In the startup and venture capital world, the word disrupt tends to be referenced often. Most startups hope that they’ll be the ones to disrupt their industry by providing a disruptive product or service…but true disruption is harder to find than it seems.
Since many people use the term loosely to invoke a broad concept of innovation as opposed to true disruption, today we’re be diving into what it means to be a disruptor.
The Harvard Business Review laid out the theory of disruptive innovation in 1995 and continues to define it as:
“Entrants that prove disruptive begin by successfully targeting overlooked segments, gaining a foothold by delivering more-suitable functionality – frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.”
What this means is a better performing, less expensive, easier to use product or service is not necessarily disruptive; a disruptive company needs to also Identify gaps its competitors fail to see, adapt for the demands of future customers in new markets, and transform the existing market.
While ridesharing companies like Lyft are typically called disruptors, using this theory, they’re actually more appropriately named innovators. Ridesharing didn’t begin by targeting an underserved population – it immediately addressed people in need of transportation who already used taxi services. It provided an easier way to hail a ride at a reduced cost, but it hasn’t created a market from scratch – people have always needed rides to and from various locations.
An alternative example is Netflix. While movie rental stores were still in their prime, Netflix appealed to a very different customer base via mail-order movie rentals. Whereas many movie rental stores catered to customers looking for new releases or the instant gratification of leaving with a movie in hand, Netflix catered to movie buffs looking for older, more difficult-to-find films or to customers who didn’t want to deal with the hassle of going to the store in person.
Netflix then grew to disrupt the movie rental industry in general by bringing streaming to the masses and serving a broader customer base – including those of movie rental stores, effectively shutting down that market.
True disruption also means that products don’t necessarily have to be cheaper or more convenient. Ridesharing companies again are both typically inexpensive and easy to use, but they also over serve existing taxi customers.
In general, business models are disruptive more so than products or technology. While technology is the catalyst behind changing markets and innovation, how it is implemented determines whether competitors choose to pursue the disruptor.
Not a MicroVentures investor? Sign up today.
