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.
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.
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?
I often start by reminding clients and prospects -- anyone who will listen -- that an innovative technology is a nice thing to have, and can certainly enable market disruption if it uniquely enables a large sustainable cost advantage, or a new way of doing things that is easier or more convenient. But technology is neither necessary, nor sufficient for disruption to occur.
Disruptive innovation is not about technology
Netflix was a good example in their early days. Yes, you placed orders for movies through a website, but there was nothing about the website that was novel or necessary in order to disrupt Blockbuster. In fact, they were considered a tech play because of the website, but there was nothing about technology that made Netflix successful (something they would have done well to remember when they tried to force an ill-advised price change on customers last year to combine streaming video and mailed DVDs). When Blockbuster added their own website and copied much of the mechanics of Netflix's ordering, it made no difference to their survival and did not enable them to prevent being disrupted.
Netflix's disruptive innovation was driven entirely by their business model. Apparently inferior to Blockbuster in the lack of physical presence to visit and browse movies and take something home to watch NOW (at least that's how Blockbuster positioned themselves against Netflix), they identified unmet and underserved market needs and created a new business model to serve them. By sending DVDs mail order from a central location, Netflix eliminated the huge cost of stores, and having inventory where it wasn't needed, and in the process enabled:
- limitless catalog
- convenience of not having to make a trip to the store either to pick up or return videos
- low cost for high volume renters aka the best customers (flat subscription pricing rather than per video)
and removed friction in the rental process:
- no late fees -- the number one complaint against Blockbuster and traditional video rental models
- frustration when a desired title wasn't on the shelf
Dramatically lower costs could be passed on to consumers (and sustainable cost advantage is one of the key drivers of disruption), enabling rapid growth, and strong word of mouth helped Netflix avoid big marketing costs to grow.
What does this have to do with Febreze? Well, I started with Netflix because it is an example commonly misunderstood to be a technology-based disruptive innovation, when it really has nothing at all to do with technology, but is entirely about the process, the business model and the marketing. It's a company that most of us are familiar with, especially after its recent missteps, and it helps us make the leap to talking about a disruptive innovation that doesn't have any "tech" in it at all.
How the heck is an air freshener in a crowded marketplace an example of disruptive innovation?
Febreze is fascinating, because it started its life doing everything wrong, the way most "big company" new products are introduced to market. It was a product designed to be sprayed on draperies that reeked of cigarette smoke, a smelly sofa that was frequently inhabited by a wet family dog, or a room where cats had done their thing on the floor. It's purpose was to neutralize the odor.
The problem was, this was a made-in-the-boardroom problem. Although it seems reasonable to imagine that people are embarrassed and repulsed by these smells and would want to get rid of them, in the real world, the people who most needed to fix this problem didn't believe that they had a problem to fix. In the real world, people build up tolerances to smells the more they are exposed to them, and may even associate that "wet dog" smell with positive feelings. So, while any visitor to such a home might be hit in the face with detestable odors and wonder how people could live that way, the person who lives there has masked the smells in their mind and has no idea that their house smells like smoke, or like cat pee. And, even if they smell it a little bit, they certainly don't perceive their house to be unclean and in need of yet another kind of air freshener product.
So, when P&G launched Febreze as an odor-killing unscented spray in the mid-90s with ads targeting the homeowner's love for their pets, but hate for their smell, there was no resonance in the market with this messaging (might they have done better to target visiting friends instead?), and it was a complete dud in the market, with sales falling each month, rather than growing.
This scenario is laid out in a New York Times article (see pages 4 and 5 for the bit about Febreze) that details the work of behavioral researchers in understanding habits to influence purchasing decisions. The company was perplexed and sent researchers out to the field to try to understand what was happening with happy users of Febreze who were using lots of it, and what was different about them. Did they have more sensitive noses? Were they more anal about cleaning? Were they more socially embarrassed about the smells when visitors came over?
Febreze became an innovative market disruptor, almost by accident
It turned out that there were some avid users who had built spraying into their regular cleaning habits as a reward for finishing, so when the bedroom was finished being cleaned and tidied, a quick spray of Febreze on the comforter was the icing on the cake. When the laundry was clean, a spray of Febreze confirmed it. When the living room was cleaned and the sofa vacuumed off, Febreze was the finishing ritual. It wasn't that they perceived their homes to be dirty or in need of de-smelling, but that the spray at the end was a finishing detail to signal completion and get that little endorphin high that comes with completing something.
The happy ending is that P&G discovered this counter-intuitive behavior, and built this notion into their marketing. Sales exploded, to the point that it is today a best-selling $1B franchise. The now familiar ad template shows a giddy, self-gratified housewife who has finished the cleaning, gives it a shot of Febreze and closes her eyes to breathe in the warm fuzzy feelings. Or, more prosaicly, a quick spray when finished the task was the reward for finishing - the idea being to associate the product with habit formation and the good feeling of being done with the work and knowing that things were clean. In other words, rather than promoting it as a cleaning product, they are promoting it as something you should do after cleaning was complete.
So, the NYT article is about how statisticians and behaviorists are decoding habits and using them to sell to us, and the Febreze story is just a small piece of it, but it got me to thinking. What's interesting is that the original launch of Febreze was supported by conventional wisdom and conventional marketing. I'm sure they did research that confirmed everyone would like their homes to smell cleaner (a common symptom of bad market research is "confirmation bias", where people selectively remember things that confirm what they already believe to be true, or in this case, remember how much they dislike the smell in everyone else's home even when they don't recognize it in their own). Febreze would have been just another incremental and sustaining cleaning innovation, but for the discovery of this anomalous behavior of a few avid users. It may even have been cancelled for lack of sales had behavioral researchers not discovered the pattern of women using it when finished cleaning a room, rather than as a way to deodorize pet smells.
But hidden in the research story is that Febreze's ultimate success points to some critical factors that all "new market" disruptive innovations exhibit. Most notably:
job to be done. Early on, marketers positioned Febreze as an air freshener because they didn't understand the "job" that consumers were hiring it to do. It turns out that people didn't believe they had a smell problem. But, a quick spray at the end of cleaning a room created a habit-forming ritual that said "I'm done. This is clean and fresh and I can move on to the next room." A reward, and a signal of being clean, rather than a coverup of something shameful. Had the real job not been discovered, Febreze likely would have failed in the market as one of thousands of similar cleaning product innovations. By precisely targeting the job that the consumer identified with, they created positioning that is virtually impossible to dislodge them from. (Download this classic article which describes why identifying the job to be done is so important.)
target non-consumption. There were a small number of people who felt they needed a bandaid solution to mask disgusting smells. However, most people didn't recognize or agree that their house smelled bad, but did see a quick spray as a finishing touch -- almost like putting some sparkle on their lip gloss. By targeting the larger market of people who did not think their houses stunk and needed air fresheners as masking agents, but who did clean their houses, Febreze was able to identify a unique niche to dominate and grow from (now, people do buy Febreze as a quick fix to mask unpleasant odors, but that came later).
serve an unmet need. There was clearly an unmet need to signal "I'm done" and have a little celebration before moving to the next room. I suspect we all have this little celebration, whether we use Febreze or not, we step back and admire our work, smell the air. Febreze sprinkles the fairy dust that completes the job (that's how the ads seem to portray it). Originally unscented (because it was to mask odors, not replace them), Febreze now comes in many perfumed scents to leave behind the smell of "being done".
identify a new market. The new market for a deodorizing spray was people who viewed it as a finishing tool for cleaning. The people who it was originally designed for (those with smelly houses) didn't think they needed it, so the only way to sell it was to identify a new (adjacent) market where there was an unmet need.
Startups who are designing groundbreaking technologies that they believe are "disruptive" do well to remember these lessons. Disruption is a theory about marketing, not about product development or technology. To disrupt a market, you must be able to articulate a "job to be done" for which your target audience believes there is no better solution. You must meet an unmet or under-served need -- it's easier to sell to people who aren't part of the existing market (non-consumers who have opted out, and indicated that no available solution either satisfies the "job to be done" or is priced affordably), than to compete against incumbent solutions claiming to be better. And, you either need to be a "low-end" disruption (one which is targeted at the least demanding market segments based on pricing and sustainable cost advantage) or a "new market" disruption (create a market where none existed before).
Marketing and business strategy drive disruption
None of these characteristics have anything to do with building technology, but everything to do with appropriate segmentation, product positioning, messaging, and the compelling reasons why I would select your solution over all other available alternatives (which aren't necessarily products in the same "category"). Febreze ended up being a disruptive innovation because it succeeded (albeit after the fact) in marketing strategy, not because of how the product was designed.
Is Disruptive Innovation important to your business strategy? Download a free copy of the eBook 'Disruptive Confusion Unraveled' to learn:
- the 6 most common misconceptions about disruptive innovation
- how disruption creates growth
- what it means to be disruptive and why the definitions matter
- how to predict market disruption
- how to measure the market value of being disruptive
The discussion begins with how to accurately identify a disruptive innovator, and why most companies that claim they are, actually aren't. Our ebook "Disruptive Confusion Unraveled", and Innovative Disruption's analytic tool, the Disruption Report Card are mentioned in the discussion.
The podcast goes on to cover a wide range of material, including discussion of Apple's success and how they fit the disruptive model, why it's almost impossible to find a disruptive large company, to suggestions for how to give Justin's product, Pluggio, more disruptive potential.
The discussion centered around the relevance of key factors in achieving disruption, including:
- sustainable cost advantage / pricing strategy
- market segmentation
- targeting non-consumption
- choosing the right competition to position against
- business model
- ease of use
- targeting undesirable users
- identifying the "job to be done" for a product
- addressing unmet or underserved needs
Warning: we get down in the weeds with some deep theory and detailed analysis of examples. If you prefer lightweight, breezy material, this isn't for you.