Hacking A Key Stakeholder’s Legitimate Interest Isn’t A Sustainable Business Model

It seems like every day there’s a new article where someone’s bragging about “hacking” something — coming up with a new business based on a workaround to an established condition. Beating the system.

I suppose there is some middle-school level attraction to “cutting the line” or “jumping the turnstile” — in getting one over on the person or company or governmental entity that has set up a roadblock or tollbooth that stands between you and something you want.

Don’t get me wrong. If what’s being hacked is an entrenched structure that blocks innovation and discourages new entrants by arbitrarily limiting access to resources, then let the hacking continue.

But too often it’s about bypassing “troublesome” key constituents:

• Tesla’s model includes cutting out your neighborhood auto dealerships.
• Uber’s financial model has no line item for employee benefits for drivers.
• Spotify and Pandora have a big dispute going over payments to copyright owners — the folks who wrote the songs or own the rights to them.

Whether the hack (or bypass) is the result of deliberate and intentional opportunism or just magical thinking (ignore the people we don’t want — or know how — to deal with), the founders of these businesses and the authors of books and articles that swoon over them are often oblivious to the trampling of interests inherent in their models. Here’s an example from a recent article on LinkedIn:

“For example, music-streaming services like Spotify and Pandora are a daily habit for millions of people, but if song owners manage to extract all the value by imposing stricter copyright terms, they have the power to destroy the streaming services.”

Sounds like the author is casting the song owners as the Bad Guys in a Good Guys/Bad Guys story, doesn’t it? But what if the people who created the product were regarded, not as menacing intruders, but as important constituents — stakeholders whose needs and rights should be considered, respected and dealt with fairly?

Whatever your role in the supply chain, it’s not just about you. There are many stakeholders: Inventors. Creators. Investors. Partners. Employees. Contract workers. Vendors and distributors. Sooner or later you have to deal with these constituents. All of them.

• Auto dealerships could use their established grass-roots presence to create local demand for Tesla cars in communities around the country. Instead, now that a battle to cut them out has been declared, they’re looking for ways to compete with and undermine Tesla’s centralized, snooty and tentative marketing efforts. And powerful interests, mobilized in a reaction to Tesla’s exclusionary approach to distribution, are actively working to find innovative, less costly alternatives to Tesla’s key product features.
• The Uber driver, as the company’s only human connection to the customer, could be its key ambassador on the ground. But is that happening? Take a ride in an Uber car some time and, chances are, before the ride is over, the driver will hand you his personal business card inviting you to call him directly for a ride, bypassing completely the Uber system.
• Music streaming services could use their technology-fueled engagement with customers to create new connections between fans and artists, introduce artists to new audiences and innovate new forms of music products. In the bygone days of the recording industry there was at least a troubled-but-tight relationship between composers, artists and the labels that distributed the music. In one of the strangest stories in modern business, music streaming companies have adopted a model that allows music to be enjoyed by consumers free, counting on other sources of revenue to fuel their own profits without much flowing to the creators. With virtually zero dollars coming from the ultimate consumer, how much steam is left in a business like that?

Time will eventually catch up with businesses built on unfairness to any interested party. Cutting key players out of the action turns constituents into adversaries. And those players can be innovative too. Most new businesses are way too fragile to withstand the concerted attacks of these new enemies using their own positions of power.

The only way to head off the devastating consequences of that kind of “judgment day” is to wake up and invite them to the table.