Up here in the Silicon Valley, a favorite play for startups is the disruption play. Just about every week, the Silicon Valley and San Francisco Business Times feature startup companies using disruption theory as the core of their strategy.
A disruption strategy is similar to a blue ocean strategy where the name of the game is to compete on a playing field where few competitors exist and where you can enjoy an early competitive advantage.
For startups, it makes a lot of sense since one of the hardest plays in the book is to take on an established competitor playing by their rules of the game. It’s like a high school football team taking on the New England Patriots, not a sound strategy.
Disruption theory 101
But what exactly is disruption theory? How do you use the theory to create a new playing field? And is it just for startups or can any company apply the theory?
Clayton Christensen first introduced disruption theory in 1998 in his seminal book “The Innovator’s Dilemma.” Christensen wanted to develop a theory of why incumbent companies would fail over time. Why they could not see disruption coming and why they could not change their playbooks to adjust to the new realities of the game.
The Innovator’s dilemma in a nut shell: The logical, competent decisions of management that are critical to the success of their companies are also the reason why they lose their positions of leadership.
“In sustaining circumstances, when the race entails making better products that can be sold for more money to attractive customers – we found that incumbents almost always prevail.
In disruptive circumstances, when the challenge is to commercialize a simpler, more convenient product that sells for less money and appeals to a new or unattractive customer set – the entrants are likely to beat the incumbents.
This is the phenomenon that so frequently defeats successful companies. It implies, of course that the best way for upstarts to attack established competitors is to disrupt them.”
Sustaining versus disruptive technologies:
Sustaining technologies improve the performance of established products, per historic values of mainstream customers. They can be discontinuous or radical or incremental.
Under this definition, I argue that CDMA is a sustaining technology. It vastly improved the wireless spectrum performance by packing in more calls into a given spectrum. Thus more users ae able to connect without sacrificing voice service quality.
CDMA was radical and it was a breakthrough. But also competed along an established improvement trajectory mainstream customers wanted more of. Now of course CDMA didn’t diffuse into the market overnight. It took a lot of technology & marketing muscle and finesse by Qualcomm to address the early adoption cycle. But Qualcomm’s strategy at the onset was to compete for the “attractive customers.”
Whereas a Disruptive Technologies provides a near-term worse product performance. It introduces a different value proposition and has certain features that fringe customers value – cheaper, simpler, smaller, more convenient, etc.
The transistor radio is an example of a disruptive technology. In this case, the established product category was home audio systems where tube technology was the only game in town. The established performance trajectories were audio fidelity and power.
Transistor technology was just emerging, and it’s performance along the established improvement trajectories were inferior. No serious audio consumer (the established and “attractive” customer) would hire a transistor amplifier to get their important job done of enjoying full sound to enjoy music at its fullest.
Therefore, transistor technology had no appeal for the mainstream market. Game over for now. Right? No as it turns out.
The transistor enable a new market opportunity to create a portable and battery powered radio to enable teenagers (the unattractive customer set) to leave the family room and listen to their own music in their own space with friends. Freedom at last!
Overtime, transistor technology increased performance along the audio and power performance vectors to a point where it matched and eventually surpassed the tube. In addition, transistor technology also provided new performance attributes that tubes couldn’t match no matter how much incremental improvement could be made including: better power efficiency, size, and price.
Ultimately transistors far surpassed the performance of the tube ultimately displacing the tube. Tube manufacturers, and the home stereo manufacturers married to tube technology, where left in the dust and could not competitively respond. They were disrupted out of existence.
Figure 1: Disruptive Innovation Model
Overcoming constraints can spark innovation
Non-consumers often face constraints that prevent them from hiring existing products and services. In the case of the transistor radio, while the new transistor radio was a poor substitute for dad’s home audio system, it was good enough for teenagers to listen to music on their own personal radios – they could carry with them and listen to their own “disruptive” music – also known as “rock-n-roll.”
The disruption play
As innovators, we need to look for potential customers who are currently non-consumers (they aren’t hiring solutions) because they face a barrier. If these barriers were removed, it could result in them hiring a solution to get their important job done better, faster, and cheaper.
The four core constraints that limit and impede consumption are:
1. Complexity- customers find the solution too complex and believe they lack the skill set to hire the product and service, or they don’t have the requisite ability to do it themselves.
2. Cost – the cost is too much for the customer to hire the product.
3. Time-consuming – it’ll take too much time for the customer to justify the service. Time to learn and time to execute are some examples.
4. Convenience – it’s not convenient enough for a customer to fire his old solution and hire a new one. It may be too inconvenient to switch out an old technology for a new one because the customer doesn’t see or understand the potential pay-off.
Often disruptive solutions are born by addressing constraints with a “good enough” solution for a non-consumer group. According to disruption theory, the solution will improve over time and eventually become accepted by mainstream markets. Often nascent technologies will evolve and deliver superior value compared to the incumbents’ solutions, as the transistor eventually did to the tube.
Got a promising technology but not quite ready to take on the incumbent technology? Then a disruption strategy may be your play.
Here’s to disruption and rock-n-roll!