The “Shmoogle Scenario,” and why denial is a fatal threat to your company

In most organizations, preparing for disruption when everything is working smoothly almost never happens. Enjoying success, complacent CEOs focus on greeting happy investors, speaking at business conferences about their extraordinary skills, winning awards, receiving enormous paychecks and dividend packages, and teaching enraptured students at business schools.

Managing a successful business is a good life. The last thing CEOs want to do while at the peak of success is think about how the mountain could collapse. But this is precisely what they should be doing.

An effective CEO has a sharp focus on the main competition and understands how government regulation, trade policies, and customer sentiment affect the business. But it is the rare leader — the great one — who enjoys the trappings of success but has been preparing for disruption from the first day on the job. Great performance is no reason to take a foot off the pedal — even for a moment.

Google serves as the example. When Larry Page and Sergey Brin were developing Google, search engines were already well-established. But Google performed much better than the others by tallying the number of times a search item was linked to a specific site.

Early users will remember the first time they used Google because the results it produced were so superior to the competition that the app seemed to read the user’s mind. Sometimes, when Google came back with “did you mean to say,” it appeared to know what users meant better than they did.

From their days working in the garage, Page and Brin knew someone else would eventually disrupt them, just as they had disrupted others by creating a new and better search engine. Insiders described the potential new player to threaten Google as “Shmoogle” — as in “Google/Shmoogle.”

The “Shmoogle Scenario” is based on the expectation that computer scientists, or “two guys in another garage,” would create a new algorithm for search. If Shmoogle was immediately and clearly better, Google would be jeopardized.

It is not easy to be better than Google. Microsoft poured more than $100 billion into Bing, which was as good as Google in some ways and not as good in others. But Bing was not better enough to convince users to abandon Google. Only years later, with the addition of artificial intelligence, has Bing achieved some of its promise.

But if Shmoogle was better than Google — a big and expensive if — users would send their friends a link for Shmoogle and say, “Try Shmoogle, it’s better than Google.” Word would spread virally, and users would replace Google with Shmoogle. Google could be irrelevant within months.

This was the nightmare scenario for Google. As Page and Brin became two of the world’s wealthiest people, they expected something like Shmoogle and were only surprised when it did not arrive for more than two decades.

Twenty-three years after Google was created, the disruption by Shmoogle finally appeared at the gate. It was called ChatGPT, which attracted 100 million users in less than two months. ChatGPT was a search engine, but it added artificial intelligence — a critical new dimension. Google’s basic search engine had been disrupted.

But as ChatGPT rapidly gained popularity, Google denied the danger before fully realizing the extent of the threat. Only then did Google issue a “Code Red” — an all-hands-on-deck alert to rush through the ongoing development of its AI app as a response to ChatGPT. Page and Brin came back from their cushy private lives to manage the challenge.

Google will not be able to preserve its complete dominance, but it did take on the challenge from ChatGPT and other generative AI developers. The company has made strides with Bard (now Gemini), despite some significant and highly public bumps along the way, demonstrating the critical need to expect disruption.

How to fully assess the threat

Recognize the risk of denying the potential impact of disruption.

Denial is as fatal a strategy as blindly doubling down.

What is the nature of the threat?

Is the disrupter a new entrant, or a long-time competitor who has figured out a better, cheaper, or more popular way of doing what the company has been doing? Or is it a threat to the business that will render it transformed, bearing little resemblance to what it has been?

The former means the industry will continue; the latter means the end is near. To the disrupted, the battle becomes a struggle for market share, attention, and customer loyalty.

Where are you exposed? What is your Achilles heel?

Is it the usefulness and quality of products and services? Have products kept pace with change and customer needs?

Even apparently bulletproof Apple could be at risk. Each year brings announcements of incremental changes in its products, not the “game changers” that customers crave and Steve Jobs was legendary for delivering — and even then, only rarely. New iPhones include only modest upgrades — a slightly better camera and processor, or other minor improvements — with little incentive for users to upgrade, a path that makes Apple vulnerable.

Is the company at risk because of flawed marketing?

An organization can be jeopardized by not telling its story well.

Is the business able to communicate its best features, new models, and commitments to quality, as well as its good corporate citizenship? While overt commitments to the environment, social justice, and diversity seem to be waning, that shit may be only temporary. Customers want organizations to be run by good people who treat their employees and clients well and care about issues that matter to them.

For example, Tivo video recorders gave users control of programs they never had before, including replay, recording, scanning, and pausing while watching live television — like a VCR on steroids. Given a half-hour of potential customers’ time would convert them to fans for life. But the problem was that Tivo had so many new features unfamiliar to users that they were impossible to describe in a short marketing message. Tivo was eventually disrupted by easier-to-use but inferior alternatives, such as cable VCRs and YouTube TV. Today, Tivo barely exists, and the end is near.

Is the company weak on its relationships with customers?

Has the business operated so it can expect strong connections to customers, maintaining relationships and keeping them “in the family” on new products, updates to current models, and warranties? Are customers important after the sale?

Is the organization willing to make sacrifices to maintain its market position?

Painful sacrifices may be required to neutralize or eliminate the disruption. That means significant investments that may curb or eliminate profits and cause pain for investors and corporate executives.

The key to fighting back

An organization can only resist and fight disruption after it has passed the stages of denial and doubling down.

Denial is a decision — or a decision not to make a decision — that a threat is not real and does not need to be addressed. Denial is a prescription for failure — the exact opposite of the critical need to “expect to be disrupted.” Denial leads to myopic thinking and bad decision-making.

Just as lethal is the assessment that a new challenger has arrived, but current methods are sound; therefore, “doubling down,” by doing more of the same and maintaining a steady course, is seen as the best defense.

Both denial and doubling down are a combination of misplaced confidence and arrogance; perhaps management has won too many leadership awards and received abundant and favorable media coverage. In the aura of celebrity, leaders begin to think they can make only inspired decisions. This way of managing does lead to classic case studies — but for all the wrong reasons.

Denial is a prescription for failure — the exact opposite of the critical need to ‘expect to be disrupted.’

The first and the most critical step in fighting back is acceptance — acknowledging that the threat is real and must be addressed, that the path forward is difficult and will consume most of the company’s time, energy, and resources, and understanding that short- and medium-term performance and financial returns will likely suffer.

This path requires resisting intense pressure from shareholders, analysts, and the media — along with likely demands for management changes and shareholder revolts — while undergoing intense criticism for how the leadership missed the signals and reached this point.

While founders may be better positioned through legacy and controlling ownership to withstand calls for removal, they too may become arrogant. The leaders who built trillion-dollar corporations that have always succeeded may be especially susceptible to the “I’m always right” syndrome, which gives them a sense of infallibility. If the disrupted company can see a path forward—when the jig is not up—and maintain its lane or find an adjacent one that might work, then defense is possible.

Acceptance of the arrival of disruption is the stage that separates the old ways from the new.

This article is featured on Big Think.