By Bill Bishop
Are you an old factory thinker or a new factory thinker? Recently in San Diego, during a speech to an assembly of Canadian financial professionals, my audience split into two camps: one group was bursting with excitement and optimism, the other group was gripped by fear and pessimism.
My talk, called The New Factory Thinker, based on my new book of the same title, explored the coming disruptions in the financial services industry. It explained that financial services will be fundamentally transformed in a few years by the exponential acceleration of computer processing, the emergence of cognitive-based software applications, and the continued globalization of digital markets.
The members of the audience, all experienced and successful professionals, were grappling with some big questions:
• What’s the best way to compete with robo-advisors and other fintech competitors?
• How do we justify our fees under the increased transparency of CRM2?
• How do we remain relevant as ‘human’ advisors when many of our advisory functions are superseded by robots and machine-learning software?
• How do we maintain our profit margins faced with increased competition and the commoditization of financial products?
Drawing from the conclusions in my book, I explained that financial service professionals need to ‘rewire’ their minds for the realities of today’s marketplace. It’s not enough to simply upgrade their website or create an app. Using my terminology, they need abandon “old factory thinking”, and adopt “new factory thinking”.
When you use old factory thinking, you focus on selling financial products or services, such as investment management, financial planning, insurance, and yes, exempt market investments. I explained that this ‘product-first’ approach is obsolete for a number of reasons:
• One, most traditional products and services today quickly become low-margin commodities as new competitors quickly appear, often from outside the industry.
• Two, most products and services have a very brief shelf-life in today’s rapidly-changing marketplace. If you build your brand around a specific product or service, you will need to change your brand every time the market changes.
• And three, companies that simply sell products will become subservient to ‘new factories’ when they take ownership of the end client relationship. This turns the product provider into a low-margin downstream supplier, or locks them out altogether.
A firestorm of fear erupted when I conjectured that, to survive and thrive in the coming years, financial service professionals need to transform themselves into new factories. Failure to do so will mean either marginalization or extinction. Many of the audience members did not want to hear this. They wanted to believe that, unlike people in dozens of other industries—such as publishing, entertainment, transportation, manufacturing, and retailing—the tsunami of change will leave them unscathed.
Fortunately, many advisors understand that disruption also means opportunity. The opportunity to reimagine their businesses, provide significantly more value to their clients, build an impenetrable competitive advantage, and make more money. They got excited when I explained how this bright future is possible if they use new factory thinking.
New factory thinking is a new kind of business game, with new rules, new skill sets, and new underlying principles. It’s the game being played by the likes of Apple, Google, Amazon, LinkedIn, UBER, Facebook, and hundreds of other fast-growing companies. It’s a game anyone can learn and play.
New Factory Thinking has fives elements:
1. Build your business around a specific type of client: Instead of defining your business by what you make or sell, define your business based on who you help. For example, instead of thinking that your business is about exempt market investments, think that your business is about helping ‘the sophisticated investor.’
2. Use a BIG Idea to differentiate your business. A BIG Idea is a concept that captures the imagination of your target client. For instance, your BIG Idea might be to help your clients significantly increase their net worth by adding advanced investments to their portfolio. Give this BIG Idea a name and call it something as effective as The Insight Alignment Approach™.
3. Provide free value to attract subscribers: In the new factory marketplace, straight-up sales are a dead end. No one wants to talk to a salesperson these days. To attract prospects, provide something of value with no strings attached. Prospects who sign up for this free value become subscribers. Attain as many subscribers as you can.
4. Convert subscribers into members. In the new factory marketplace, there are only two markets: client (fast food) and member (gourmet). Fast food clients want a quick transaction at a low cost. Members want in-depth advice and are willing to pay a premium price for it. Soon, all fast food clients will deal with robo-advisors, and gourmet members will deal with a human advisor for a fee. That’s why exempt market advisors will have an advantage in the marketplace going forward. They already have a premium value proposition designed for a premium investor.
5. Surround your members with a value hub. A value hub is like a one-stop store, where your members can buy everything they need from one place. Because a new factory has a large number of high-quality members, it’s well positioned to sell a lot of products. These products come from the company’s old factory, but also from external suppliers, and even from outside their industry. (That’s why Amazon sells office supplies and groceries, why UBER now delivers your lunch, or why Apple sells music and movies.)
While the primary objective of an old factory is to sell its product, the first objective of a new factory is to acquire members. The more members it has, the more products it can potentially sell from its value hub. That’s why, for example, Microsoft bought LinkedIn for $25 billion. They didn’t buy LinkedIn’s product line, they bought their membership roster of 440 million business people. Watch for Microsoft to monetize their investment by building a value hub around its newly-acquired members.
New factory thinking is the approach now being rewarded by the marketplace. Companies that use new factory thinking are achieving tremendous success, while companies that continue to use old factory thinking are being punished.
As a messenger of disruption, I sometimes have to duck a few tomatoes. Some people get angry when reality is laid at their feet. At one presentation I gave, the owner of a taxi company almost took a swipe at me when I mentioned something about UBER.
But anger is the worst possible response. It doesn’t help you make good decisions. Denying the truth is also counter-productive. It makes you even more vulnerable to disruption because you don’t take any proactive steps protect yourself. The only viable approach is to face the facts and make the changes necessary to prosper in the brave new world that beckons.
So the question is: What kind of thinking are you going to use going forward? Old factory thinking or new factory thinking?
Bill Bishop is the CEO of The BIG Idea Company, and the publisher of Disrupter Magazine. He’s also the author of The New Factory Thinker: Re-Wiring Our Minds for Success in a Disrupted Marketplace. His company has helped more than 1,500 financial service professionals create BIG Ideas. Visit www.BishopBIGIdeas.com