Some of you would choose to run to the bank, borrow as much money as you legally could, and then buy shares in the next Apple or Amazon.
A business owner would try to figure out where to find her future customers.
A parent would try to have a hand in what kind of education or future skills their kids should be accessible.
A nation’s president would be more focused on the type of challenges the country could face under his administration, be it future government debt or geopolitical threats.
As a citizen, you would be greatly interested in knowing if you would be receiving a pension in the future.
Many young readers find climate change trends frightening. What are the prospects of global warming? What will be the consequences of a warmer planet? And what can we do today to achieve the climate goals of tomorrow?
If you have ever wished you could predict the future, this article will show you how.
My background is in consulting and business analysis. That means that a large chunk of my workday involves predicting the future. Of all the methods I use to forecast, there is one method I always use. I have worked with this method for more than 20 years, and I can assure you that it works.
If you ever needed a guide to planning, know that the method will serve you well. I call it the megatrend method.
Using megatrends when planning for the next 5–10–15 years is a method used by many.
The method is helpful for everyone who is in business, not just analysts, because every executive needs to make bets about the future. Successful investors and world-renowned business strategies love the method. Entrepreneurs who started with nothing won by following a few simple guidelines. The technique allowed them to prepare for the future. And the technique took many of them to the very top, beating much larger companies.
The process will open your eyes to opportunities you once thought were never there. It will teach you to think like a futurist. It will surprise you that not everyone uses this method because its advantages are impressive.
If you want to take your business forward, you must know what challenges and opportunities the future brings. Once you know what they are, you can prepare for what is to come. You will then become the disruptor and not the disrupted.
Two principles will make sure you get ahead of everyone else: knowledge and the ability to change.
Here is what you need to do:
Start with megatrends (they will tell you what is next)
A trend is a general direction into which something is changing, developing, or veering towards. To qualify as a megatrend, add three features to a trend.
One, megatrends are long-term. Expect them to last for at least ten years.
Two, they are global, making their scope large. And three, they are far-reaching. When a megatrend hits, most sectors of society are affected.
Granted, when a megatrend has set in, it isn’t easy to reverse. Once in place, it tends to influence a more comprehensive set of actions and beliefs, individuals, communities, businesses, and government. It is a significant, over-arching direction that shapes the business world for a decade or more.
Finding megatrends is not particularly hard either. You probably know lots of megatrends already. An older population, the rise of Asia, global warming, and the Internet are all examples of megatrends.
So are urbanization (people moving into cities), the rise of a global middle class, falling prices of data processing, falling battery prices (and thereby the rise of electric vehicles), alternative energy sources, robotization and automation of work tasks, individualization, 3D-printers, artificial intelligence, rising income inequalities, and a better-educated world population. These, and many other trends, will most certainly stay with us for years to come.
With that knowledge, you can gain the upper hand against your competitors. If you know what the future will bring, you can take advantage of the trends that will shape the business environment you operate.
Let me show you how.
One of the megatrends that I mentioned above was the falling prices of data processing. If you have ever bought an electronic device, you know that it tends to get cheaper and better as the years go by. A slim, high-quality widescreen TV today you bought last is probably more affordable than the low-resolution, boxy thing you purchased years ago. The same goes for cell phones, laptops, and pretty much any other item using a processor.
Consumers who are looking for a PC know that processor power doubles every two years. This growth is called Moore’s Law. At the same time, the storage capacity price falls linearly by 40 percent a year. The data power you can buy for every penny has doubled for decades. A PlayStation that you can buy for $ 3,000 today has the same computing power as a supercomputer that cost many millions in 1997.
With that knowledge in mind, ask yourself this question: how does ever-cheaper data processing affect my business model? Then ask yourself this follow-up question: Will more and faster processing for the same dollar spent bring advantages to my business, or is it a threat to my business?
One player who succeeded in exploiting technological megatrends to its advantage was Netflix. In the 1990s, it was not sure that Netflix would dominate the market 20 years later. Blockbuster dominating movie rentals in the US entirely. Anyone wanting to rent a movie drove to a local Blockbuster and found their film there. Today, you will need to look hard and long to find a store that offers movie rental. Like record stores, they are not around anymore.
While Blockbuster thrived and delivered record profits, Netflix was struggling. Netflix had a different business model than Blockbuster. It delivered DVDs by mail. And that was expensive.
In such a situation, what would you have done if you were Netflix CEO Reed Hastings? Would you take up the fight with Blockbuster, perhaps opening stores across much of the United States?
Netflix did something else. It took advantage of the megatrends.
In the late 1990s, the market knew that one day would deliver television and video over the Internet. The challenge was that the computing power, data storage, and bandwidth were not competitive. Still, everyone knew that these three drivers were going to keep getting cheaper. It was commonly accepted that one day customers would choose to stream a movie from home rather than drive to a store to rent their film.
It was just a matter of time.
Netflix knew that a technology shift was underway. So instead of copying Blockbuster and the others by opening stores, they prepared for streaming. Reed Hastings know that in time, technology and pricing would make streaming competitive.
Netflix worked actively to connect with customers before the technology-enabled streaming. It offered customers a fixed price per month to rent movies by mail. The business model was costly, but that made it possible to easily convert the customer group to streaming when this finally became possible. It developed algorithms that helped customers find movies that matched their tastes. It invested heavily in technologies that would enable streaming.
Ted Sarandos, who has been Netflix’s head of content since early 2000, said the following on how Reed Hastings was thinking:
“Back then, [Hastings] said that postage rates were going to keep going up, and the Internet was going to get twice as fast at half the price every 18 months. Those lines would cross at some point, and it would become more cost-efficient to stream a movie rather than mail a video. And that’s when we get in.”
In 2007, Reed Hastings and Netflix felt the time was right to offer their subscribers to stream movies. At last, broadband speed was fast enough to guarantee a good customer experience.
The transition to streaming was an incredible success for Netflix. Between 2007 and 2011, the number of subscribers rose from 6 million to 23 million. Its revenues grew from 1.36 billion in 2007 to around 15.8 billion just ten years later. At the end of July 2020, Netflix had over 193 million subscribers. Six out of 10 customers live outside of the United States.
And Blockbuster? Within few years, they went bankrupt. They missed the digital mark, just as they missed understanding how the millennials moved away from hard-copy media. Fear of hurting the existing cash cow store rental did not help. Byrn Owen, who was the Chief Marketing Officer of Blockbuster in the United Kingdom, put it this way:
“We had an online division, but it was completely separate from the retail side of the business. It was almost treated as something inferior. The board, which were heavily retail-focused, saw embracing online as a threat to Blockbuster’s future as they thought it would cannibalize the high street sales.”
Transform the organization (to prepare for the megatrends)
If you want your business to survive, being aware of the megatrends is not enough. You must also be able to adapt to change. Netflix saw the changes come, they adopted, and therefore they thrived. Blockbuster saw the same trends but chose not to adopt them. Once they missed the mark, it was too late. Their failure to prepare for streaming led to their defeat.
If you want to build a flexible organization, adaptiveness must be an integral part of the company culture. From my experience, there are mainly three factors that must be met to profit from megatrends.
First, you must build an understanding of the megatrends in the organization. Board members, managers, and employees must understand why it is essential to think long-term. They need to know how changes in technology or demographics can change the business framework. Not least, they must understand how quickly changes can knock even significant players off the pitch. Everyone knows Kodak and Nokia, and no one wants to meet the same fate.
A good tip is to run workshops with relevant staff. Ask them to give the company a score on what trends affect the business the most and how prepared it is for what is happening. Conditions that have given the company success so far need not apply in five years. A product that sells like minced meats today is not guaranteed to be as popular in five to ten years. New technologies or customer preferences can change fast.
Second, plan for many outcomes using scenarios. If you want to take advantage of trends, you must work with scenarios. It is often you do not know how the development will be. The price of oil can rise and fall, depending on supply and demand. A technology improvement can suddenly make your product obsolete. Government legislation on emissions or waste could increase your costs dramatically. Or take a more recent case: what would you have done differently if you had known about Covid-19 a year before it hit?
Whatever happens, you will be much better of if you prepare for what could come in advance. Try to run a couple of scenarios that can affect your business, both positively and negatively. Start with the most relevant megatrends, those you think will impact your business the most.
And should it turn out that you ran scenarios on something that did not happen, do not worry. What is essential is to prepare. It has been proven repeatedly that the companies ready for change do better than those who have not prepared. In other words, preparation is critical for those who want to survive disruption and change.
Finally, build a culture where it is OK to try and fail. Today’s changes are happening fast that you cannot expect to be right all the time. Instead, build a culture that encourages employees to set up new business units that compete with the old.
The logic is simple. If there is a better way to do things, it is better that you take on the challenge than someone else. Blockbuster never dared to cannibalize its primary source of income, and that is why it lost out to Netflix.
When it was brought up that the iPad would cut into Mac desktop computer sales, Apple founder Steve Jobs put it this way: “If you don’t cannibalize yourself, someone else will.”
And there you have it. Two principles that will help you prepare for the future.
Once you have learned the megatrends, you will find them extremely useful. They will not tell you everything about the future, but more than enough to profit from them. The more creative part is to adapt to the megatrends. Remember Reed Hastings and how Netflix prepared for streaming using the same method.
Combine the two principles, and you will, too, position yourself to win in the future.
Interested to learn more about megatrends? Check out my latest book Making Sense of the Future: How to Thrive on the Trends That Transform the World.