Have you ever wondered how some cash-strapped startups are capable of beating their large, organized and cash-rich rivals in a market that’s been saturated for all of recorded history? Wouldn’t you love to create one of those startups?
In this article I’ll explain the concept of disruptive innovation. This concept is a result of years of research by Harvard Business School professor Clayton Christensen when while obtaining a PhD, he set out to solve the question “why do successful firms fail?” After reading this article you will have a better understanding of the exact strategy successful startups often employ and how to apply that strategy to your innovation and entrepreneurial journey.
Disruptive Innovation = Simple, Affordable Solution to Your Customer’s Problem
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You may have heard business professionals use the term “disruptive innovation.” This fine example of business buzz word soup is often used because the natural definition of the two words are complementary in and of themselves. But for others who are familiar with Christensen’s work, this term has a very specific and insightful meaning.
Specifically, disruptive innovation is the idea that startups are able to gain significant market acceptance for their products through simplifying the user experience and reducing the number of features to an amount that the customer can most easily utilize. Many companies who have followed this model were able to disrupt larger, more established organizations and set themselves apart as leaders in their respective market.
While Christensen was researching what caused successful firms to fail, he discovered that the mistake most companies often made was adding too many features to their products – so many that the products became too complicated for their customers to use and expensive enough to cause them to consider alternatives. Because of this, these incumbent organizations would eventually succumb to serious challenges from smaller, nimbler firms. These startups offered a much simpler product with far fewer features at a dramatically lower cost. These emerging products first appealed to less sophisticated (and in most cases, less profitable) customers within a narrow niche. Eventually, however, these products would gain traction by appealing to more sophisticated customers who recognized that they didn’t need all the performance they were paying for with the incumbent provider. After some time the startup would capture a large portion of the market and effectively displace the incumbent company as the new leader.
The Trap of Overdesign
The point of this idea is simple: incumbent companies often add so many features to their products to the point where they actually overshoot their customer’s capacity to utilize those features. In essence, they fall into the trap of overdesign. Customers get frustrated because they are paying for those features that they don’t use. These scenarios are the prime conditions for a new startup to enter the market with a much simpler, easier to use product that has far fewer features but just enough to get the customer’s job done for a fraction of the price.
Case Study: The Disruption of Television
Recent developments in the television industry offer a treasure trove of examples of disruptive innovation. Ever since high-speed internet became commonplace in homes throughout the U.S., traditional cable and satellite TV companies have been buffeted by innovations such as Netflix and Hulu. These online streaming services offer less content (fewer channels/features) but the content that is available is on-demand and all for a fraction of the monthly cost of cable or satellite TV. However, despite these simpler and more affordable solutions, Hulu and Netlix faced technology barriers due to the need for a computer or similar device to be attached to the TV in order to play their content. That is until device manufacturers decided to do some disruption of their own.
In 2008, Roku, a small startup out of California, introduced the Roku player for $99. It was the first stand-alone product for streaming Netflix instant video. Now consumers had a choice: continue paying upwards of $70-100/month in cable subscription fees for 100’s of channels they didn’t watch or pay $99 once and switch to Netflix streaming for less than $10/month and only watch the shows they cared about. Naturally the choice was easy for some consumers and the shift to online streaming began to gain steam. Cable companies have been slow to react to this disruptive threat – most of them seeing it as “just a niche product.”
Fast forward to now. Not long ago Google announced their own disruptive innovation for television called “Chromecast.” Recognizing the opportunity that connected television could provide for their advertising business, Google decided to take a dramatically simple approach to connecting the living room – a $35 HDMI dongle. This tiny, thumbdrive sized device is capable of playing both Netflix and YouTube content, with more on the way. Now it appears that Google is about to disrupt the first disruptor – Roku.
Disrupt Yourself for Long-Term Sustainability
Throughout his career, Steve Jobs proved that one of the most effective ways to ensure long-term viability in business is to cannibalize your own products again and again. Using the concept of disruptive innovation – reading The Innovator’s Dilemma had a profound effect on Jobs – he would often instruct his development teams to remove features rather than add them. The most notable instance of this was when the engineering team building the iPod shuffle couldn’t figure out a way to fit a screen on the small device. Upon hearing this concern, Jobs instructed them to remove the screen rather than add size and let songs be chosen randomly. Hence the name iPod Shuffle.
Below is a table of incumbents and their disruptors: