I love metaphors. Those of you that follow my work know I've recently been talking a lot about the IDV Tornado - as in Jeffrey Moore's Technology Adoption Lifecycle Tornado. Today, however, I was thinking of another metaphor - a Rogue Wave.
A Rogue Wave created by the COVID accelerant.
Are you familiar with the chaos theory phenomenon of a butterfly flapping its wings on one side of the planet creating extreme weather on the other side? Well in this case we had the COVID Black Swan accelerant – a somewhat larger scale event than butterfly wing flapping – that created a MASSIVE Rogue Wave in the Identity Verification (IDV) Market.
Like all waves, this Rogue Wave has picked up everything floating on and within the sea of the IDV Market and accelerated its movement forward. A rather exhilarating experience while you’re riding the crest of the wave. But like all waves, this one eventually will reach the shore. And many of the now euphoric companies that have been taken on this wild IDV Market ride are going to find themselves completely unprepared for the ultimate crash and pounding into the sand.
The reason for this inevitable pounding? They will be crushed by the weight of rapid scaling.
Towards the end of 2020 the Rogue Wave materialized, rapidly gained steam, and produced unprecedented levels of accelerated market growth. By the middle of 2021, reports of 100% to 500% IDV Market player annual revenue and transaction growth was the norm in the marketplace. This was, of course, interpreted as a reflection of spectacular business acumen and operational genius by each company. When in fact it was a market wide phenomenon that reflected a fundamental global shift in business operations. EVERYONE in the IDV Market was riding the Rogue Wave.
As the high from accelerated revenue growth begins to wane, many organizations with technology, product, operational, and marketing infrastructure adequate at a $5M run rate start are beginning to feel the strain of becoming $20M+ companies virtually overnight. It really is quite amazing how many ~$5 million companies can get by with limited management and operational expertise. And how few successfully transition to becoming $20M, $50M, and especially $100M companies.
As companies scale, the mature, effective, and efficient management that drives mature, effective, and efficient operations becomes mission critical. Scaling with the required infrastructure and the expertise to manage it is at best a challenge that breaks many organizations. Trying to scale without it is almost always a losing proposition. And while we're seeing massive investment in the Biometric Digital Identity marketplace - more than $3 billion in 2021 - money alone cannot solve his problem. The ability or inability to scale is a true tipping point in the proverbial Tornado.
So, what does this mean for the market?
It means that many of the companies that have experienced rapid growth over the past 12 to 18 months are beginning to show signs of stress. Or to return to my wave metaphor, they will lose cohesion in the white foam as the Rogue Wave hits the shallows. Players that cannot successfully ride the wave of rapid growth will begin to come apart under the weight of market demand and expectations as the Rogue Wave crashes on the shore.
When you walk along the beach, sometimes you pick up beautiful, intact treasures like perfectly formed shells or pure white sharks’ teeth. And sometimes all you see are the scattered crushed remnants of unrecognizable objects.
We are now in the phase of market evolution where companies are faced with critical decisions that will determine whether they will be able to ride the wave safely to the shore as a sparkling treasure or end up smashed into a million tiny pieces. The Rogue Wave that created this IDV Market Tornado is bound to leave a ton of detritus on the beach that will ultimately be pounded into sand.