Disruption keeps company leaders up at night. Dollar Shave Club taught Proctor & Gamble a $1 billion lesson in disruption this week.
5 years ago nobody had ever heard of Dollar Shave Club. Most people who first heard the idea mocked it. But this week Unilever acquired Dollar Shave Club for $1 billion, teaching us all a huge lesson in disruption and change.
Unilever is the third-largest consumer goods company in the world, employing over 172,000 people. They own big name brands like Dove, TRESemme, Vaseline, Lipton, Ben & Jerry’s and many more. Unilever battles for store shelf space against Proctor & Gamble and Colgate Palmolive every day.
Until this week Unilever was a little player in the highly competitive (and profitable) men’s razor market. That all changed with the purchase of Dollar Shave Club. Now Unilever becomes a solid competitor in men’s razors. They also gain a major foothold for direct-selling their other products to 3.2 million Dollar Shave Club Members.
The big losers in this deal are the folks at Gillette (owned by Proctor & Gamble). They are scratching their heads about how their business could be so completely disrupted – in a market they completely dominated just 5 short years ago. Dollar Shave Club “was probably on the radar, but we weren’t necessarily having the right conversation around what might disrupt us,” a P&G Executive told the WSJ.
Dollar Shave Club began operations in 2011, but they didn’t really start gaining steam until they released this video in 2012.
The video is marketing genius. Within 48 hours of its launch, Dollar Shave Club had 12,000 new orders. In the four years since, the company has become one of the fastest growing e-commerce startups ever, reaching $150 million-plus in sales in 2015. They currently have about 5% market share in the men’s razor market.
This will be a business case study for years. In business school people will focus on the innovative marketing and unusual delivery model – made possible by the Internet – and how it disrupted the well-established market leader. What they will probably gloss over is the real reason why disruptive changes like this catch big companies by surprise: leaders who won’t or don’t listen.
Organizations that become big and successful often get complacent and overconfident. They are so focused on competing the way they always have that they ignore disruptive change. This focus isn’t always bad – after all, Proctor & Gamble’s Gillette brand owned nearly 3/4 of the men’s razor market in 2010. But they quit thinking like a start-up and that’s when they became vulnerable. Voices who suggest innovations or warn about disruptions often get drowned out, ignored or in the worst cases, ridiculed.
It is way too early to know exactly what voices inside Gillette were saying about Dollar Shave Club. I’m sure we will hear more as this deal gets dissected. And Unilever may have overpaid, paying around 5 times annual revenue (deals like this are normally at around 2 times annual revenue, so it’s a BIG bet). Unilever also didn’t take advantage of the market opportunity when it first occurred. They’ve had to pay a huge premium to catch up. But Unilever does buy itself a nice slice of the billion-plus dollar annual shaving market. In addition it gets deep customer data on over 3.2 million Dollar Shave Club members (who it can sell tons of other stuff).
The problem with most successful companies is that once they find success, they quit thinking like start-ups. Strategy decisions start happening only at the top of the hierarchy. And the people at the top of Proctor & Gamble or Unilever weren’t going to invest in a cheap, direct mail version of their flagship product (or produce an edgy video like guys at Dollar Shave Club did).
In the end it comes down to leaders being approachable and listening to ALL the voices in the organization – especially the ones who disagree or challenge the current thinking. Then leaders must have the courage to place bets on disruptive changes and encouraging innovation and experimentation down the line. That’s how you put yourself in the best position to be ready for (you cannot avoid) disruptive change.
How do you encourage innovation with your team? Do you think your employees feel comfortable speaking up when they have new ideas? Are they comfortable challenging the current way of doing things, even if it is successful?