What is disruption?
Recently, I’ve been hearing the word “disruption” being tossed around in a lot of normal day to day conversations that I don’t believe is appropriately used. I was on a mentor call with one of my all time favorite entrepreneurs & inspirations, who had frequently referenced “disruptors”, “disruption”, “disrupting”, essentially every iteration of “disrupt” and although specifics were never discussed, I started wondering if it was even being used properly. Whether it’s coincidental the topic of disruption has become a casual water cooler conversation or I’m just more susceptible to hear it, it got me thinking, what the hell is disruption?
I’ve never been the type to take everything I hear for face value and as a result, have developed a rather pessimistic attitude to question everything (possibly a consequence of government infused perceptions I still loathe). Anyways, after some research I noticed how inaccurately disruption is not only being described as but also how incorrectly it’s being applied. Many people frequently use “disruptive innovation” to describe any situation in which an industry “shakes things up” but because of such broad usage, it’s resulted in a blighted misunderstanding.
“Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established businesses. Many people often refer to products as being disruptive when it’s more accurate to describe business models as disruptive. In order for a company to disrupt, the revenue and cost structure of the incumbents that the company faces must keep them from responding.
Disruption can occur at two levels: in existing markets and/or by creating new markets.
To disrupt within an existing market, you would need to provide something “new” or of “unique value” that incumbents currently do not offer. This can be distilled further into two types of disruption: high-end which means entering the market with a product or platform that is superior to the incumbents’ offerings or low-end which is making a product or platform much more affordable and simpler to use. Low end footholds are typically the more sought after approach because it’s not as expensive and not as competitive, at least at first.
By providing a “good enough” product for the low-end customers, disruptors are typically able to cater to a market segment the incumbent usually dismisses. When companies have a strong foothold in the market, they seldom focus on innovating or penetrating into uncharted territories. This is where the disruptors come into play. By successfully targeting those overlooked segments and gaining a foothold there, disruptors prevent incumbents, who are often chasing higher profitability in more-demanding segments, from responding vigorously enough. Disruptors keep moving on up, delivering better performance and driving out incumbents.
New market footholds is probably my favorite type of disruption. In this case, disruptors create a market where none existed. They find a way to make non consumers consumers. Think AirBnB —although their early users were the “low hanging fruit” of the hotel industry, the ones that didn’t necessarily care about the hotel’s higher level features, amenities and services, they’ve mastered a completely unique market segment within the sharing economy.
Why Understanding Disruptive Innovation is Critical for Any Business
I recently had a discussion with my co-founder that led to a monumental realization in how we strive for innovation. To spare the details of our conversation, I’ll just get straight to the point. Disruption is not something that just comes to you in an “a-ha”, “Eureka”, “holy shit I figured it out” moment. Sure, it definitely can but the roots originate in learned, studied and relevant experiences. Applying the theory correctly is not only essential to realizing the main benefits but also crucial to stay afloat.
First. Thinking disruptively broadens your horizon — it directs you in a place you might not have gone otherwise. Disruption often starts at a market’s edges’ where it’s either an undemanding/overlooked market wedge or a underrepresented/non-existent consumer group. Leaders of successful companies are only able to be successful by broadening their view and spotting trends from the onset. When leaders are fixated on the vision or mainstream trajectory, a myopia develops over time that eventually limits their capability of reacting to new players.
Second. The more places you look, the more trends you’ll notice and although you won’t be able to respond to every apposite bearing, you will be able to sift through the early-stage progressive ones from those that will most likely fizzle out. But the only way to do so is applying the disruptive innovation theory.
Does this trend have a unique way to make it easier or more affordable for customers? Is this trend unlikely to be seen as attractive from incumbent and industry leaders? If yes, go for it!
Third. By analyzing the trends you can inevitably make predictions. The theory predicts that when someone enters the space offering a better product or service, the incumbent will feel threatened to respond and speed up innovation. The disruptors on the other hand, are initially considered inferior and can therefore focus on obtaining a segment of the market incumbents do not care for.
Fourth. Applying the disruptive theory internally will ensure you won’t get disrupted. Although it can be quite an investment to organize teams and departments to do such, it’s a critical step in ensuring your enterprise is ahead of the industry. My co-founder asked me out of concern, “what would be next? How do we level this up?”. If you apply the theory and continue to stay on top of the game, you’ll figure out what’s next.