The 'Business of Tomorrow' Has No Room for the Past

The inventor thought his creation was a big selling point... It turned out to be his death sentence.

Pretty much all of ancient Rome's fine tableware – plates, bowls, even cups – was made out of metal. And in the year 14 C.E., Emperor Tiberius Caesar had the finest tableware money could buy... all solid gold and silver.

Glass had great potential as a replacement because it was much cheaper and faster to make. However, it had one big issue... strength.

If you dropped a silver plate, it might deform. But it would still be usable, and it could be fixed by a craftsman. Glass would shatter and create a mess.

That is, until one inventor seemed set to solve the problem forever...

This unnamed man found a way to make a "flexible" form of glass known as vitrum flexile. Yet when he presented his creation to the emperor, Tiberius only asked if anybody else knew how to make this kind of glass.

The inventor assured him that he was the only one capable.

Then... Tiberius ordered him beheaded.

The story goes that Tiberius felt the invention threatened the value of his wealth... much of which was stored in gold and silver. He even demanded the inventor's workshop be destroyed.

Now, the tale of vitrum flexile is more than 2,000 years old.

Even the two authors who wrote about it at the time – Pliny the Elder and Petronius – seemed to cast doubt on whether it happened as told. Some historians argue that it never happened at all.

But the point remains that people feel threatened by innovation... especially when it hurts their ability to make money.

Time and again, shock and panic seem to accompany innovation...

An employee for camera company Kodak built the world's first digital camera in 1975. But executives kept it under wraps for nearly 20 years because they feared it would eat into sales from its film business.

Video-rental store Blockbuster passed on the opportunity to buy Netflix (NFLX) in 2000. It was worried about how mail-rental DVDs would hurt physical stores.

Even soft-drink mainstay Coca-Cola (KO) struggled when it first introduced Diet Coke... because the beverage cannibalized sales from its flagship product.

Each of these companies was uneasy about how innovation could disrupt their existing businesses.

Company compensation often makes it worse. Management tends to resist anything that would disrupt the core business when members are paid based on short-term performance.

Corporate executives are terrified to destroy an existing business... and take a chance on one that's not guaranteed to win.

Yet the companies that choose to innovate – and do so successfully – tend to rank among the best in the world.

A few years ago, investing legend Warren Buffett compiled a list of the world's top 20 companies as of 1989 and 2021.

In 1989, Japanese companies were buying up U.S. landmarks like Rockefeller Center. Japanese dominance seemed inevitable... and Japan topped the list of biggest companies.

But then, Japan's economy stagnated. Its workforce stopped growing... its population started getting older... and its corporate values plummeted.

As it turned out, 1989 was the market peak for Japan. (At least, until earlier this year.)

Meanwhile, the U.S. kept growing and innovating... and another Asian superpower, China, overtook Japan in a hurry.

China became the outsourcing capital of the world. Its population was booming, and the country invested a ton in corporate and public infrastructure to support all that growth.

By 2021, there were no Japanese companies on the Top 20 list. And in their place, China began climbing the ranks.

Take a look...

There was one constant on both lists, though... plenty of U.S. companies.

Even though the specific companies changed over time, the U.S. remains a dominant market force...

And that's no coincidence. U.S. business centers around the idea of creative destruction. In order for the economy to keep growing, we have to let the laggards lose. It's the only way to push innovation forward.

That happens at the company level, too. The most successful corporations are the ones willing to move past their legacy businesses... and go "all in" on creating the business of tomorrow.

Software giant Microsoft (MSFT) became a dominant force on the back of Windows. These days, it basically gives Windows away for free. Its focus is on cloud computing and AI.

Microsoft's innovation propelled it to No. 3 on the Top 20 list by 2021.

And while you might think of Google parent Alphabet (GOOGL) as a search engine, Alphabet has created many smaller businesses beyond that monopoly. Its smart-home solutions, AI offerings, and autonomous-driving initiative earned it a spot at No. 5 in 2021.

While innovation is often complex, it all boils down to one simple key... To succeed in the long run, a company cannot be beholden to the past.

It must constantly test new technology and trends... even if that means hurting the legacy business in the short term. It's the only way to build a new, bigger business.

Regards,

Rob Spivey
with Joel Litman
April 12, 2024

P.S. We recently found a beaten-down company going through this exact type of disruptive transformation. It's a payroll-software provider whose new product is so good, it's threatening its own biggest moneymaker...

Panicked investors have sent shares tumbling. But they're being shortsighted. This new offering is bound to win more business down the road.

Shares are still trading below our-buy-up-to price today... So there's plenty of room to buy in. Plus, we just published four new reports about a similar transformative trend – in an entirely separate corner of the market.

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