Skip to Content

Power Sheet – March 30, 2016

Fintech is far from finished, but it’s reminding us of something about digital disruption that all business leaders and investors need to remember.

Betterment, founder Jon Stein’s prominent “roboadviser” financial services startup, yesterday raised $100 million in a round that values the company at $700 million, which is 40% more than its valuation in a fundraising round early last year. That was welcome news for investors worried that the booming industry might be falling out of favor; fintech funding surged to a new high last year overall but declined slightly in the third quarter and fell sharply in the fourth quarter. Betterment’s new investment may indicate that investors were only resting, or maybe that they’re separating the wheat from the chaff.

Here’s the larger point: Leaders and investors must remember that, in any industry, digital disrupters often “destroy more value for incumbents than they create for themselves,” as the McKinsey Global Institute has succinctly put it. So if you think roboadvisers will eventually take, say, 20% of incumbent advisers’ business, you can’t just assign 20% of the incumbents’ profits to the new disrupters and calculate values accordingly. The disrupters will probably earn far less than the incumbents lose.

The music business is a great example. Americans are listening to more music than ever, yet the music industry’s U.S. revenues are down 40% over the past decade. We all know why. Annual CD sales have plunged from $9.4 billion to $1.5 billion in ten years and now account for just 22% of total industry revenue. Streaming has become the way Americans prefer listening to music (34% of industry revenue), and streaming services deliver far more music per buck than CDs ever did. Streaming services like Spotify and Apple Music thus drain revenue from the industry incumbents and keep little of it for themselves, delivering the difference to consumers in the form of better value.

Early evidence suggests that something similar may be happening in financial services. That’s sobering news even for incumbents that are on top of the trend. A survey last year by the A.T. Kearney consulting firm found that half of respondents who were using roboadvisers were doing so through two giant incumbents, Charles Schwab and Vanguard. Bravo to CEOs Walt Bettinger and Bill McNabb, respectively; they’re way ahead of competitors. But in the digital economy, even success may mean a smaller business – not necessarily, but it might. Leaders and investors need to internalize that deeply disorienting new reality.

You can share Power Sheet with friends and followers here.

What We’re Reading Today

Trump, Cruz, and Kasich repudiate their pledge  

Months ago, all three candidates swore they would support the eventual GOP nominee no matter who it was. No more. Ted Cruz started the reversal, saying at a town hall it would be difficult for him to support Donald Trump, citing Trump’s Twitter attacks on his wife. Trump then said he’s canceling his pledge because the Republican party isn’t supporting him. John Kasich then followed. CNN

Janet Yellen signals caution on rates; investors rejoice

Federal Reserve Chairwoman Janet Yellen said weakness in the global economy justifies a slower pace of rate increases. The Dow jumped 100 points within minutes. She said the Fed still wants to raise rates and is monitoring whether troubles in China and low oil prices will slow the U.S. economy further. She added that the Fed sees more inflationary risk than the market does.  CNNMoney

Unions score big win in Supreme Court

Non-union public school teachers argued that California shouldn’t be able to charge them fees that go to unions, which use these fees to fund collective bargaining efforts. The fees are an important revenue source for unions nationwide. The court split 4-4, so a lower court decision upholding California’s  right to collect the fees stands. Legal experts believe that if the late Antonin Scalia were still alive, he would have cast the deciding vote in favor of the non-union teachers. Fortune

Foxconn signs deal with Sharp for $3.5 billion

Sharp and Terry Gou‘s Foxconn announced a $4.4-billion deal weeks ago, but then Foxconn learned of new liabilities that Sharp hadn’t disclosed. Assuming the deal closes, Sharp will be the first major Japanese technology producer to be bought by a foreign firm.  USA Today

Building a Better Leader

How Shell Oil’s U.S. business is adapting to a new normal 

By thinking about what’s good for the company in 50 years, as opposed to tomorrow, outgoing president Marvin Odum explains how the company is trying to adapt.  Knowledge@Wharton

If you dislike networking events…

…view the process as a long-term effort. Not much good will come from a single event, but over time, you can add value to those you meet and they can add value for you. Fortune

Employees turn to outside help to improve their careers

Companies have done a poor job of adapting to the opportunities employees face for improving career skills, which may hinder talent retention. Quartz

Vehicle Maneuvers

Takata’s worst-case recall cost: $24 billion

The company has reportedly calculated that in the worst case, if it must recall 287.5 million airbag inflators, the cost would be $24 billion, or about about four times expected fiscal 2015 revenues. CEO Shigehisa Takada may look to split the cost of the recalls with automakers, but even bearing half the worst-case recall costs could threaten the company’s survival. The recall is already the auto industry’s all-time biggest. Bloomberg

Tesla and the only U.S. lithium mine

Lithium is a key material in the batteries that power electric cars from Elon Musk‘s Tesla. Most mines are in Chile, Argentina, and Australia. The only U.S. mine is in Clayton Valley, Nevada, which has become a destination for mining entrepreneurs seeking “white gold.” Fortune

Boeing to cut 4,500 jobs

While most of the cuts will come from unfilled positions, the company will also lay off 1,600 employees. As Europe’s Airbus takes market share, Boeing CEO Dennis Muilenburg has to cut costs.   WSJ

Up or Out

American Apparel has named Paul Charron board chair. Fortune

Colgate has named P. Justin Skala and Noel Wallace to COO roles. Both are reportedly potential successors to CEO Ian Cook. Fortune

Fortune Reads and Videos

Amazon builds a business selling home services

Orders for services like plumbing and mounting TVs are up 20% in a month.  Fortune

Another top China official jailed

President Xi Jinping‘s anti-corruption campaign rolls on: Former deputy governor of Hainan province Ji Wenlin was sentenced to 12 years in prison. Fortune

Many food manufacturers still use BPA…

…in cans despite pledges not to. Fortune

BofA to staff: Silence on Brexit 

The bank doesn’t want senior staff commenting on the vote as the debate turns heated. Fortune

On this day…

…in 1981, President Ronald Reagan was shot outside a Washington hotel by John Hinckley Jr.  History

Share Today’s Power Sheet: 
http://fortune.com/newsletter/powersheet/

Produced by Ryan Derousseau
@ryanderous
powersheet@newsletters.fortune.com