Are You on the Path to Disrupting Your Industry?
There’s a lot of money in disruption.
If you’ve read anything on the internet that’s remotely business-related from the last decade, then you’ve heard about the virtues of disruption.
If you’re in a start-up, your number one job for survival is: disrupt your industry.
And, then, by implication, this is the model for the rest of us to follow. Success is disruption.
But is this true?
And what exactly is disruption?
Is it just grabbing tons or money or marketshare? (If it were, companies like Walmart and Microsoft would qualify, but that doesn’t quite seem right.) Or maybe it has to do with speed. Uber has taken over a substantial amount of the taxi business in a very short time. (But many companies like Groupon have fallen as fast as they’ve risen.)
If disruption is good, then we need to understand exactly what it is.
The problem is, most people use the term wrong. Most references to the business theory of disruption speak of it as in the generic term of disruption.
“The theory’s core concepts,” writes Clayton Christensen (who did much pioneering on disruption) “have been widely misunderstood and its basic tenets frequently misapplied.”
On the one hand, disruption in the general sense means to cause a disturbance. Any disturbance will do.
But on the other hand, the business theory of disruption–the one that will make you a lot of money and secure you a comfy spot in the marketplace–is to cause a very specific kind of disturbance.
A Definition of Disruption
In a 2015 article in Harvard Business Review, Clayton Christensen defines disruption as “a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses.”
In other words, it’s a matter of efficiency. The little fish successfully takes on the bigger fish.
But it’s a little more nuanced than this. Christensen continues:
“Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality–frequently at a lower price.”
According to this, disruptive innovation doesn’t look at all like disruption (in the general sense) when it starts. Disruption starts by going after the bits that no one else is bothering with. And, notice the blue ocean concept: it’s “frequently at a lower price.”
Disruption is fundamentally blue ocean in nature. That’s a strong clue when looking for disruptive companies.
But there’s another reason that last bit is important.
The reason other areas of business are left un-touched is that there’s no money in them. Their cost is too high or their margin is too low. To be a successful disrupter, you have to focus on areas that are simultaneously ignored as well as profitable.
And this leads to the final component of what a disruptive business strategy is:
“When mainstream customers start adopting the entrants’ offerings in volume,” notes Christensen, “disruption has occurred.”
Perhaps the most obvious part of all of it: staying obscure doesn’t count. In order to disrupt an industry, you must make the shift from fringe to mainstream.
A Popular Mis-Example: Uber
Uber is often touted as an example of disruption. They’ve overturned the traditional taxi industry in a lot of markets. They’ve certainly dominated.
But are they disruptive? In other words, if we’re trying to be disruptive, should we follow their model?
Christensen’s answer is no.
Uber is not a disruptive company.
First, they did not begin in an underserved section of the market. They began in San Fransisco. Taxi’s were well established here. The demand was already in place, and so no new niche was being carved out.
Instead they created a better mouse-trap and took market share away from the existing market share owner (taxis). This is a classic red ocean business competition.
Second, because disrupters are developing an overlooked or underserved section of the market, “disruptive innovations don’t catch on with mainstream customers until quality catches up to their standards.”
Part of the low-cost component is starting out at lower quality until demand pays the way for higher quality.
Uber has always been equal to, if not greater than, traditional taxis. They’re easier than taxis (with their app), the wait is usually shorter (thanks to more available drivers), and there’s a built-in rating system that ensures that quality is always high.
4 Often Misunderstood Points to Disruptive Innovation
Christensen lays out four pieces of advice for applying disruptive innovation to your own business.
1. Disruption is a process.
Because it starts small and often at lesser quality, disruption is not about owning the market on day one. Rather, it’s about carving out a space you can grow into.
This is what Netflix did with their DVD mail-order rentals. Blockbuster would have targeted them directly if they had copied their model. Instead, they went for a smaller slice that didn’t mind the delay and more limited selection.
2. Disrupters often build business models that are very different from those of incumbents.
This is difficult because, conceptually, there’s no one to copy. Apple iPhone did this for the computer market. For smartphones, they were not disruptive. But for computers, they were.
“By building a facilitated network connecting application developers with phone users, Apple changed the game.”
3. Some disruptive innovations succeed; some don’t.
While this seems obvious, it’s more important when looking to other companies to emulate. “Success,” writes Christensen, “is not built into the definition of disruption.”
Consider as an example most of the dot-com businesses of the late ’90s. They were disruptive in their processes. But most were ultimately not successful.
4. The mantra “Disrupt or be disrupted” can misguide us.
Once you have a healthy market share, you shouldn’t give that up to remain ‘disruptive.’ In other words, don’t chase every shiny new thing that comes along.
Better, advises Christensen, is to create a separate division. Keep your main focus on what’s resulted in your success, but then open a new wing to go after new territory.
Like all things worth having, disruption isn’t easy. But it is possible. And, like its blue ocean strategy cousin, creating new paths can be immensely rewarding.
If you’re in a saturated market, schedule a call and we can talk about what disruptive innovation will look like for your business.