Small businesses and membership associations can beat the odds in tough times

Creative destruction, not to be confused with the game by the same name, or with creative disruption, which is a different concept and is better known as disruptive innovation these days, is the overall process of change and adaption of actual industries to novelties. According to Google (a disruptive innovation in its own right), many traditional business models are driven out of the market processes by new technology, new forms of production, new marketing and new business models.

How it applies in tiny New Zealand

So, all the small business closures we’re currently seeing in New Zealand, and particularly in Wellington, might not be occurring due to government departments cutting staff numbers to improve efficiency, redundancies in other sectors, cycle lane construction, reduced car parking, the higher cost of living caused by inflation, or the tightening of belts due to the fact that everyone’s broke these days. No, it could be simply due to the fact that new ways of doing things have come along, using new technology and new ways of marketing.

If only it was that simple.

New ways of doing things, new products, new technology or new ways of marketing are usually only successful if the conditions are right and the consumer is ripe for change. Take the hospitality trade for example. In previous years (before the world went mad) the effect of a new bar opening was noticeable by the fickle public leaving their usual haunt to try out the new establishment. If the experience was an improvement on what they were used to, they might continue to frequent the new bar, but if it was no better, or worse, they’d usually return to their previous haunts within a very short time. Old habits die hard.

Novelty factor played a large part in being tempted away from what they were used to. These days it has probably been replaced with FOMO, especially with the power and speed of social media creating a sense of urgency.

Sometimes it’s just about the business’s life cycle and things going stale, and this can apply to the owners’ freshness too. My ‘local’ at the beach is a buzzy place to visit and it’s really popular most of the time, but the menu hasn’t significantly changed for years, and the reason the bar is still operating is largely due to the high turnover of out-of-town visitors, who don’t tire of being offered the same food on every visit, like the locals do. The owners have a winning formula and see no need to change anything. For now.

Staying ahead of the game can be incredibly challenging when times are tough, and business owners are already weary from the constant demands made of them, especially when the demands are not of their making. Sometimes the struggle just isn’t worth it, and the last straw breaks the camel’s back, with the business closing down.

But it doesn’t have to be all doom and gloom.

Trying times can offer an opportunity to do things differently, and in some situations, changes are undertaken by necessity to keep the business afloat. It’s a typical ‘glass half empty or glass half full’ scenario for some owners.

In a small economy like ours, Disruptive Innovation is more at play

Creative Destruction and Disruptive Innovation are related concepts in economics and business, but they differ in focus and scope. Here’s a breakdown of each and how they compare:

1. Creative Destruction

• Origin: Coined by economist Joseph Schumpeter in his book Capitalism, Socialism, and Democracy (1942).
• Definition: Refers to the process by which innovation and technological progress lead to the destruction of old industries or economic structures, making way for new industries and growth.
• Key Characteristics:
• Involves entire industries or economic systems.
• Destruction is a natural and necessary part of capitalism, enabling growth and efficiency.
• Examples:
• The replacement of horse-drawn carriages by automobiles.
• The decline of film-based photography due to digital cameras.
• Broader in scope than a single innovation, focusing on sweeping economic transformations.

2. Disruptive Innovation

• Origin: Introduced by Clayton Christensen in his book The Innovator's Dilemma (1997).
• Definition: Describes how smaller companies with fewer resources disrupt established market leaders by introducing innovations that start by targeting overlooked segments or creating new markets.
• Key Characteristics:
• Focuses on specific markets or companies rather than entire economic systems.
• Disruptive innovations often start as low-cost, low-performance alternative, improve over time and displace established players.
• Examples:
• Netflix disrupting Blockbuster with online streaming.
• Smartphones disrupting traditional cameras and personal computers.
• Initially overlooked by incumbents because they don’t appeal to their core customers.

Key Differences

How They Intersect

Disruptive innovations can often be part of creative destruction. For example:

• Disruptive innovation: Online retail (like Amazon) disrupts traditional stores.
• Creative destruction: The broader decline of brick-and-mortar retailing and the rise of e-commerce as a dominant economic force.

Impact on Membership Associations

Creative destruction and disruptive innovation can significantly impact membership associations—organisations like trade groups, professional societies, or nonprofits. These concepts apply when technological, economic, or societal changes challenge traditional ways of operating, forcing associations to adapt or risk obsolescence. Here's how each concept plays out:

1. Creative Destruction in Membership Associations

Creative destruction affects membership associations when entire traditional models are rendered obsolete, often by technological or societal shifts.

Key Drivers:

• Technology: The rise of the internet and digital platforms has transformed how people access information, network, and collaborate, reducing reliance on traditional associations.
• Globalisation: Members can now connect with peers or resources worldwide, diminishing the local or regional exclusivity of associations.
• Changing Expectations: Younger generations expect value and convenience through digital, on-demand services rather than traditional in-person events or print publications.

Examples:

• The Decline of Print Publications: Associations that relied on print journals as a key member benefit faced challenges from free online resources like blogs or open-access journals.
• Networking Replaced by Social Media: Platforms like LinkedIn have made it easier for professionals to network independently, reducing the perceived value of association memberships.
• Shift from Annual Conferences: Virtual events and webinars have disrupted traditional large-scale in-person conferences, forcing associations to reimagine event formats.

Adaptation:

• Associations must pivot from offering static benefits (like magazines or exclusive events) to providing dynamic, ongoing value (e.g. personalised learning, advocacy, or digital communities).

2. Disruptive Innovation in Membership Associations

Disruptive innovation emerges when new entrants offer cheaper, more accessible, or more focused alternatives to traditional associations, targeting underserved segments or creating new markets.

Key Characteristics:

• Digital Platforms: New platforms make it easy for professionals to self-organise, bypassing traditional associations.
• Freemium Models: Online communities or networks often start free (or very low-cost) and then scale with premium offerings, appealing to cost-conscious members.
• Micro-Communities: Specialised online groups often attract members seeking a more tailored experience than large associations provide.

Examples:

• Online Learning: Platforms offering industry certifications, reducing the value of association-based professional development programs.
• Gig Economy Networks: Platforms that create ecosystems for freelancers, challenging traditional associations in offering resources or connections for independent workers.
• Startup Communities: Organisations or localised coworking spaces disrupt traditional entrepreneurial or professional associations by offering networking and resources in a lean, digital-first way.

Adaptation:

• Associations can adopt disruptive strategies themselves, such as creating online communities, offering micro-certifications, or using AI for personalised member experiences.

Strategies for Associations to Survive and Thrive

1. Embrace Technology:
• Develop intuitive digital platforms for member engagement.
• Offer online learning, webinars, and virtual networking events.
2. Focus on Unique Value Propositions:
• Highlight advocacy efforts, exclusive data, or research capabilities that competitors can’t easily replicate.
• Provide career-enhancing certifications or specialised training.
3. Be Member-Centric:
• Survey members to understand their evolving needs.
• Offer tiered memberships with flexible pricing and benefits.
4. Foster Community and Belonging:
• Build niche communities within the association to cater to specific interests or demographics.
• Use data analytics to offer personalised recommendations and opportunities.
5. Collaborate with Disruptors:
• Partner with new platforms, instead of competing, to expand reach and relevance.
• Develop hybrid models combining traditional strengths with modern delivery methods.

In summary, both creative destruction and disruptive innovation pressure membership associations to evolve. If you work for a membership association and you’ve already taken any of the above steps to survive or thrive, well done! You’ll already be reaping the rewards.

By leveraging technology and focusing on unique, irreplaceable value, associations can turn these challenges into opportunities. The same principles can apply to small businesses. Keep an open mind and the world can be your oyster!