Disintermediation Downside

For those of you that know me, you know I have always been a big fan of disintermediation (i.e. removing the middleman or intermediary) - both from a cost reduction perspective as well as from an operational efficiency perspective.  In fact, I am always intrigued by start-ups claiming to truly disintermediated an industry in a novel way and have actually invested in a few over the years.  My post today results for two reasons 1) several readers pointed out that I have not posted recently and 2) there is a real potential downside to disintermediation for start-ups that needs to be mitigated.

The downside to disintermediation is that, by practicing it, you are cutting someone out of the picture in some way…and such ways tend to cause materially negative economic consequences to the disintermediated…and such displaced companies (individuals) tend to react antagonistically towards the cause of their new economic pain.  So, what’s a start-up to do if they are attempting to disintermediate one or more “giants” with significantly more resources?  In a word, partner.  Consider developing channel partnerships rather than taking on the Goliaths with a direct sales force…consider ways to create true “co-opetition” such that you can partner with incumbant in one area and compete in another.  At one of my previous employers, we used to joke that it takes an oligopoly to bust a monopoly.  So all you start-ups out there attempting to disintermediate an 800lbs. gorilla or two, partner up!