Joe: Alright Lewis, I've got a challenge for you. You get five words to review the book we're talking about today. Only five. Go. Lewis: Oh, that's easy. Big companies: evolve or die. Joe: Ooh, brutal. I like it. Mine is: Your new app won't save you. Lewis: Wow. I feel personally attacked on behalf of every startup founder listening right now. That’s a bit harsh, isn't it? Joe: It sounds harsh, but it’s the core message of the book we’re diving into today: Digital Darwinism: Survival of the Fittest in the Age of Business Disruption by Tom Goodwin. And he argues that most companies are just rearranging deck chairs on the Titanic. Lewis: A classic image. So, who is this Tom Goodwin? Is he another tech billionaire telling everyone to be more like him? Joe: That's what's so interesting. He’s not your typical business guru. His background is actually in architecture and structural engineering. He looks at companies the way an engineer looks at a building. Lewis: Okay, I like that already. So he's thinking about the foundation, the load-bearing walls, not just the fancy lobby. Joe: Exactly. He argues that if the foundation of your business is cracked, painting the walls a new color or installing a fancy digital doorbell won't fix the structural rot. And right now, he says, the ground is shaking for everyone. Lewis: And companies are spending trillions on this "digital transformation" paint. I saw a stat that it’s projected to be almost seven trillion dollars in the next few years. So if Goodwin is right, a huge chunk of that money is just going down the drain. Joe: A massive chunk. And that brings us right to the heart of his argument, which is this giant illusion that so many businesses are caught in.

Lewis: What is that illusion, exactly? Because from the outside, it looks like companies are changing. Every bank has an app, every store has a website. Isn't that transformation? Joe: That’s the trap. Goodwin uses a brilliant historical analogy to explain this. He asks us to go back to the late 19th century, to the dawn of the electrical revolution. Picture a factory back then. Lewis: Okay, I'm picturing it. It's probably dark, loud, dangerous. Lots of leather belts and steam. Joe: Precisely. Factories were built vertically, several stories high, all organized around a single, massive steam engine in the basement. This engine turned a huge central shaft, and a complex web of belts and pulleys snaked through the entire building to power each machine. The whole design of the factory was dictated by this one central power source. Lewis: Right, you had to be close to the power. Makes sense. Joe: Then, electricity comes along. This incredible, revolutionary technology. You can put power anywhere you want. So, what do you think these brilliant factory owners did first? Lewis: I'm guessing they completely re-imagined the factory floor, right? Spread everything out, made it safer, more efficient, assembly lines... Joe: Nope. For years, the first thing they did was simply go down into the basement, rip out the giant steam engine, and replace it with... a giant electric motor. Lewis: You're kidding me. They had this magical, decentralized power source and they just used it to turn the same old central shaft? Joe: They plugged the future directly into the past. They kept the same dangerous, inefficient factory layout, the same belt system, the same everything. They saw electricity as just a cheaper way to power the old system. They completely missed the point. Lewis: Wow. That is... an incredibly vivid and slightly depressing picture of human nature. And that’s what companies are doing now with digital technology? Joe: That's Goodwin's entire argument. A bank creates a slick mobile app, but it's just a pretty new face on the same old, slow, 1970s core banking infrastructure. It still takes three days to clear a check or transfer money. They replaced the steam engine, but they kept the old factory. Lewis: That makes so much sense. It’s like putting a Formula 1 engine in a horse-drawn carriage. Sure, it's a very fast carriage, but you've fundamentally misunderstood what a car is for. You're still stuck with the old system. Joe: And Goodwin has this great quote that gets right at it. He says, "Change must be at the core of your business, not at the edges." That app is the edge. The core is the slow, bureaucratic process that hasn't changed in fifty years. The real transformation only happened in those factories when a new generation of engineers came along and said, "Forget the central shaft. What if we put a small, individual motor on every single machine?" Lewis: And that changes everything. Suddenly you can design the factory around the flow of work, not the flow of power. The assembly line is born. Efficiency skyrockets. Joe: That’s the paradigm shift. And that’s the shift most companies are failing to make today. They're digitizing their existing processes, not fundamentally re-imagining what their business is in a digital world. They're asking, "How can the internet help us sell more books in our physical stores?" instead of asking, "In a world with the internet, what is the best way to get books to people?" Lewis: And the second question gives you Amazon. The first question gives you Borders, which went bankrupt after outsourcing its online sales... to Amazon. Joe: Exactly. They literally handed the keys to their future to the company that was about to make them obsolete. It's a perfect example of that failure to see the real change that's required. Lewis: Okay, so we know what not to do. Don't just paint the walls, don't just plug the new engine into the old system. It's a powerful warning. But what does Goodwin say is the right way to do it? If you're a big, established company, how do you actually rebuild the whole house while you're still living in it? What are the rules for survival?

Joe: This is where the "Darwinism" part of the title really comes into play. Goodwin argues it's not about being the biggest or strongest company; it's about being the most adaptable. And the first rule of adaptation is a willingness to disrupt yourself. Lewis: That sounds great in a PowerPoint presentation, but it’s terrifying in a boardroom. It means actively destroying a part of your own profitable business on the chance that a new thing might work. Joe: It is terrifying. And that’s why so few do it. Let's look at the most classic case study of all time: Blockbuster. In the early 2000s, what business was Blockbuster in? Lewis: Renting movies. They had those blue and yellow stores everywhere. You'd go in, browse the aisles, pick up a plastic box, and hope you returned it on time to avoid the dreaded late fees. Joe: They thought they were in the video rental business. But what business were they really in? What did the customer actually want? Lewis: I just wanted to watch a movie at home. I didn't care about the plastic box or the trip to the store. The store was just the necessary friction to get the movie. Joe: Exactly. They were in the "convenient home entertainment" business. And they were so focused on optimizing their store-based, plastic-box-renting model that they completely missed the shift. Then along comes Netflix. Initially, they're just mailing DVDs. It's a slightly better model, less friction. But Blockbuster saw them as a tiny, niche player. Lewis: I remember this! The story is that the Netflix founders tried to sell their company to Blockbuster for 50 million dollars, and the Blockbuster CEO basically laughed them out of the room. It’s one of the all-time great business blunders. Joe: A legendary blunder. Because Netflix understood the real business they were in. They knew the DVD was just a temporary vessel. Their goal was always to get the movie to you with zero friction. And when the technology allowed for it, they made the leap to streaming, killing their own DVD-by-mail business in the process. They self-disrupted. Lewis: They killed their cash cow to build a rocket ship. Meanwhile, Blockbuster was still trying to figure out how to arrange the candy at the checkout counter more effectively. They were optimizing the steam engine. Joe: Perfect analogy. Now, let's contrast that with a company that got it right: Nike. For decades, Nike was a traditional company. They designed shoes, had them made in factories, and sold them through wholesale partners like Foot Locker. Lewis: A classic 20th-century model. They made a product and other people sold it. Joe: Right. But then they realized the digital world offered a new possibility. They could have a direct relationship with their customers. So they launched Nike+ in 2006. It started as a little sensor you put in your running shoe that talked to your iPod. It tracked your run, your pace, your distance. Lewis: I remember that! It felt like magic at the time. It turned a simple run into a game. Joe: It did. But here's the genius part. Nike wasn't just selling a gadget. They were building an ecosystem. They created an app where you could log your runs, challenge your friends, get coaching plans. They built a community. They transformed from a company that sold you shoes once a year into a company that was your running partner every single day. Lewis: And in doing so, they gathered an insane amount of data about how people run, what they need, and when they might need new shoes. They built a direct channel to their customers, cutting out the middleman. Joe: They completely changed their core. They are now, in many ways, a data and technology company that happens to sell apparel. They shifted from wholesale to a direct-to-consumer model that is wildly more profitable and resilient. They put empathy at the center—understanding what a runner truly desires beyond just a shoe—and rebuilt their business around that. Lewis: That's a fantastic example. But I have to ask, because some of the reader reviews of the book point this out, it can feel like Goodwin focuses on these huge, iconic examples. Is the advice just "be like Nike"? Because for a mid-sized insurance company in Ohio, that feels like a pretty big leap. Joe: That's a fair critique. And no, the advice isn't literally "build a running app." The principle is what matters. The principle is to stop looking at your business from the inside out—"here are the products we make"—and start looking at it from the outside in—"here is the problem our customer has." The insurance company's business isn't "selling complex policies." It's "providing people with peace of mind when things go wrong." Lewis: And if you start from that place—providing peace of mind—you might design a completely different company. One that uses data to prevent accidents instead of just paying out after them. One that has a simple, empathetic claims process on an app instead of a mountain of paperwork. Joe: Now you're thinking like Goodwin. You're re-imagining the factory floor, not just swapping out the engine. You're asking the fundamental question.

Lewis: Okay, so if we have to boil this all down, if there's one big, powerful idea that people should walk away with from Digital Darwinism, what is it? Joe: I think it's a quote from the book that really stuck with me: "The future does not fit in the containers or mindsets of the past." Goodwin's most profound point is that we are all thinking about technology fundamentally wrong. Lewis: How so? Joe: We tend to ask, "What can this new technology—AI, blockchain, whatever—do for my current business?" It's an additive question. We're trying to bolt something new onto the old structure. Lewis: Right, how can we use AI to make our call centers slightly more efficient. Joe: Exactly. Goodwin says that is the wrong question entirely. The only question that matters is, "If I were starting my business from scratch today, with all the technology and customer expectations that now exist, what would that business look like?" Lewis: And the answer to that question is probably terrifying for most established leaders. Joe: It's terrifying because the answer often looks nothing like the company they are currently running. It might not have stores. It might not have salespeople. It might have a completely different revenue model. Answering that question honestly reveals the gap between the business you have and the business the world now demands. Lewis: So the real takeaway is to have the courage to ask that question. To stop asking how to optimize the old model and start asking what new model is now possible. Joe: That's the heart of it. It's a shift in perspective from defending the past to building the future. It’s not about predicting the future, but about being flexible and audacious enough to create it. Lewis: It really makes you wonder, what's the 'steam engine' we're all still clinging to in our own work or lives? What's that one core assumption we have that's preventing us from seeing a completely new and better way of doing things? Joe: That is the question. And finding the answer is the key to survival. Lewis: This is Aibrary, signing off.