If you’ve read an article about a hot new app, or a tech-based service that’s taken off in the past few years, you’ve likely encountered it being described as “disruptive.” But after seeing this term thrown around for half the companies in Silicon Valley, and hearing it applied to concepts in your own business or organization, you might be skeptical about its value — or at least, its usage.
However, understanding “disruption” can help you get a better understanding about what true innovation is, and possibly, improve your own business to produce more innovative products and services.
The Origins of Disruption
“Disruptive innovation” is a term coined by Clayton Christensen, referring to a process in which an underrated product or service starts to become popular enough to replace, or displace, a conventional product or service. In “true” disruptive innovation, the product takes root in the bottom of a market — and in many cases, develops a bad or low-class reputation because of it. However, due to low costs, higher accessibility, or other advantages, the product eventually becomes more appealing than its contemporaries within the industry.
This is contrasted with “sustaining innovations,” the new inventions and modifications generated by incumbent businesses in an attempt to stay relevant with customers. These innovations can be valuable too, but in most cases, products and services developed along these lines become too sophisticated, too inaccessible, or too expensive to have any real lasting power. Accordingly, customers look to less expensive, sometimes radical alternatives to meet their needs.
The defining traits of disruptive innovators are lower gross margins, smaller target markets, and products and services that are often simpler than their contemporaries.
The problem with applying this term to any new business that challenges an industry is that it undermines what true disruption is. It tends to attract more attention to startups that are already getting attention, while the true disruptors are slowly climbing the ladder elsewhere, unnoticed by the industry giants they’re meant to replace.
“Real” Examples of Disruption
It’s perhaps easiest to understand disruption when we look at real-world examples of it in action:
- Netflix, streaming video, and OTT devices.
Netflix — and other streaming services — are continuing to disrupt the entertainment industry. They’ve all but killed physical video rental stores, and are slowly allowing more and more customers to cut their cable subscriptions. OTT options like Hulu and Pluto TV emerged seemingly out of nowhere, as a low-cost alternative to conventional subscriptions, and when they caught on, customers couldn’t help but think about their media in a new way.
- King Price Insurance.
Relatively new on the market, King Price Insurance emerged as an alternative to conventional car insurance plans. Unlike typical insurance policies, King Price Insurance offers insurers policies with gradually decreasing premiums, in line with the depreciation of your car’s value. The model takes more data into account than traditional insurance policies, and in line with disruptive innovation, targets a smaller market with lower gross profit margins to offer a superior service.
- Wikipedia. It’s a little ironic that you can read about disruptive innovation on Wikipedia, which is, in itself a disruptive innovator. Younger people won’t remember, but for centuries, encyclopedias were written and published for profit. You’d have to pay $1,000 or more for a few hundred pounds’ worth of hardcover volumes, and hope that it lasted more than a year or two of relevance before its important details were updated. Wikipedia is updated constantly, and is available for free, though it didn’t carry much trust at first. Still, Encyclopedia Britannica published its final volumes in 2012, after 244 years of circulation.
It’s hard to think that there was a time that LEDs were once considered impractical, but the first generation of LEDs were weak and unreliable, useful only as indicator lights. Cheap and available only for niche markets, LEDs eventually became more reliable, and soon became ridiculously more efficient than traditional incandescent light bulbs—in fact, they only use 20 percent of the electricity.
You’ve probably used Skype before, and have been used to its existence for years, but think about how disruptive the service truly is; users all over the world can chat, call, and video chat with each other for free (or for very low fees). Originally targeting a small market of users, Skype has ballooned to have more than 74 million active users—and it’s entirely replaced mainstream forms of communication for some customers.
What Isn’t Disruption
We can also make the case for disruptive innovation cleaner when we highlight some examples of companies that aren’t disruptive:
Uber is often cited as an example of disruption, but that descriptor doesn’t hold upon close examination. Now climbing north of a $72 billion valuation, Uber is undoubtedly a pinnacle of modern tech success. And on the surface, it has a few hallmarks of disruptive businesses; it did, after all, replace the taxi industry for many travelers throughout the U.S. and internationally, after a start as a small, scrappy company. But here’s where Uber isn’t disruptive; it didn’t open up a new market or capitalize on low gross margins. It just took the typical taxi service model, and upgraded it with tech to make it more convenient and a little less expensive. Accordingly, while both innovative and successful, Uber is not a disruptor.
Google has explored many areas of tech, and could be considered a disruptor in some of them, but for this article, let’s focus on Google’s emergence as the dominant search engine. Google was the first online company to prove the value of online search, and the first to make ridiculous amounts of money from online advertising—it did, therefore, help to spawn a new industry (if not several). But Google isn’t a disruptor because it wasn’t the first search engine—not by a long shot. All it did was take an existing model and make it better. This is an impressive feat, but again, doesn’t qualify as disruption.
- Tesla. Tesla is another company frequently described as a disruptor, in part because of the sexy vehicles in its lineup that are, admittedly, unlike anything else on the market. And while Tesla is known for ground-level innovations in everything from the design of its vehicles to its organizational structure, it can’t be considered a disruptor. Its vehicles are exactly that—vehicles—and while they rely on a unique power source, they don’t enable transportation in any truly market-changing way. Plus, even the cheapest models here started at $35,000, making it too overpriced to appeal to the low-level market.
Let’s see if we can reduce this information to a handful of key takeaways for entrepreneurs who want to know more about innovation—especially in its most disruptive forms.
- Innovation doesn’t have to be disruptive.
Recall that disruptive innovation is only one type of innovation—and you don’t have to be a “true” disruptor to make a difference in your industry. Google is a perfect example; Alphabet (Google’s parent company) is now one of the biggest and most important tech companies in the world, and it all started because Google’s founders could offer something a little better than what was currently on the market.
- True disruption is a bit of a gamble.
Even with a good idea in place, there’s no guarantee that a new technology or potentially disruptive idea will take hold. Some inventions require multiple phases of evolution before they reach their final form—and that means lots of inventions get lost in the shuffle before they get there, losing out to unsustainable practices, market shifts, or stagnation.
- Disruption is oftentimes stealthy.
Understanding disruption isn’t just about creating better ideas; it’s also about being defensive, and looking out for new competition that might disrupt your industry in the future. If a startup is labeled “disruptive,” you might want to give it notice—but the biggest threats to your business are the ones you won’t see coming. Dig deep and take all threats seriously, even if they’re starting out with lower profit margins and a smaller target market than you’d expect from a legitimate competitor.
- Disruption takes time. When Wikipedia launched in 2001, nobody would have predicted it would have the power to overthrow Encyclopedia Britannica; this was a feat that took more than 11 years to accomplish. Disruptors don’t change the market after a month of being publicly available; it takes years, and sometimes decades, to take hold.
With a better understanding of disruption, you’ll not only find it easier to wade through the buzzword-laden articles hyping up the latest startups to emerge from Silicon Valley, you’ll also be poised to find faster, more sustainable forms of innovation in your own business.
You may not be in the market to create the next LED, or change the world with an invention on par with the transistor radio.
However, you can, at a minimum, guard yourself against future industry disruptors and possibly come up with more competitive solutions to keep your business thriving.