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Why Investors Underestimate New Opportunities (and Big Companies Miss Big Trends)

Author

AJ Neeme
November 17, 2024

Why Investors Underestimate New Entrants (and Big Companies Miss Big Trends)

We’ve all heard the stories.

Blockbuster had the chance to buy Netflix.

Yahoo had the chance to buy Google.

MySpace could’ve been Facebook.

A few years later… well, you know how those stories ended. 

This newsletter is about why big companies often miss big trends, and investors consistently underestimate the power of new entrants.

It's easy to fall into the trap of thinking that a dominant player like Walmart can "add a feature" and squash any competition. But those historical examples – Blockbuster, Yahoo, MySpace – prove that’s not often the case.

And Investors often follow this line of thinking.

The Truth is, there are many reasons why Big Companies have (and WILL continue to) missed the “Next Big Thing”:

  • Inertia: Large organizations are like massive ships. They're hard to turn quickly. Changing course requires overcoming internal resistance, navigating bureaucracy, and potentially cannibalizing existing revenue streams.

  • Arrogance: Success can breed complacency. Dominant players often underestimate new entrants, dismissing them as insignificant or easily copied.

  • Short-Term Focus: Public companies are under immense pressure to deliver quarterly results. This can discourage them from investing in long-term, potentially disruptive innovations that might initially hurt profits. The opportunity might also be “too small” to pursue.

  • Legacy Systems: Outdated technology and infrastructure can hinder a company's ability to adapt to new trends. Think of a retailer with a clunky website trying to compete with Amazon's seamless online experience.

So, how can you, as an investor, spot these opportunities and avoid underestimating the disruptors?

I’m a fan of the "Will, Can, Want" Test:

  • Will they see it? Does the company have a culture that embraces new trends? Are they looking for disruptions, or are they stuck in the past? Are their leaders innovative?

  • Can they do it? Can they adapt quickly? Do they have the technology, agility, and resources? Have they adapted to past disruptions?

  • Do they Want to do it? Does the new trend fit their goals? Sometimes, a company can adapt but doesn't see the benefit.

What Current Trend are you most excited about ?

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The information contained in this newsletter is for general informational purposes only. It should not be construed as financial or investment advice. Please consult a qualified financial advisor before making any investment decisions.