There’s a reason why every new startup claims to be “disrupting” their industry.
The majority are disingenuous, but the businesses actually disrupting their industries grow quickly and often end up dominating their sectors.
Investors see “disruption” and their eyes light up (well, some of them anyway), so companies use this buzz word to market their products to investors and customers.
But why does this matter to you as an entrepreneur or business owner?
- Understanding Legitimate Disruption
- What Does Disruption Mean?
- Focusing On Immediate Profitability Can Hinder Innovation
- Core Steps of Disruptive Innovation
- Actual Examples of Disruption
- Is Disruption Still Relevant in 2019?
- How Can Entrepreneurs Spot Industries Ready for Disruption?
- Summary of Disruptive Innovation
Understanding Legitimate Disruption
There are actually practical reasons for understanding actual disruption better. It will help you spot new markets to go after.
And if you disrupt a market, you can not only compete against established companies with much larger resources, but you overtake them.
The rest of this post focuses on taking this vague, overused buzzword and getting to the core of its meaning and usefulness. We’ll look at practical examples and relate them to your own business.
What Does Disruption Mean?
Most people attribute the rise of the modern use of “disruption” to Clayton Christensen, a Harvard professor and businessman.
He first started writing about disruption in a few articles in the late 1990s, before publishing “The Innovator’s Dilemma” in 1997, in which he focused on innovation and disrupting industries.
For disruption to occur, innovation must also occur. That’s why you’ll often hear or see the term “disruptive innovation.”
The Christensen Institute offers a good definition of disruptive innovation:
Disruptive innovation describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.
If that’s still not clear, we’ll look at specific examples later that should firm up the definition of disruption in your mind.
The Innovator’s Dilemma
The core message from Christensen’s book was a theory called the “innovator’s dilemma.”
This theory addresses why large, entrenched companies have been overtaken by small disruptive companies time and time again throughout history. Shouldn’t they be able to afford to innovate as well?
Many large businesses spend a lot on research and development, and still can be overtaken by a disruptive business.
Video: Disruptive innovation explained in two minutes.
The reason why is that disruption occurs in small markets.
Focusing On Immediate Profitability Can Hinder Innovation
Take a large company like Ford, which makes cars. Their research is focused on their current customers. Innovations that make more convenient (a key factor in disruptiveness), prettier and safer cars help them sell more.
Rewind a decade or so, and all these large companies were aware that there was a small push for environmentally friendly cars. A small market who would actually pay for a hybrid or electric vehicle.
To a company like Ford, there’s no significant return on investment by focusing on creating better electric vehicles at the time. It would make way less than a slightly more powerful truck for existing customers.
So they did the logical thing and didn’t focus many resources on environmentally friendly vehicles.
Small Markets Make Way For Disruption
Enter Tesla in 2003. Their first “roadsters” weren’t anywhere near the quality to compete with modern cars at the time.
But that small target market did care. Enough to attract investors and raise money to continually improve their cars.
That small market has grown over time, as more people care about reducing their environmental impact. That’s the biggest factor behind innovative disruption. You need to be ahead of changing consumer demands.
Now we’ve reached a point where not only do people consider the environmental impact when purchasing a car, but Tesla also has as good or better functioning cars than the large competitors.
Identifying Consumer Priorities
When you put that all together, one of the most mindblowing things to realize is that only a small part of the car-purchasing market actually cared about the environment.
However, people that purchased cars from Ford and others still did care a bit, it’s just they prioritized different aspects over it.
Years of testing and refining with a small target market in mind has allowed Tesla to catch up to the quality of the market.
Now those same people who would’ve bought from Ford that prioritized overall car performance, now choose Tesla because they can have both the performance and environmental friendliness.
Core Steps of Disruptive Innovation
Let’s break down those main steps to disruptive innovation at its core:
- Recognizing a strong demand (trend) of a small part of a market – They will buy a sub-par product if this demand is addressed.
- Offering a product that meets that demand, and refining it until that small niche market is thrilled with it.
- Using that initial success to catch up on standard features of products offered by market dominators.
- Once that occurs, consumers will shift quickly in large numbers to the new product that gives them everything they are used to, and also satisfies that originally less important demand.
It’s hard to go too small initially if you believe it’s a growing trend.
What Is The Difference Between Disruption and Innovation
Innovation must occur for disruption to occur. But disruption doesn’t always occur with innovation.
Disruption vs Innovation
To understand this, let’s look at Uber. An innovative company for sure, but not considered a disruptive one.
Many people who generally have a good grasp on disruption struggle with understanding why Uber isn’t a disruptive business.
Disruptive innovation is product-centered. It starts with creating a product for a small niche market.
Uber didn’t do that. Instead, they launched to a significant chunk of a huge market. The product they offer (rides in cars on demand) is the same as what taxis offer.
But Uber has quickly crushed the taxi industry, isn’t that disruption?
Illusion Of Disruptive Innovation By Use Of Business Models
From the outside it looks like disruption, but it’s not disruptive innovation.
Their main innovation was the business model. Uber started with a pile of cash, and drastically out-competed the taxi industry, mainly by taking advantage of modern technology.
Uber is definitely innovative, just not disruptive if we’re getting technical.
Why the heck does this matter? It matters because product innovation and business model innovation are very different.
Money Makes a Difference
Even if you can come up with a better business model than an existing industry dominator (in a reasonably large market), unless you have access to tons of funds, you can’t actually implement it.
But if you innovate at the product level, you can eventually compete and disrupt over time with much less funding required at the beginning.
Later on, we’re going to look at how to recognize opportunities for disruptive innovation. If you don’t understand the difference between the two types of innovation, you’ll likely spot false opportunities and waste your time and money.
Actual Examples of Disruption
We’ve already mentioned a few examples in detail, but let’s take a quick look at some more businesses that have successfully disrupted (or have started to) their industry.
If you haven’t heard of it, DuckDuckGo is a search engine with a focus on privacy.
There’s a fast-growing trend that started with a very niche market of people who don’t want Google collecting all of their user data. They have flocked to DuckDuckGo, despite the overall search engine being worse than Google.
This is the classic sign of a disruptive innovation.
They’re still working on matching the quality of Google’s search results (which are very good), but if they can, they may just take over the search giant in the not-so-distant future.
Silk Plant Milk
Silk started by targeting a very small market who had a strong demand for plant milk (mainly vegans).
Over time, more and more people are preferring milk that has a lower environmental impact and is healthier than dairy milk. Silk was ahead of the trend.
This is an example of real-time disruptive innovation that we can continue to watch and learn from.
People used to have to pay thousands of dollars for encyclopedias, now they are extinct.
Wikipedia started by targeting a small group of tech-savvy people hungry for knowledge online (a tight niche), which occurred before the mass adoption of the modern Internet.
Their main innovation was by leveraging cutting edge technology and applying it to a low-tech industry.
Video: Funded entirely by donations, nearly half a billion people use Wikipedia every month
Is Disruption Still Relevant in 2019?
Disruption is a great goal for a startup to have, but be careful when you actually use the term “disruption.”
The core concept is brilliant, but to many, disruption has become a dirty word. It’s been a hated buzzword by many in the startup world since 2013 or so.
The ad agency TBWA Worldwide even filed a trademark for the term, which further reinforces how widespread the buzzword has become.
People still keep using it, but you should try to avoid it.
Instead, have your own internal definition of disruption based on everything you’ve read in this post, and try to find your own way to describe it when pitching your business to others.
How Can Entrepreneurs Spot Industries Ready for Disruption?
This is what we’ve been building to.
How can we take all that knowledge about disruptive innovation and help you find a way to disrupt a market.
There are 3 big ways to spot an opportunity:
Monitor Trends In An Industry
Not in products, but in consumer discussions. Look at posts on a car forum this year compared to ten years ago. There are way more questions and discussion on the environment.
Use this method to look for trends over a smaller period and identify niche markets with strong demands.
See Where Power Is Consolidated
If there are only 2 to 3 companies in the market, there’s likely an opportunity. It’s hard for only a few products to serve all the different needs of consumers.
Look for a smaller niche need that isn’t being met and start from there.
There are many opportunities to apply modern technology to outdated industries, particularly service industries.
Smart thermostats like Nest have become the new standard, displacing traditional ones.
Summary of Disruptive Innovation
The word “disruption” has become a buzzword in the startup world.
It has a real meaning, it’s just that not everyone understands that meaning, or uses the word appropriately.
So by all means, you can hate using the word itself, and avoid it (not a bad idea), but understanding the core concept of disruptive innovation will help you spot better business opportunities.
Start by focusing on a small niche market on the front end of a growing trend that is frustrated by their options.
Create Convenient Solutions to Problems Demanding It
Innovate to create a product that satisfies that specific trend demand, and then refine your product to compete in the overall market.
If you ever reach this point, you will crush all competitors, as they won’t be able to adapt quickly and retain their market share.
This process does not occur overnight, but keep at it and you could have the next unicorn startup.
If you spot an opportunity but need some support to pursue it, learn about your finance options for free small business grants.
For inspiration to unlock your creativity and productivity as an entrepreneur, check out this list of books that all entrepreneurs should read. The Lean Startup may be especially useful for ideas on business models.
Contributing Editor: Bronwynne Powell