Kodak, Borders, Yellow Cab, Tower Records — what do all these companies have in common?

Of course, these are some of the most obvious examples of companies that were either put out of business or forced to significantly change their business model because of technology. I’m sure if you had told the heads of these companies 5 years earlier that they would be out of business or close to it, they’d probably laugh at you. 

But it happened……and it happened fast – too fast for them to react.

Today, we call this “digital disruption” or “getting Amazoned” and the rate this occurs is actually picking up, not slowing down….we are now in an extraordinary time, where technology has leveled the playing field and provides opportunities for small companies to radically alter the way business is done – in every industry.  Digital disruption risk is very real.

There are four key technologies that are primarily driving this disruption.   

1. Mobile – rapidly becoming the primary device to engage customers, enhanced through GPS.

2. Web Services – eliminates the need to purchase technology infrastructure, allows a business to use only what they need and scales easily over time to accommodate growth

3. Cloud – provides core business capabilities “out of the box” on a subscription basis to any size company

4. Social Media – radically changed the marketing and advertising landscape with new and precise ways to reach customers

All investment firms active in the middle market – private equity, investment banks, family offices – must look at the technology a company uses to run its business as much as the business itself…in every industry.  Five years is an eternity in the technology world today – not performing technology due diligence as part of your overall diligence process can introduce significant disruption risk to your investment…even if your holding period is three to five years.

Technology due diligence must become part of your investment due diligence process.