Maybe times have changed but when I was growing up, the word “disruptive” typically had a negative connotation. Don’t disrupt class. Don’t disrupt dinner and so on. In 2015, “disruptive” has been flipped on its head and it’s used in a positive sense to describe innovations. Sometimes that equates to a more affordable end product, more convenience or just a better option. This is all great news for consumers reaping the benefits of free market competition or the enterprising entrepreneurs working to make a better mouse trap. For businesses, particularly ones that move at a glacial pace, the underlying message is simple: Don’t fall asleep at the wheel. Not that many years ago, most people would have never thought that a national chain could, basically, be driven out of business by a start up. It is the quintessential “David vs. Goliath” storyline. Look around and you can see evidence of this everywhere from finance (Kickstarter, Indiegogo) to consumer goods (Dollar Shave Club) to transportation (Uber). Let’s take a closer look at one of the more infamous falls from grace at the hands of disruptive technology.

A lesson from Netflix & Blockbuster

“If your business is to be successful for years to come, stay relevant.” It’s a familiar lesson and sound advice business owners hear frequently. Still, businesses may lack the insight to identify changing trends and subsequently fail in industries they once dominated.  It happens all too often, businesses have the “If it isn’t broke, don’t fix it” mentality that leads to their demise.  So, how do we prevent businesses from becoming irrelevant? How do we ensure we are staying ahead of the curve?

Jon Acuff worked for Blockbuster while he was in high school and offers a unique perspective on why success can sometimes limit businesses. “Sometimes success makes you deaf. Every dollar you’ve earned makes you think you don’t have to change. Every round of applause you’ve enjoyed makes it harder to innovate. Every win tries to whisper to you that you’re the best!”

Netflix vs. Blockbuster

In the case of Netflix and Blockbuster, a story we all watched unfold, Netflix CEO Reed Hastings had long-term, streamlined, cohesive vision. Netflix started small, so small in fact that a Wall Street analyst labeled its stock “a worthless piece of crap.” However, Netflix’s humble beginnings grew market knowledge of the brand and, when the time was right, Netflix began streaming movies online with technology, customer service and an organized vision that was well ahead of any competition. In 2000 Hastings proposed a partnership with Blockbuster and was immediately refused by CEO John Antioco. Blockbuster’s refusal to accept the innovation Netflix offered was founded upon the fact that a partnership would have changed Blockbuster’s entire business model.

Blockbuster’s profits were largely due to charging customer’s late fees for missed rental deadlines- an inconvenience to customers Netflix completely eradicated. By 2004, Antioco realized the changing business trends (and perhaps the folly of his ways) and tried to ride the wave of change. He proposed ending late fees and, at the same time, launched Blockbuster Online; a $400 million endeavor.

blockbuster image-harvard business review

Subsequently, shares of Blockbuster were falling and unrest began to grow, especially with activist shareholder, Carl Icahn. Icahn purchased a large amount of Blockbuster shares after Viacom sold their 80% stake and began campaigning his own interests to the media, launched a proxy fight, appointed two directors to Blockbuster’s Board of Directors and set to make his goals for Blockbuster a reality.

According to Antioco, he fought the best he could to keep his vision for Blockbuster alive. Facing opposition from Icahn and his supporters, coupled with outrage over a $50million bonus due to him, Antioco was replaced with Jim Keyes, an opposing mind and Icahn’s appointee, in 2007. Keyes immediately reversed Antioco’s plans for Blockbuster Online, cut marketing and intensified focus on its store-based business. Blockbuster subsequently went bankrupt on September 23, 2010.

While Blockbuster was failing to keep a cohesive vision together and the business was failing, Netflix was grasping opportunities and growing at a steady rate. PhD William Halal wrote, “Blockbuster lost $518 billion in 2010, ran $1 billion in debt and closed most outlets. Netflix gained 16 million subscribers by running a well-executed operation and streaming movies online.” Netflix capitalized on Internet streaming while Blockbuster failed to move in a timely manner. Netflix successfully identified a business strategy that kept service cost and customer fees at a low, while the cost of Blockbuster cutting out customer late fees ran them $200 million. While Netflix maintained a streamlined, cohesive vision, Blockbuster’s new Directors and CEO, Keyes, tried diversifying into books, toys and other retail outlets- leaving their core competency behind. In essence, Blockbuster failed to renovate its business and Netflix jumped at the chance to change. Netflix renovated their business from mailing DVD’s to online streaming- a change that came at the right time and gave customers what was wanted. The company continues to succeed with a 2013 quarterly earnings report stating that its income has quadrupled.

Netflix succeeded because they:

1. Identified an industry trend and improved upon existing, outdated business models

2. Capitalized on the adoption of developing technologies (online streaming)

3. Identified the appropriate time to launch Netflix full-scale

4. Worked cohesively, keeping vision in-line with the company as a whole

blockbuster store closing via

Blockbuster failed because of:

1. Late adoption of developing technologies

2. Implementing parallel costly changes, costing the company $400 million at a time when shares were falling

3. Sold Viacom’s 80% stake all at once, allowing Carl Icahn to purchase a large number of shares

4. Failure to keep shareholders, directors and CEO in-sync with company vision, resulting in an unsuccessful change in C-Suite executives

How Does This Translate to My Business?

Now, we aren’t all in the movie streaming or technology business and we definitely aren’t CEO’s of a major moneymaker like Netflix. With a vast number of businesses filing within 5 years of opening, we simply don’t hear about all of them- the majority are smaller and less “headline worthy.” Whatever your business size, small or medium, there are lessons to be learned in the mistakes of businesses that have failed before our eyes, and from those we never knew existed.


As with Netflix, having a clear, organized and cohesive vision- one that is shared and believed in across your company is key. (Think branding!)

Track Your Every Move

You don’t have to keep a journal of what you had for lunch that day but analytic and SEO tools must be used in order to provide you with the proper insight needed to continuously generate traffic to your business. If you’re not familiar enough with any of these tools we recently wrote another blog on the subject that you can read here.

Failing to Grow and Adapt

Thinking again of the wise words from Jon Acuff, just because your business may initially be successful, doesn’t mean you don’t need to keep thinking of new ways to improve. How could you reach a broader customer base? Improve your industry or services?

Accept and Adopt New Technologies

We don’t think you’re living in the dinosaur ages or that you’re an off-the-grid hermit. We are, however, referring to the use of Social Media, SEO and online marketing in your day-to-day business practices.

Your online marketing efforts can truly have a lasting, positive effect on customers. It’s a chance to create a community and reach out to individuals that are looking for what you offer, as well as listen to positive (or negative) comments. The immediacy of Social Media allows you to respond to both; transparency is truly valued in today’s world.

Maybe you don’t know enough about Social Media, SEO or Online Marketing to launch your own campaigns but that’s where experts can come in handy. Don’t be afraid to reach out for help.

Images Courtesy of: Harvard Business School

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