and new business models, but I think Clayton M. Christensen’s humble and wise words and my story of the little beer shop should both remind us, that disruption is always at work, also on the disruptors. None of us escape gravity. As my story shows, once you let go, there will be someone who can do it better.
What I want to leave you with is the observation, that you can indeed overcome the internal gravity and disrupt your own business before someone else does. What might that take? Well, the little beer shop holds a few lessons:
A fresh perspective on the business. Get some different opinions. Think about diversity to get some new ideas. What would people different from yourself want to get from you?
Collect data and go see for yourself. Clayton M. Christensen mentions it in the interview. Data can only have so much granularity and you need to be there to gain the insights. Never mind the hangover.
Use technology. So many people struggle with routines, which are preventing them from doing more valuable things. Technology is there for a reason and it doesn’t even have to be very sophisticated to make a big impact. I hope to have conveyed that idea.
Understand your customers. While there is no free lunch, free beer can get you far, especially if you understand which job the customers are really trying to get done.
Clayton M. Christensen will be missed, but his contributions to business thinking and perspectives on life will live on. And in case you wonder, one of the best places to think about business, life and everything is in a little beer shop in the basement of a student house.
PS: It should go without saying, but always drink responsibly, when enjoying great beers. This story is about business lessons as they appear in life. That’s all.