Disruptive Technologies & Exponential Growth

Lately, I’ve been thinking a lot about disruptive technologies & exponential growth. Over the course of past few weeks, discussions have been abound between fellow bloggers Jay from FI Fighter, Bryan from Income Surfer, and yours truly discussing investment themes. In trying to identify good investing options, we keep directing our focus towards technology and its disruptive nature. It is no secret that the ‘green’ movement is not a niche anymore and is now mainstream.

Jay from FI Fighter recently posted this article: Disruptive Technology – Always Underestimated, which I highly recommend readers to read and follow the thought process and also follow up on the links posted (there’s a lot there). It presents a great picture of how things are changing. Fast.

We humans are terrible at understanding exponential growth. Due to the way we evolved, we humans always think in linear terms or incremental changes. We don’t expect things to change fast and almost always get the timelines wrong. Even the ‘green’-oriented media gets most timelines wrong. When making predictions, they always predict that things will look better for the solar and renewable energy space by 2040 or 2050. That timeline is completely off-base. When you truly understand exponential growth, you realize that its going to come much faster than that.

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Disruption is “Just a Buzzword”?

Disruption

There’s nothing more cliche these days than calling the word disruption cliche. The media has fallen in love with the word for a while, but has started hating it just as much due to overuse. But at the crux, the fact remains that disruption is part of the business cycle whatever one may prefer calling it.

Disruption

Disruption has been part of the business culture forever. The next new “thing” has always disrupted the olden methods into irrelevancy. The industrial revolution in the 18th and 19th century brought about advances in transportation, manufacturing and numerous other industries. In the late 19th and early 20th century, we saw advances in electricity, transportation incl. automobiles and air travel and plenty of other fields. More recently, the birth of computers and internet has pushed the technological innovation to new levels. With the availability of communication on-the-go has come access to market-spaces that were unheard of just a decade or two ago. This of course, has unleashed new forms of entrepreneurship, where businesses are built that threaten the olden ways.

Take businesses like Uber, Airbnb or TaskRabbit for instance. These businesses have opened up a sharing economy where anyone can become a driver, short-term landlord or render services to strangers for any imaginable task. The success of these business lies in the fact that it is easy to use, and the power is spread to the masses, allowing people to participate in the workforce. This of course is bad news for incumbents in each of their respective industry such as cab drivers, hoteliers etc.

Every disruption in every industry in the human history has met resistance. No one wants to lose the advantage they hold to a newcomer. Electricity in houses? You want to burn your house down?! Automobiles for all? Think of the horses! Computers for everyone? Whats the point? Michael Faraday is quoted to have said when asked the point of electricity by the British Chancellor of the Exchequer (minister of finance): “…one day you may be able to tax it”.

The Politics

The dinosaurs in the industry like to make a political rhetoric out of it. They claim that it is unsafe (when in doubt, use the fear factor) and results in job losses. They forget that the incumbents were disruptors sometime in history too. I heard someone use Kodak as a reference going out of business and resulted in job losses. So what about the time when Kodak put other companies out of business as a result of direct competition or when new technology in photography starting putting commissioned painters and artists out of business? It is simply the nature of things.

Here in Ottawa, Canada Uber was launched two weekends ago and just like everywhere else its launched, its meeting plenty of resistance from the city council. The officials are calling it illegal and are cracking down on the Uber driver charging them excessive fines and threatening with lawsuits. Everyone agrees that the existing cab services can use improvements, is more expensive for customers and causes an arm-and-a-leg for the drivers to obtain a license to run. So, why so much resistance against this sharing economy? It all comes down to the potential loss of tax revenue in the city coffers. Every step of the way, we have figured out how to tax goods and services and collect revenue for the state. The lack of understanding of the business and the technology causes the myopic politicians and city councillors to try and protect the incumbents.

I am not against taxing the services. I hate taxes just as much as the next person. But when things go wrong with any of these services, we rely on the government services for protection, support etc. The only way to keep these services functioning is through the tax dollars. My critique for the entrepreneurs in the disrupting business world is that, while they have created great businesses and products and empowered the masses with these services, they need to work with the politicians and the government to harmoniously operate. Companies like Amazon and Google have gone down this route in the tech industry already. Instead of fighting the government, Amazon (after some initial resistance) agreed to collect taxes on the products they sell and transfer it to the government. Google, instead of arm-wrestling with the government about their driverless car program, have hired ex-car execs and people from the public sector background to work with the local and state governments to move the program forward. With the right initiatives and agreements, progress can be achieved that is agreeable to everyone.

 Image Credit: stockmonkeys.com