3 min read

How incumbents die [Nexus Newsletter #113]

Hey friends,

Have you ever discovered a podcast and then binged on the whole archive? That feeling where you just can’t get enough?

I know the Nexus pod has given many of you that feeling—because you’ve told me! Well... it happened to me over the holidays with the Acquired podcast on business and technology strategy. And unfortunately for me, their episodes are 2-3 hours long!

Near the end of each Acquired episode, hosts Ben and David dissect each company using a framework called The 7 Powers (created by Hamilton Helmers and fully explained in his book). Hearing this framework used so many times has caused it to trickle over into my work analyzing our industry.

The basic 7 Powers concept: Performance is a trailing indicator, but Power is a leading indicator. It’s the underlying mechanism that makes a company defensible over the long term.

Why’s this matter to us? Because one of the seven Powers has me mesmerized because of its implications for our industry. I just can’t get enough examples and stories about it. It’s called Counter-Positioning:

A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.

Basically you have a challenger and an incumbent. The challenger creates a new business model that creates value that's better for customers. But for the incumbent to mimic it would cause them serious damage to their existing business. So they don’t... to disastrous consequences.

Here are some examples:

  • Netflix didn’t have late fees; Blockbuster was addicted to them
  • Digital cameras didn’t require film; Kodak’s profits were overwhelmingly from film rolls
  • Vanguard introduced low-fee passive index funds; copying them would cannibalize Fidelity’s active management fees

Counter-positioning is about economic impact. Incumbents can get trapped seeing the world through the lens of their core economic engine. So they delay until it’s too late.

I think the smart buildings industry is in a phase where the business models we need to move us forward are exactly the ones that are counter-positioned against the largest incumbents.

It’s no wonder things are moving so slowly. So what is the economic engine of large incumbent OEMs in the smart buildings industry? I'll take a shot at it:

👉 Complex (but technologically-inferior), proprietary devices that require trained specialists to sell, engineer, install, use, and service.

This is why we see incumbents buying building automation startups with disruptive technology, only for the new tech to be inserted into the existing business model and disappear forevermore. Under this line of thinking, only another business model can disrupt the incumbent business model.

And what business models are counter-positioned against the large OEMs?

I have my thoughts... but I'd love to hear from you:

  • If you're a disruptor: How are you doing it?
  • If you work for an incumbent: How are you self-disrupting?
  • If you work for a building owner: What parts of the incumbents' business models do you hate?

Let me know on LinkedIn!

—James Dice, Founder of Nexus Labs

P.S. Want to learn about the incumbents in our industry from a neutral source? Your best bet is our Foundations course.


✖ At the Nexus

Here’s everything we published this week:

★ PODCAST: 🎧 #086: Building Science + Data Science = Zero Carbon Future—Episode 86 is a conversation with with Beth Eckenrode and Craig Stevenson, founders of Auros Group, a consultancy dedicated to designing, constructing and building the highest performing buildings at the lowest possible cost.

We talked about how building science, or the practice of creating high performing building envelopes, combines synergistically with data science.

Then we turned our attention to how that actually happens in practice and what it costs. These insights are key to our decarbonization journey.

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★ MEMBERS-ONLY EVENTS THIS MONTH:

  • Subject Matter Expert Workshop: PassiveHouse and related tech to know with Pro members from Auros Group.
  • Member Gathering: Leaders (and Pro members) from 2 different software vendors focused on multifamily buildings. We'll unpack this unique subset of the industry and talk about tech use cases. Plus, fun breakout rooms for networking.

Join Nexus Pro now to get the invites.

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★ ON LINKEDIN: Last week, I shared why I quit my job in 2020 and the lessons I learned creating our Foundations course.

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★ LONG READ: Energy Efficiency Ratings Aren’t Actually Predicting Energy Efficiency

"Expecting all buildings to be usable all the time is a farce, even more so as the climate changes.”

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👋 That's all for this week. See you next Tuesday!