How Are Disrupters Changing the Industry?

Disruption, by definition, is a disturbance. It interrupts the normal order of things. And with every modern technological advance, what gets altered is the dissemination of information. The telegraph carried messages across the boundless expanses of the oceans. The telephone put people in instant contact. The Internet brings together people around the world in like-minded congregation.

>>Back to the Big Book of Questions

When that occurs, industries irrevocably change. Just look at the impact of the dot-com boom of the late 1990s. Hundreds of newspapers in the U.S. ceased printing as websites provide news without cost or wait. Television ratings and music sales plummeted as online streaming allowed viewers to watch shows or listen to songs at any time. Even taxies are losing business as services like Uber and Lyft offer customers transportation with the click of an app.

The previous advantages that the old models had are now erased. “When information is all you’re hoarding, you can’t win,” said Seth Godin, best-selling business author, at this year’s PPAI Expo. “All information is now free on the Internet. But the products and services you have in this industry are perfect for this moment.”

Which brings us to the promotional product industry. Forward-thinking companies are using technology to disrupt the industry by challenging traditional business models and shaking up the status quo. In many ways, it’s a transition period: E-commerce is growing and the use of technology platforms is on the rise, but brick-and-mortar companies still abound in various forms. Jim Franklyn, vice president of sales and marketing for distributor Inkhead (asi/231159), calls this moment in the industry “the emerging hybrid space of distributor selling.”

“You’re going to need to offer clients a Web presence, a way for them to order and shop online, as well as a consultative sales experience for trade shows and events,” says Franklyn.

Inkhead allows users to browse numerous branded products on its website and then customize logos for their selection. And the model seems to be working, as the Atlanta-based company has increased its sales by 360% over the last seven years.

“We’re successful because we’re relevant online,” Franklyn says. “In order to be relevant online, you have to have very deep pockets and a comprehensive e-commerce marketing strategy, or you’re just wasting your money. You need a comprehensive strategy ranging from pay-per-click to content to product positioning to blogging to social media skills. It’s not simple anymore.”

Inkhead isn’t the only e-commerce outfit thriving. 4imprint (asi/197045) has recorded 113% growth the last five years and is now the second-largest distributor in the industry, with almost $500 million in North American promo revenue in 2015. ePromos Promotional Products (asi/188515) has 88% growth over the last five years and resides in the Top 40.

And then there’s Vistaprint. In 20 years of business, the company has grown into an online behemoth that earned $1.3 billion in revenue in 2014. From its first wildly successful steps printing business cards (by the millions) before expanding to other marketing materials and various consumer items, the company is now making a serious entry into the promotional product space. Don LeBlanc, president of the company’s corporate solutions division, credited Vista- print’s customers with forcing the company’s hand, saying there has been a demand for promo products that the company hasn’t adequately met. “We’ve done really well in print and we know there are a lot of commonalities in terms of the customization side,” LeBlanc said at the ASI Power Summit last November. “We’re looking to build a broad network of partners with our customization platform in the middle.”

At its core, Vistaprint’s story is not unique; thousands of printing businesses have expanded into promotional products because it’s a natural fit. But e-commerce puts a new spin on traditional models. Vistaprint can capture a global clientele in a way that few businesses are able to, and that broad reach could have a tremendous impact.

But while online shopping – the unadulterated access to the key information of products, price and availability – has changed the buying experience, it’s only one example of the change in flow of information. Alibaba Group has carved out a wildly lucrative part in the supply chain, and Michael Lee, the company’s director of global marketing, believes that informing buyers has been the foundation of the company’s success.

“We provide choices,” Lee said at the ASI Power Summit last November. “We offer logistic services, trade-financing services; we even offer educational content to help different buyers find what sourcing path is best for them.”

Among its myriad ventures, Alibaba offers, a sourcing platform that distributors and suppliers in the U.S. can use to get items directly from manufacturers in China. While critics say the company removes suppliers from the equation, Lee assures that his firm is not a threat; rather, it is a platform that will work with suppliers and distributors to make the entire chain as frictionless as possible. “Our focus is to make everyone succeed,” Lee said. “Helping people find the right product, the right supplier, not just internationally, but also domestically.”

The Old Guard’s Dilemma
Technology removes the barriers that prevent ideas from spreading and becoming a reality. It’s empowered consumers not only to buy, but to create, and disrupters in the industry are thriving by giving them the tools to create the promotional items they want.

CustomInk, the DIY T-shirt provider launched in 2000, has attained nearly $300 million in annual revenue, with year-over-year growth of 50%. Customers create apparel designs right on the company’s website and can then purchase them instantly. That accessibility dissolves the time and effort of going to mall kiosks, mom-and-pop shops and traditional distributors.

They’re not the only successful company to utilize this model. Teespring printed more than 7 million shirts last year; co-founder Anthony Staehelin estimates that 1 in 50 Americans purchased a Teespring product in 2015. Through a business model of on-demand manufacturing and personalization, the e-commerce platform enables anyone to create, sell and order custom products. By leveraging social media to encourage others to pre-purchase designs, Teespring has enabled users to eliminate the traditional process of estimating peoples’ sizes and preferences, placing a large bulk order, going through the hassle of redistribution and payment, and then swallowing the cost of the leftover inventory.

“Established players may face the classic incumbent’s dilemma, being vested in the status quo and having difficulty reinventing their business online without destroying its value,” says Staehelin. “On the other hand, a lot of new players lack infrastructure, scale and brand to fundamentally change a business that does require complex manufacturing and fulfillment.”

Staehelin says Teespring falls in the middle. The four-year-old startup raised over $55 million in venture funding, and in 2014, generated millions of dollars for dozens of independent designers. Social networking service LinkedIn and collaboration portal Slack have both leveraged Teespring’s platform to offer their employees branded merchandise for customization. “Teespring is in a rare position where our strong infrastructure, high levels of investment and millions of users mean that we’re established enough to challenge the status quo,”  Staehelin says.

But that’s the thing – today’s disrupters become the status quo, and the ones who years or decades later join the legion of disrupted companies. What’s the key to finding a new angle and then staying two steps ahead of the competition? “The trick is to constantly stay on top of innovation so you never run into the problem in the first place,” says Julie Austin, CEO of the consulting firm Creative Innovation Group and creator of a NASDAQ product of the year semifinalist.

Meanwhile, how can traditional companies compete? They often can’t, says Jake Schroeder, course delivery manager for HBX Disruptive Strategy, a digital learning initiative powered by the faculty of Harvard Business School. Or at least, not when disrupters target the areas that traditional companies are weakest in. He cites the example of online companies specializing in low-margin work and thriving. “Incumbents aren’t incentivized to invest where margins are slim,” Schroeder says. “And second, their organization is structured to serve the high end of the market – not the low end. The incumbent’s resources, processes and profit formula will make it very difficult for them to compete efficiently on the low end.”

To compete, Schroeder says, established players may have to find alternate areas of growth or simply purchase the disruptive companies. Either way, the message is clear: continuing to do business the traditional way won’t work.