Creative Destruction: Reinventing Models and Forced Entrepeneurship

Every crisis leads to a transformation.

Industries affected by malinvestments or bubbles are destroyed while new enterprises emerges or innovative business paradigms takeover. That's why crisis can always be seen as windows of opportunities as previously discussed in Entrepreneurship During Recessions: Booming Industries, Recession Babies, Reasons to Start and 999 Business Ideas.

People will always toil to look for opportunities in order to survive. And one of the options would be to put up a business. Take for example this article from the New York Times which focuses on "forced" entrepreneurship today (bold highlight mine),

``Economists say that when the economy takes a dive, it is common for people to turn to their inner entrepreneur to try to make their own work. But they say that it takes months for that mentality to sink in, and that this is about the time in the economic cycle when it really starts to happen — when the formerly employed realize that traditional job searches are not working, and that they are running out of time and money.

``Mark V. Cannice, executive director of the entrepreneurship program at the University of San Francisco, calls the phenomenon “forced entrepreneurship.”

``“If there is a silver lining, the large-scale downsizing from major companies will release a lot of new entrepreneurial talent and ideas — scientists, engineers, business folks now looking to do other things,” Mr. Cannice said. “It’s a Darwinian unleashing of talent into the entrepreneurial ecosystem.”

``Even in prosperous times, entrepreneurs have a daunting failure rate. But those who succeed could play a big role in turning the economy around because tiny companies are actually big employers. In 2008, 3.8 million companies had fewer than 10 workers, and they employed 12.4 million people, or roughly 11 percent of the private sector work force, according to the Bureau of Labor Statistics.

``Economists say there are some peculiarities to this wave of downturn start-ups. Chiefly, the Internet has given people an extraordinary tool not just to market their ideas but also to find business partners and suppliers, and to do all kinds of functions on the cheap: keeping the books, interacting with customers, even turning a small idea into a big idea.

``The goal for many entrepreneurs nowadays is not to create a company that will someday make billions but to come up with an idea that will produce revenue quickly, said Jerome S. Engel, director for the center for entrepreneurship at the Berkeley Haas School of Business. Mr. Engel said many people will focus on serving immediate needs for individuals and businesses."

As a saying go, Necessity is the mother of innovation (invention).

And as we earlier mentioned, crisis also induces change in business models.

For instance, we see accelerating signs of transitioning from the old print "newspaper" media model to one of the "online" paradigm.

Again from the New York Times (bold highlight mine),

``The Seattle Post-Intelligencer will produce its last printed edition on Tuesday and become an Internet-only news source, the Hearst Corporation said on Monday, making it by far the largest American newspaper to take that leap.

``But The P-I, as it is called, will resemble a local Huffington Post more than a traditional newspaper, with a news staff of about 20 people rather than the 165 it had, and a site with mostly commentary, advice and links to other news sites, along with some original reporting.

``Other newspapers have closed and many more are threatened. But the transition to an all-digital product for The P-I will be especially closely watched in an industry that is fast losing revenue and is casting around for a new economic model.

``For one thing, the closing may end up putting greater pressure on the surviving and financially struggling Seattle Times, because of the end of a joint operating agreement between the two papers. It may even bring closer the day when Seattle has no local paper at all.

``And the way The P-I is changing might hint at a path for future newspaper closings. To some extent, in shifting its business model, it will enter a new realm of competition. It will compete not just with the print-and-ink Times, but also with an established local news Web site, Crosscut.com, a much smaller nonprofit organization that focuses on the Northwest. The move shows how some newspapers, in the future, may not vanish but move the battle from print to the digital arena."

And this appears to be a firming trend...

chart courtesy of Pew's State of the Media

Cable and online have drawn most of audience traffic at the 'expense' of traditional media.

According to Pew Research, ``Only two platforms clearly grew: the Internet, where the gains seemed more structural, and cable, where they were more event-specific."

In short, real time or "on demand" news or opinion is on the rise, or in the fitting words of the research company, ``People increasingly want the news they want when they want it".

Of course, aside from the shift in viewership traffic preference, the other very important trigger has been no less than the flow of revenues. Ad spending has essentially shifted to cable and online. Put differently, it is basically a "follow the money" dictum.

The dramatic surge in online viewership hasn't not translated to strong flows of ad spending, though. The Pew Research suggests an explanation- strong competition. ``Even while online ad spending grew about 14% through the first three quarters of the year, most of it benefited Google and other search providers. Revenue from the sale of banners and other display ads that news websites depend on increased just 4%, and estimates are that it declined by the fourth quarter. One reason: the infinitely expanding universe of blogs and websites has forced them to cut their rates to compete for advertisers. The cost to reach 1,000 viewers fell by half in 2008 alone, to an estimated average of 26 cents."

But not all countries are incurring a decline in print media as we pointed out in Global Posttraumatic Stress Disorder (PTSD): The After Lehman Syndrome. But that is a topic for another day.

Nonetheless the last word from Internet analyst Clay Shirky who is quoted by the Research Recap, ``That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place. The importance of any given experiment isn’t apparent at the moment it appears; big changes stall, small changes spread. Even the revolutionaries can’t predict what will happen. Agreements on all sides that core institutions must be protected are rendered meaningless by the very people doing the agreeing.”