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.
Is IoT disruptive?
It certainly has potential to be but remember that it’s not the product that’s disruptive, it’s the business model that’s disruptive. Surely, another FitBit-like competitor will not be deemed disruptive despite it being in the realm of IoT but that doesn’t mean it doesn’t have potential to be so long as it caters to a segment FitBit is overlooking.
The persistence of Moore’s Law (the observation that digital devices tend to get about twice as good for the same dollar every 18 months) is making the technology boom a Second Machine Age in which each new innovation becomes a building block for subsequent innovations. Take a look at our smartphone. What started as a flip phone has now turned into a handheld supercomputer. And it’s even more impressive because they are touch screens, GPS receivers, WiFi transponders, cellular telephone receivers, accelerometers, compasses, teleportation devices, etc (just kidding on the last one…for now, I mean) all in one.
Side note: a sleeker version of the 1G First Generation Mobile Phone is coming back to the market for only $500 on Kickstarter. That’s right, for half a grand, you can have a 2nd phone to reduce the amount of time you spend looking at your screen….Basically because we spend on average 4 hrs a day looking at our smart screens, we now need a second phone so we can stop looking at our first phones…? Now that’s marketing! Here’s a thought, put your first phone away and don’t bother getting a second one.
Back to the point. All, if not most, of these devices transmit an abundant amount of data. The data is literally thousands or millions of times greater than we have ever seen before. We now only have one prefix left in the existing metric system before we run out of how to describe how much data there is in the world. We’re in the world of the yottabyte. After that we run out. The new (legitimate) proposal: hellabyte. (That’s hella big — pun completely intended).
The rapid digitization of products and services is making ownership obsolete as more of what we need becomes accessible. More of the things we find in higher value are the intangibles that are becoming our driving economic force. Ownership has a lot of liabilities — storing, cleaning, maintaining, upgrading, etc — but the dematerialization of such products and services is giving incremental rise in the “share economy” and “subscription services”. We already have a magnitude of subscription services out there and each day, it seems like a new one pops up. We already subscribe to clothes. Then why not furniture? Why not toys? Tools? Kitchen appliances? Camping equipment? The list goes on and on.
The exponential progress in products and services has also led to a democratization of such intangibles. Technology is no longer something that’s just restricted to large companies or rich countries. Everywhere on the planet now has access or at least the potential to have access. By it’s very nature, any company entering a market must also bear in mind the rate and pace at which adoption is actually occurring. The television set took 38 years before it got it first 50 million users. Twitter took 9 months. Angry Birds took 35 days. Now that investments in technology infrastructure and assets is pervasive across every sector through the world of IoT, the competition and playing field has had an interesting shift. Amazon, which started off selling shoes online, now also has a computing company through their cloud services. Alibaba applying for banking licenses and Google, which is a search giant, is tapping into the autonomous transportation market. What this means for small companies is an accessibility and potential to disrupt sectors that historically, you’d have associated with just large companies.
This brings me to the type of disruptors that stand out — platform based disruptions (as opposed to product based disruptions) such as Amazon, Alibaba, AirBnB that have effects well beyond the industries limits. While product based disruptions change what people buy, platform based disruptions change the way people live. We’re entering an age where platform based disruptions will ultimately shift societal norms into unimaginable (and disruptive) ways. And this is just the beginning.
