I just read a really good summary of the Clayton Christensen’s seminal work, The Innovator’s Dilemma, written by Mark Suster at the site AlwaysOn.
I’ve been a fan of Clayton Christensen’s since the 1990′s, and actually brought him in to Citigroup in 1999 to lecture to many of the division execs working on the Internet. I believe that his book is one of the most seminal business texts written in the past 25 years.
Mark’s post does a good job of explaining Christensen’s central theses about “disruptive” companies and why they are so difficult for incumbent companies to spot and contend with before they’re losing ground to the innovator.
A couple of thoughts building on and responding to Mark’s post:
a) Mark remarks that often new, disruptive entrants in categories are often not heeded in time because they lack many of the attributes which had, until then, made companies in that category successful; often they look “chintzy” to the incumbents over-trained eyes. A good example of this, not mentioned by Mark, is the Flip Video camera, which entered the market as a low cost way to capture video and make easily available on one’s PC or laptop (for editing, viewing, etc.). One of the key insights at Flip was that there was a segment of consumers who were willing to trade-off quality for ease of use. Over time, that segment grew while Flip began to improve its quality (but always staying consistent to the low cost/ease-of-use message promise).
b) Interestingly, in the above example, Flip didn’t start out trying to be disruptive with the extant camcorder market. In fact, they saw themselves as starting a new low-end entrant for video capture.
What’s interesting about this, and telling I believe, is that most companies don’t start out trying to be “disruptive”. Think of one of the examples in Christensen’s book–Honda. They were developing motorized bicycles and through improving on these bicycles they entered the lower end of the motorcycle market; eventually, they took over that market based on skills developed while honing the motorbikes.
The important thing to note here is that Honda wasn’t trying to disrupt the motorcycle industry, at least not at the outset. Rather, as with Flip Video, this disruption happened as they began to move into a market which they hadn’t initially envisioned competing.
Why is this relevant? Because I believe that it’s extremely difficult (and often very impractical) to try to invest in a “disruptive” company from the outset (at least not at the seed level or during the initial few rounds of venture capital, when the product or service is developing its initial market entry strategies). True disruption really seems to occur AFTER the product has succeeded in its initial market and finds itself moving into other markets.
Better to find a company which has all of the right DNA to succeed in its initial entry market AND hopefully the ability to pivot as new markets become available to it. Turning back to Flip Video once again, it’s perhaps instructive to note that Sequoia initially invested in Jonathan Kaplan’s company based on what was going to be a new disposable camera, not a low-cost, easy-to-use disruptor of the camcorder industry.
