The valuation of New Economy players represents a bet by the world’s financial markets that a few companies will leverage the Internet to fundamentally change the competitive game in their industries. It is a gamble that powerful, low-cost business models will emerge; that new businesses will rise from disintermediated value chains, and that some companies will exert such influence that they will generate extraordinary long-term shareholder returns.
We cannot predict the winners of the e-races any more than we could have foreseen in 1948 that the McDonald’s Corporation would push the globe into a fast-food frenzy, or in 1975 that the Nucor Corporation would eventually humble Bethlehem, Armco, LTV and Inland. We can be sure that the winners in this race will be few and the losers many; in the races that created the American automotive industry, only three of thousands of startups survived. Hence, even if the world’s financial markets are correctly valuing “e” in the aggregate, they are overvaluing most companies – the eventual failures – while significantly undervaluing the few companies that will succeed in changing the world.
By studying the companies that tried to “break out” from the competitive pack and redefine their industries, and then by adapting their experiences to the Digital Economy, we believe we can both understand the rules of this race, and handicap the Dots and established Giants during this current, first leg. Through research of attempted breakouts in 55 industries in the United States from 1965 to 1995, and interviews with 45 successful breakout innovators (i.e., those that have achieved shareholder returns in the top decile over one or more decades) in the United States and Europe, we have identified four rules for breaking out to win an economic race.
Authors: Charles E. Lucier, Janet D. Torsilieri
Subjects: Best Practices, Strategy