Investing in A Disruptive Technology: A How-to Guide

As a person eager to discover new trends and tech opportunities, I decided to dwell upon the idea of “disruptors” and explain why these technologies are the game-changers in different areas of our lives.

As an investor, you might have heard the team “disruptive technology” all too often. Some entrepreneurs view it as a risk-free trump card bound to generate high revenue. By contrast, the investors frequently avoid “disruptive” businesses as extremely risky with uncertain investment return and profitability.

But let’s clarify first: something being called disruptive isn’t a powerful breakthrough technology changing the world to better. Instead, disruptive ideas are simple, affordable solutions that replace existing complex systems or expensive products. By means of such businesses, the services and products embrace a broader audience.

How to detect a disruptor?

To determine the level of business “disruptiveness,” try to answer these questions. Each of them helps to reveal the characteristic feature of disruption.

1. Does it offer a solution for the non-consumers of the product/service?

This is a question about the audience the business targets. The solution it provides has to become easily accessible and, as a result, expand the service/product use among different social layers.

2. Is the innovation simpler to use compared to the ones on the market?

This factor goes without saying. Since convenience is the new black for the IT market, disruptors are the catalysts to either replace the incumbent complexity, or mitigate the costs, or both.

3. Is the business sustainable?

The disruptive idea is great, but better if it is aligned with the business model to support its development in the long run.

How to stay tuned?

Investment in disruptive technology is never easy. If it were, each new idea would have been off the market before it became a threat for the competitors. Having analyzed the tips from investors and entrepreneurs, I`ve collected the list of recommendations to follow the unstoppable trends and pinpoint future game-changing giants.

Search the market niche in dire need of innovative thinking.

Back in 2013, The McKinsey Global Institute published influential research on the emerging life-transforming industries. The report defines and analyses the top 12 economically cutting-edge technologies in the nearest decade.

What is striking about such technologies is that they have no limits to the traditional tech sector. Instead, these innovations entered healthcare, telecommunications, energy sector, media, biotech. Since disruptors are now diversified in terms of industry, the investment portfolio contains more companies of sufficient liquidity with a more effective return & risk management.

In 2013, Mckinsey provided the data on the potential game-changing tech that would restate the economic impact by 2025:

By contrast, in 2018, the Global X Funds published a new report on the same topic. The data covers the seven biggest tech trends viewed as opportunities by investors.

Search for examples of innovative industries.

This list is my take combined with some of the provided in the charts above. You’re most welcome to help and fill it with your own ideas.

Artificial intelligence & quality assurance automation

No wonder, I know. Big data has been a hot topic for a long time. The World Quality Report proves the emerging nature of AI by the numbers: 64% of IT companies-respondents have AI planned to improve customer processes. This tendency is followed by 62% of the companies eager to implement smart tech for internal purposes, and 57% require AI for software testing. Also, 55% see AI as a potential platform for enhanced software development.

This means IT departments actively implement AI to digitize the business operations. The “intelligent” technology efficiently and quickly analyzes unstructured data sets. Moreover, AI systems retain the collected information to make connections for future analyses.

Worldwide spending on cognitive systems (applications and platforms) leads to the transformations in the solutions that would support their functioning. With these systems in place, IT departments are likely to introduce machine learning strategies to automate the tasks for development and testing. The idea is to use human resource for more complex, creative, and strategic parts of the software projects leaving repeated tasks to be automated by machine learning systems.

Wireless Era & Autonomous Transport

The latest study by Bain & Co predicts the IoT market to reach $520Bn by 2021. Looks like IoT products with their wireless tech support have all chances to accelerate the development of urban planning, healthcare, transport, manufacture, retail.

The tendency to produce autonomous vehicles is likely to transform the current transport conception into the wireless ecosystem. The introduction of traffic lights, growth of smart highway systems, advanced vehicle roadside communications are the resources worth investment. These solutions will add value to the area of logistics and accelerate the development of long-distance transfer routes.

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Renewable Energy

The data provided by World Energy Council says hydropower remains a leading source for the renewable electricity covering 71% of global supply. Progressive hydropower technologies focus on developing pump storage plants, reservoirs, run-of-river hydropower plants.

Wind and solar power are two more valuable sources for investment, the entrepreneurs find here effective solutions for sustainable energy growth. Printable solar panels, photovoltaic cells, solar-powered water plants are the examples proving the efficiency of renewable energy impact.

eCommerce & O2O

Although the users are confident online shoppers, physical stores will remain the source for 82,5% of retail sales by 2021. The combination of digital and offline experiences is the approach exploding the retail market. No wonder: e-stores provide convenience, while brick-and-mortar shops increase purchase confidence. This is why the omni-channel strategy has become a successful solution to combine mouse-click purchase and modernized store conditions.

Differentiate the disruptor types.

This classification provided by Macrovue defines three types of companies that embed the phenomenon of disruptive technology.

The seasoned disruptors are modern market giants that have grown to be the “ambassadors” of innovation. Today, they`re widely-known and continue to be game-changers in the industry: Google, Amazon, Facebook, Tesla, Alibaba, PayPal.

The early disruptors bring the solution that has had a powerful impact on the services in the banking industry, big pharma, TV. Examples include Netflix, Dropbox, Twitter, 3D Systems.

Neophyte disruptors are not always public, yet those are well-funded by the venture capitals initially. These companies were the promising tech providers and have already turned the industry upside down. Today, many are high-profile: Airbnb, SpaceX, Uber, Palantir, Xiaomi.

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Do the homework.

Careful company research is must-do in the investment area. The investors at Macrovue suggest conducting a fundamental analysis of the critical factors influencing a company`s growth. The research involves business model overview, competitive advantage, price-to-earnings, and debt-to-equity ratio.

Moreover, rather than investing fully in a single company, the team at Macrovue offers a diversified portfolio approach. Choosing a group of companies that in your opinion, have a chance to succeed is a far less risky decision when it comes to disruptive tech investment.

Final Word

The disruptive technology boom continues in 2019. Since it is not always possible to detect the potential cutting-edge solution, it`s better to carefully analyze the market before investing. But one thing is for sure: we can expect a lot of exciting changes as long as disruptive ideas gradually enter our lives.