“Disruption [is] driven by the pursuit of profit. That’s the causal mechanism for these things…”
When I told a client that peak profit was one of the signs that they were about to be disrupted, his jaw fell open. He didn’t believe me because, like any businessperson, achieving record profit is THE reason to celebrate. His company had just doubled revenue in the past five years and was positioned to double again in the next five. AND they supply mission-critical systems to build out data centers.
Business literally could not be better.
Which is exactly what the CEOs of Big Steel thought in 1968.
It wasn’t too big to fail.
“US Steel posted record profit margins in the years prior to unseating by the minimills; in many ways it was blind to its disruption.”
Since the mid 1850s, steel was produced in integrated steel mills that performed every function required to produce the material that was building America. The costs to build a mill were high, about $8B in today’s dollars, and, to operate efficiently, mills ran 24/7 to produce at least 2M tons of steel per year.
In 1968, a metallurgist at Nucor invented something called the minimill. It could only perform half of the functions of an integrated mill and produced only rebar, the lowest quality of steel. But the minimill cost only $6M and could be profitable at just 50,000 tons of production.
Christensen called the minimill “not good enough.” He was being nice. The minimill was a joke.
Rebar was a joke, too. At just 4% of the steel market, it had the lowest gross margin of any type of steel. Ceding it to minimills freed up integrated mill capacity to produce more high profit steel. By 1977, Nucor was the leading manufacturer of rebar.
It had also spent 7 years improving the minimill.
The pattern continued:
- 1984: Big steel cedes the angle iron, bars, and rods to Nucor
- 1989: Bethlehem Steel’s market value jumps to $2.4B, from $175M just 3 years earlier
- 1993: Minimills directly compete with integrated mills in all segments of the market.
- 1995: Bethlehem Steel’s primary plant ceases operations
- 2001: Bethlehem Steel files for Chapter 11
- 2003: Minimills production exceeds integrated mills while Bethlehem Steel ceases to exist.
By 2017, only 9 integrated mills were still operating in the US, compared to 111 active minimills. The disruption took 35 years to play out.
You don’t have 35 years
The steel industry isn’t the only example:
| Company | Time to Disruption | Peak | Disruption | Disruptor |
| Sears | 30 years | 1969: World’s largest retailer | 1999: Removed from Dow Jones Industrial Average | Walmart, Kmart, Target, Amazon |
| Kodak | 16 years | 1996: Record $16B revenue | 2012: Filed for Chapter 11 bankruptcy protection | Digital photography |
| Blockbuster | 6 years | 2004: Record revenue: $6B | 2010: Filed for Chapter 11 bankruptcy protection | Redbox, Netflix |
| Nokia | 7 years | 2007: Record Net Profit $51B, 40% of global handset market | 2014: Handset business sold to Microsoft for $7.2B | iPhone, Android |
| Intel | 3 years | 2021: Record revenue $79B | 2024: Worst ever stock year as price goes below $18/share | TSMC, Nvidia |
It’s happening right now. Are you seeing it?
“Financial results measure how healthy the business was, not how healthy the business is. Financial results are a particularly bad tool to manage disruption, because moving up-market feels good financially.”
Clayton Christensen and Michael E. Raynor, The Innovator’s Solution
Executives and shareholders may feel good right now because, despite supply chain disruptions and high interest rates, earnings are buoyed by “margin expansion” and “revenue beats.” AI feels like an opportunity, not a threat. And there’s no reason to believe that tomorrow’s results will be worse than today’s numbers.
It’s exactly how the CEOs of Big Steel felt in 1968.
You still have time to find the joke.