Article Summary: 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. (Refer to the "Really Short Explanation of Disruptive Innovation" for a detailed summary of what the theory says.) 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.
After a long hiatus from blogging and a complete refresh of this website, I thought hard about what topic would be the best way to restart, update and refocus content while capturing the overall tone, personality and intent of this blog.
The headline says it succinctly, but let me explain what I mean and why it's important.
Not Just for Buzzword Bingo
The sad truth is that the theory of disruptive innovation has become so popular as an idea that it has seeped into pop culture, become a grossly over-used buzzword, and is blatantly misused more than 95% of the time. And, 95% is a conservative finger-in-the-air estimate. As I scan the internet, blogs, media, conference sites, and other sources, it is very rare that any demonstrate understanding of what disruption is, what causes it, or use the term correctly when describing things that are (or more often aren't) disruptive. It's so bad, it's as if English teachers all suddenly proclaimed expertise in differential calculus and started spreading their version of how it works without bothering to consult the math texts that define it.
Am I being too harsh? When I point out to people what the theory really says, how it works, how to identify disruptors, how to predict market disruption, I get responses such as "Does it really matter?", or "That's your opinion, but others don't agree", or "Sure, but you can't do anything about it", or "It's just a business buzzword. It doesn't have any value, so why bother arguing about it?".
My position, unequivocally, is that it matters. It matters a lot. Why? Because if you adhere to what the theory says, it isn't just a cool label to apply to your favorite startup promoting a new way of doing things. Sticking to the proper definition, and understanding the process of disruption, allows us to create enormous economic value (in a later post, I will demonstrate how virtually all real economic growth is created by disruption innovators).
This is a notion that some of the Valley's most prominent and successful VCs get (though not as deeply as you'd hope -- even the best are looking at externalities, not the causes), but most simply say they pursue a disruptive investing strategy without really understanding what that means.
Disruptive Innovation is the Greatest Theory of Business Growth and Value Creation. Ever.
The theory gives us a set of signals (I call them a "Disruption Fingerprint") which enables us to identify potential disruptors before they disrupt -- which is incredibly powerful if you are an investor or a company in a market that's about to be disrupted. If you have a new product or service which is potentially disruptive, and you understand the causal factors that create the opportunity for market disruption, you can work backwards from the theory to design business models that are intentionally disruptive.
Why is that important? Being disruptive is the difference between being just another online retailer and being Amazon -- soon to be the world's largest retailer (not just the largest ecommerce player). It is the difference between creating a cool new technology that makes a little bit of money, and becoming the new market leader that defines a category and takes the majority of profits. That's what sticking to the model enables.
Conversely, if you are a large company that is persuaded by all the false stories in the media about disruption, and take the advice of major consultancies whose primary objective is to take as much of your money as they can, then you are more likely to be disrupted than to survive, thrive and create the next generation products that the market actually needs and wants. Getting it right matters.
Calling It Like I See It
So, I'm planting a stake in the ground and calling b.s.. Most "disruption" isn't. If you see a disruption conference which holds a contest to pick the "most disruptive startup", ask how many of the past winners are even in business today, let alone disrupting markets. And exactly which objective criteria are being used to choose the winner? (The answer is none.) If you see articles claiming to identify the "top disruptive technologies", then you need to understand that technology alone is never disruptive -- bluntly, there is no such thing as "disruptive technology". If you see startups who haven't even created a product yet or generated any sales who are claiming to be disruptive, run the other way. These are the forces that are undermining the value of disruption theory.
I will do my best in these pages to stick to verifiable examples and analysis of real disruption. I will try to convey how it happens and what we can learn from that. I will discuss how to create disruption on purpose, and how to avoid being disrupted with as practical and specific ideas and methods as I can convey. I will talk about how to predict disruption, and I will call out the fakers and false pundits who haven't a clue what disruption really is.
I hope you find it useful.