These sectors are easy prey!

I am often asked which sectors are particularly at risk of experiencing upheaval. The list is comparatively long. And the question is two-dimensional: on the one hand, the answer gives an indication of where existing players should pay particular attention. On the other hand, it gives an indication of which start-ups might be particularly worth investing in. What I find more interesting than this list of sectors is the recognition pattern behind this “list”. Because it is actually quite simple.

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Focus on investments and start-ups

Anyone who reads my blog knows that I don’t think much of these risk maps with regard to digital transformation. If I have to choose, I’m on the side of the innovators, i.e. those who are trying to disrupt industries. And frankly, we think a lot about where this might be particularly effective and where it might not.

I think there is a certain pattern for recognizing industries that are ripe for upheaval. I would analyze the following parameters more closely:

Share of repetitive work

The share of repetitive work in total value creation is a key factor. There are two categories: Repetitive manual work and repetitive machine work. It goes without saying that repetitive, manual work can be replaced by the use of technology. On the other hand, this is usually also the case with machine work.

This has to do with the fact that there is usually much more efficient technology available than is currently in use in the industry. As a rule of thumb, if systems are more than 5 years old, there is more than a 50% chance that you can generate significant business benefits with new technology.

Industry standards

The fact that the existing industries are no further forward in this respect is generally due to the fact that they simply don’t care enough. Systems are simply purchased from proven manufacturers. People are guided by competitors instead of measuring themselves against what is possible. The result is a methodological industry standard.

A convention is not to try to break new ground, even if it seems unthinkable at first glance. Industries that maintain long-established and extensive industry standards are almost always interesting candidates. It is an unmistakable sign that innovation has had to give way to evolution.

Above-average salaries

If above-average salaries are paid in an older sector, this is a sign that the sector is generally not exposed to much competition. This factor is tricky, as the level of salaries can have various circumstances. Even those that have nothing to do with an industry’s ability to innovate. However, when I read about high salaries, for example in legal advice, this is certainly a motivation to take a closer look at this segment.

Unpicked, technological “low-hanging fruits”

It is always interesting when obvious technological advantages are not used in the industry. Important: Pay attention to seemingly insignificant details. Many industries mess up the customer experience with details. This is a popular point of attack for start-ups.

Customer hate factor

The more unpopular an industry is with customers, the more interesting it is for new start-ups. The fact that customers are angry with the existing players always has to do with the fact that they are doing something wrong. And that is untapped potential.

Is it worth it?

The second dimension is the question of whether it is worth doing something in sector XY. I think it is worthwhile if at least two of the following points are met.

A large customer base relative to the problem

I always encourage people to think in terms of customer problems and to leave products out of the equation. An example of a problem would be laundry. I am convinced that business engineering should always look at solving these problems anew. This involves the following 3 questions:

1. What technology is available to solve the problem?
2. What will a broad section of society accept as a solution to the problem?
3. Which solution to the problem is economically justifiable?

Today’s business leaders make the mistake of thinking far too much in terms of existing products and thus in terms of mental beaten tracks. As a result, they are not in a position to develop greatly improved products.

To return to the example of washing, the question must be: How can we solve the problem of washing clothes today? And not: What should the washing machine of the future look like?

Now there are big and small “problems” like this. If a problem is small, it means that not everyone is interested in it per se. For me, a big problem is a case that, in extreme cases, everyone would want to solve if there were a solution. A solution for cancer, for example, falls into this category.

How interesting an industry is for a new venture depends on how many customers the industry has already been able to acquire for the solution to the problem. Of course, this interacts with the solution offered and it is often difficult enough to tell the difference.

However, it is generally true that the larger the customer base for major problems, the more interesting the sector is.

New technology

The second point is whether new technology is available to solve these problems. This is the case in the vast majority of cases. I repeat myself with regard to products and problems. New technology in this context does not mean an improvement on what already exists, but a redefinition of the solution. That’s why everything digital is so successful at the moment. Many problems can be solved more elegantly and easily with software.

Average age of C-level management

I have written a lot about the leadership of Corporate Europe and why I think they are not destined to be good entrepreneurs. In short, the mentality of managing, preserving, security thinking is the quorum of a whole succession of generations. As harsh as that sounds, I think they are easy victims. These people don’t really have the mindset to launch new concepts, nor do they have the motivation to do so, as they are thinking more about retirement than revolution.

Therefore, the higher the average age of the management in an industry, the higher the probability that a new player can disrupt the market in a short space of time.

Barriers to entry

The question of whether it is worth setting up a new player in an industry depends to a large extent on the level of the entry barrier. I divide these into the following categories:

1. Maturity of the necessary technology (how much still needs to be developed)
2. Financial requirements (increasingly negligible factor)
3. Regulation (negligible)
4. Time to market (there are always time windows that close)

List of industries

Since, as I mentioned at the beginning, I am often asked about this, here is a small, non-exhaustive list of areas that offer potential or are highly endangered as industries, if you like:

• – Medicine
  – Legal Services
  – Energy
  – Insurance
  – Banking
  – Automotive / Transportation
  – Logistics
  – Retail & Grocery
  – “Legacy Informatik”
  – Education
  – Politics & Government