Christensen's model of disruptive innovation tells us that when new market entrants offer products that are inferior to incumbents, at a lower price point, targeting non-consumers of existing products with solutions that are simpler, easier to use, more convenient and/or more accessible, that the upstarts will almost always win the competitive battle. We see this recurring pattern frequently, and it's easy to mistake these attributes as causing disruption, rather than as signals that disruption is happening. This two part series examines the root causes that enable disruption to occur.
The finance industry is facing large disruption, and it isn't coming from within. The industry needs to consider the reasons they will be disrupted, be prepared for radical new business models, and look to outsiders who aren't afraid to break the status quo in order to understand why the real disruption is not the incremental tech innovation that they are so enamored with.
Disruptive innovation is an incredibly practical and reliable theory about competition, which describes how new market entrants consistently win against established market leaders when a clearly identifiable set of conditions are present. Its usefulness as a business tool is being threatened by poor understanding, widespread misuse of the term, and often deliberate exaggeration by marketers and media pundits who don't appreciate the damage they are doing.
In January, I had the privilege to be named as one of the top tech authors of 2014 by the Consumer Electronics Association, and to participate in Gary's Book Club at the International CES 2015 conference in Las Vegas.
Sean Murphy, Sr. Manager, Industry Analysis for the CEA interviewed me on stage about the state of innovation and my book, Disruption by Design. The video below is a recording of that event.
Speaking of my book, if you haven't bought one yet, I've created a promotion through Goodreads to give away 10 copies. Although I just set up the offer a few hours ago, there are already more people clamoring to get a free copy than I'm giving away. Fortunately, it isn't first come, first served -- winning entries will be selected by Goodreads on March 23, so you have until then to register for your chance. Click the link in the promo box below to find the giveaway offer on the Goodreads site. (Update: The promotion has closed and books have been distributed to the winners as selected by Goodreads. For more info about the book, or to order your own copy, please visit this page: Disruption by Design.)
On the other hand, if you're an entrepreneur trying to design your company to be disruptive, why wait? There is so much valuable and actionable information in this book that it will pay itself back 100 times over, just from what you'll learn in the first chapter. To save time, get a copy from Amazon today, and you can be reading it by the weekend.
Historically, virtually all disruptive innovation has happened by accident. Even though there is a distinct pattern to disruption that the theory describes, before Christensen observed and synthesized the mechanics of the pattern we weren't aware of it, and it certainly hasn't been obvious how to create that pattern on purpose.
After all, if you used theory to build:
- an inferior product
- with a low price
- targeting an undesirable market that incumbents will run from rather than fight for
you'd have a product that bears the hallmarks of disruption as described in The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. But you wouldn't have any guarantees that your product is a disruptive innovation. In fact, it could be that you’ve simply built a crappy product that no one wants.
Strikingly, although many have tried to use Christensen's theory to design disruptive products, it's noteworthy that Clay's books were not written with that purpose in mind. In fact, he writes in the introduction to The Innovator's Dilemma that his research and writing was motivated by the desire to help executives “do what is right for the near term health of their established businesses, while focusing adequate resources on the disruptive technologies that ultimately could lead to their downfall”. In other words, his goal was to help industry incumbents recognize and avoid disruption.
About 2 years ago, I set out to do exactly the opposite.I wanted to create a handbook for entrepreneurs, startup founders, and marketers of potentially disruptive products that would help them to disrupt markets on purpose.
After a long gestation, that book "Disruption by Design: How to Create Products that Disrupt and then Dominate Markets" has arrived. (if you hurry, you might still find some sites selling it at pre-release prices -- take advantage because in a few days, if not sooner, the price will go up significantly).
Disruption by Design is intended to be a self-contained book that guides you through all of the key things you need to know, from a quick review of the most important elements of the theory, to how to predict market disruption, to creation of product and marketing strategy with disruptive potential, to designing a disruptive business model and ultimately, how to go to market, disrupt, and stay on top for the long term.
If you want to build disruptive products on purpose, you need this book
I don't often "sell" in this space, but I did want to let my readers know why I'd been absent for a long while, and also beat my chest a little today. I've worked hard to distill the things I've learned about disruption from working as a consultant in the field into a guide which is easy to read and follow. I did that because if we're ever going to reinvigorate our economy, we need 10x more disruption and we need it 10x faster than we're currently innovating. We need disruptive innovation because it is the economic engine of growth that moves us forward, and creates jobs and wealth.
Over the coming months, I'll be highlighting some of the key ideas from my book in this space, and hope you'll join me in discussing how to create disruptive products by design.
To learn more about the book, visit this page: Disruption by Design.
Update: The People Have Spoken
It's been very gratifying to get lots of positive feedback about my book. The widget below collects review comments from a variety of sites, which I thought might be a useful update to share here. You can click on the profile that's displayed to learn more about the reviewer, and follow or connect with them.
Five years ago Apple introduced the iPhone. On the eve of it's introduction, I published a blog article predicting that it would cause massive disruption of several industries and the reasons why.
We predicted it would sell beyond Apple's expectations, and beyond what even the most optimistic analysts projected. It turned out that as bold as we were, we weren't bold enough in predicting how successful it would be.
We predicted it would knock the Blackberry from it's perch as the top (business) smartphone. A prediction that many scoffed at -- especially the executives at RIM.
There were other predictions as well which we'll leave you to read if you're interested.
Although these things seem obvious in retrospect, I made these predictions based on disruption theory, and took a big step out of line, disagreeing publicly with my business colleague at the time, Mike Urlocker, with Clay Christensen, the father of disruption theory, and with other notable marketing experts including Al and Laura Ries -- renowned for their work and books on positioning.
Unbelievably disruptive: iPhone's Accomplishments
While the iPhone today has stiff competition from another disruptor -- Google's Android, and especially the leading purveyor of Android (Samsung), it remains the trendsetter with a list of remarkable accomplishments:
- iPhone alone is a bigger business than Microsoft, once considered the unassailable titan of tech based on its Windows and Office franchises. The same Microsoft whose monopoly market power was considered so strong that the DoJ targeted it with antitrust suits that threatened to break up the company. It's also the same Microsoft whose CEO, Steve Ballmer, mocked Apple for thinking anyone would buy a $500 phone. Who's laughing now, just 5 years later?
- The iPhone has generated over $150B revenue since its release, and has shipped over 250M units.
- At the current run rate, the iPhone will generate about $35B in profit this year. Only one company on the planet (besides Apple) generates more profit than the iPhone -- Exxon Mobil.
- RIM and the Blackberry are on the ropes, probably breathing their last. RIM announced they are laying off nearly 40% of their employees yesterday. The same RIM that as recently as two years ago was still claiming that no one would buy a business phone without a keyboard, and that it had an unbeatable advantage with corporations because of its security features.
- Nokia is also on the ropes. And, most competitors in the PC business have suffered serious setbacks, including Microsoft, HP and Dell. All either as a direct result of the iPhone, or because of its Trojan Horse effect (which my article in 2007 predicted).
- iPhone plus its big brother, the iPad, have made Apple the most valuable company on the planet, completing a 15 year disruptive comeback from near bankruptcy. Sitting on par with Exxon Mobil in market cap just 4 months ago, Apple is now valued at nearly $120B more, and by traditional multiples for "growth companies", could easily be valued at 2 to 3 times more than it currently is. It will likely become the first company in history to have a market cap exceeding $1 trillion within the next 18 months.
- Apps, apps, apps. How many companies owe their existence to the App Store and the rest of the iPhone ecosystem? There are over 600,000 apps available in the App Store -- 600,000 products that wouldn't have existed but for the iPhone. As of March of this year, more than 25 billion apps had been downloaded.
On the iPhone's 5th birthday, we hope that Steve's untimely passing doesn't mean the end of Apple's exceptional innovation and market leadership. The world needs more companies like Apple that anticipate what we want and how we want it, even before we're able to articulate it. Companies that push for what's next, instead of simply copying the best of what's out there (Samsung).
The iPhone isn't just the most disruptive innovation ever, it is symbolic of a state change in what we expect from technology and how we interact with it. It's hard to imagine how different the world was six years ago, almost as hard as it is to remember how we survived without the internet and email.
What does the future hold?
Looking forward another 5 years, we wonder:
- whether Apple can continue its remarkable run of industry-disrupting innovation without Steve?
- if the iPhone will still be on top, or will Android catch and pass it?
- what new innovations are still waiting to come out of Apple that will change the world as we know it -- is there a TV coming? what about home automation? cars? social media? Or, is the era of great new things from Apple over?
- who will pick up Steve's baton and run with it?
What do you think?