Entrepreneurship

The Myth of Disruption

In working with many startups, it is clear that there is a misconception about disruption. Everyone wants to be the disruptor, right out of the chute. As disruption is often misunderstood, it is best to start with the definition from Clayton Christensen and his most recent HBR article from 2015 what-is-disruptive-innovation: Disruption ” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Disruptive innovations originate in low-end or new-market footholds”. In other words, disruption converts non consumers into consumers. These innovations address the needs of a market that has not yet been served. This is often done by targeting a lower tier, less profitable market with a solution that is able to scale up later to meet the needs of the higher tier markets while delivering margins that competitors typically can’t deliver.

The 5 myths that are addressed in this fascinating forbes article are summarized below with some perspective on the basis of the myth:

Myth 1: Every industry faces disruption: It is clear that every industry faces competition or new entrants into the marketplace, but not every new entrant is disruptive based on the definition above. Some companies, like Blockbuster video failed to adapt to the new technology while Netflix did adapt and has prospered. I believe the second to last Blockbuster store has recently shut down, leaving only one store leftRead more . The stakes are high for those who fail to adapt to competition that has an enhanced offering or business model. But that is not new, that has been true in business since time immemorial.

Myth 2: Established firms don’t see new technology coming. This one is particularly upsetting. In many cases the established firms helped invent the new technology. Examples include Kodak who patented digital photography and Motorola who helped invent digital cellular technology and also helped perfect smartphone technology. The myth that they missed the technological inflection misses the bigger point: what they don’t see coming and resist in many cases is the introduction of the new technology into their portfolio of offerings. This can be for a variety of reasons: extracting full value for the old technology, not wishing to take reduced profit margins on the new technology, not willing to obsolete your existing product lines, or a false belief that the new technology can be withheld from the market and to be able to dictate terms to a market. This bravado can come from a sense of monopoly power that some companies may believe they have in the marketplace. Some would call this arrogance or hubris, but let’s not confuse this with pure ignorance.

Myth 3: Listen carefully to frontline employees and build consensus. This is also a myth because often times new products are envisioned and designed by a single person or a small group outside of the rank/file. Many times companies never seek consensus for a variety of reasons, some of these products can be transformative. An example that comes to mind is the Motorola RAZR which was conceptualized and designed by a small group of elite engineers at Motorola that were effectively sequestered from the rest of the organization. This was a highly secret program while it was in development. Similarly, the Macintosh project was conducted in secret at Apple with a group of physically and organizationally segregated engineers. No consensus was built there and clearly this became, after the upgrade to the iMac technology, the saving product of the company.

Myth 4: Harness the power of big data and analytics. By definition analytics can give you added insight into your products and your marketplace and the behaviors you have seen from both of them in the past. This can easily lead to incremental improvements in your offerings but it is debatable how much disruptive innovation can really come from even the most advanced analytics. That is not to say that analytic tools and techniques can’t be used to help create a disruptive product, or that analytic technologies can’t be used as the basis of a new and disruptive product, but generally speaking it is rare that analytics alone would form the basis of a disruptive new offering. The article states that the best companies go beyond the data and analytics. If you doubt this, do a quick inventory of the best products in the last 10-20 years and ask what role analytics played in developing or conceptualizing that product.

Myth 5: Act fast or be wiped out. The article describes gestation periods of new pharmaceutical products and bio technologies at 20 years. This is not uncommon, even for the electronics industry. The first smartphone was introduced in 1993 and was called the IBM Simon. A full 12 years later the iPhone was introduced while in between there were dozens if not hundreds of other smartphones on the market of different flavors. The most interesting to me was the Microsoft based smartphones which I found very interesting in their day. The landscape is riddled with those who acted fast and were wiped out. Companies like Motorola, Microsoft, Palm, HP, Nokia all made early attempts at a smartphone and of that group Microsoft was the most persistent. While they were all early actors on the stage of smartphones, in the end only two operating systems have truly prevailed, Android and iOS. The early players trying to dominate the mobile platform “wars” were not necessarily guilty of lacking innovation, but what they lacked was that rare combination of user centric design, persistence in the market and the innovative features that are truly compelling to users. In the end, the real innovation was the app store which is what differentiated Android and iOS from the others.

The key lesson learned from the article is that disruptive innovation is a process. I tell my students in entrepreneurship class that their goal is not be a disruptor from day one. By definition you won’t be perceived as a disruptor except in arrears. The real disruptors target a market that is not being served by any incumbent. Thus they are overlooked and ignored by the incumbents. Later, sometimes much later, as the disruptor expands into existing well served markets, they suddenly become a threat to incumbents. By this time the incumbents have already dismissed the entrant as benign to their business model. When the incumbents do energize and start to react, it is often too late to adequately respond as the entrant has a growing following and a reputation for innovation and a robust platform or solution that is difficult to compete against.

Nobody considered a small online bookseller called Amazon much of a threat to their business models as they were serving a market that was mostly underserved. That was 1995 when Amazon first started. For some time Amazon stayed mostly under the radar to incumbents. To this day, in parts of the world like Singapore, Amazon is still seen as mostly an online bookseller, but eventually online became how most books are sold these days and the myriad of on ground book sellers has mostly dried up. In the meantime, the momentum, cash flow and resources that Amazon has accumulated has propelled them to markets that we can only imagine: digital music, restaurant delivery, fresh food delivery, furniture, appliances, services. By entering underserved markets or un-served markets, you can perfect your offerings, learn from your mistakes and those of your competition, and ultimately leverage your cash-flow and resources to expand into more crowded and competitive markets. Finding the appropriate beachhead market and timing your entry with just the right product can be the difference between success and failure for the disruptive startup.

 About the Author: Mark Werwath is a clinical associate professor, Director of Master of engineering management program and Co-Director of Farley center for entrepreneurship and innovation at McCormick school of engineering and applied science, Northwestern University. He can be reached at m-werwath@northwestern.edu 

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Mark Werwath

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