Titans can always be cut down to size; Ingenuity and ambition are all that the pioneer needs to take on established businesses

June 18, 2013 3:09 pm

Titans can always be cut down to size

By Luke Johnson

Ingenuity and ambition are all that the pioneer needs to take on established businesses

Is it harder to succeed as an entrepreneur because big companies control more industries than they did? This was the suggestion of a recent article by Ben Casselman in the Wall Street Journal. He made the case that start-ups are declining because animal spirits are fading in the US.I profoundly disagree with his contentions, and there are statistics to back my case. The Global Entrepreneurship Monitor, an annual assessment published jointly by Babson College and London Business School, found that total activity in the US in 2012 was at its highest level since 1999.

In particular I take issue with the idea that “dominance of large corporations in nearly every industry . . . makes it tough for new ventures to gain a foothold”. I believe quite the opposite: the tendency towards consolidation creates opportunities for innovative newcomers.

Take banking in the UK. For decades it has been a cosy oligopoly. But like sheep, several banks overextended and almost went bust during the financial crisis. The traditional high street banks have also alienated customers with poor service and scandals such as the mis-selling of payment protection insurance. Despite regulatory and capital hurdles, a number of new players are upsetting the cartel – from Aldermore to Metro Bank (where I am a director), from Virgin to peer-to-peer lenders. I predict there will be many more, who will relentlessly erode the share of the slothful incumbents, most of which have terrible reputations combined with demoralised management, and have underinvested in IT and their branches. Only customer inertia has saved them from losing much bigger chunks of their business. But over time, it will happen.

Bookmaking is another sector where a trio of operators – William Hill, Ladbrokes and Corals – has commanded the market for decades. A fourth group, Paddy Power, came to Britain less than a decade ago, with just three shops by 2005. But through entertaining punters with its quirky marketing, the Irish gambling business has expanded 100-fold in the past eight years.

When partners and I took control of PizzaExpress it had just 12 company-owned restaurants. It was a distant fourth behind Pizza Hut, Pizzaland and Deep Pan Pizza. But our offering was superior, and the public knew it. Within 10 years, two of the three market leaders had shut down and the other has been in retreat for years. PizzaExpress, meanwhile, has grown 20-fold, and is now the leader. The majors were complacent and unwilling to reinvent their model – and suffered the consequences.

Even in fields that require significant capital there are regular launches. Legacy airlines have faced a ferocious assault from low-cost rivals such as Ryanair andeasyJet, coming as if from nowhere to overtake national champions. Despite heavy regulation and fierce competition, they have succeeded by offering a no-frills service – demonstrating that no industry is invulnerable.

In almost every market, upstarts come along and disrupt the status quo. Technology, social shifts, deregulation and drive can lead to dislocation in any industry. It can be intimidating to confront businesses with long-established, commanding shares. But from Sir James Dyson taking on the might of Hoover in vacuum cleaners, to salesforce.com challenging Siebel Systems in customer relationship management, the history of capitalism has been forged by newcomers outcompeting bigger rivals.

Moreover many sectors are still fragmented. From catering to hairdressing, from construction to car repair, there are thousands of ubiquitous activities where small, family-owned concerns comprise the majority. They all represent ripe territory, waiting for disrupters to make their mark. Having spent 20 years in the food and drink business, I know that even the oldest trades are bursting with prospects.

Waves of consolidation in many sectors have come and gone. Big companies rise and die. Globalisation and the digital revolution have helped lower barriers to entry, and enabled fresh participants to compete in hundreds of sectors. Be it media, retailing, telecoms or financial services, industries that appeared unassailable have been turned upside down. The only constraints are the ingenuity and ambition of pioneering entrepreneurs.