The term ‘disruptive’ is radically overused and almost universally misunderstood. Everything from Uber to AirBNB and Tesla (as well as anything technology-based) is broadly anointed to be an example of disruptive innovation.
But according to Clayton Christensen (who wrote the Innovator’s Dilemma; and more recently wrote an excellent article in the Harvard Business Review entitled ‘What is Disruptive Innovation‘ and originally coined the term ‘disruptive innovation’) these companies are not good examples of the concept.
So what exactly is the proper definition of disruptive innovation?
“Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those 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.
So, an established business operating in an existing market will scale and segment their customer base into profitable and unprofitable segments (the classic 80 / 20 principle). As a result of this process, they will naturally focus their business efforts on the 20% of customers that generate 80% of their profits and largely ignore the unprofitable customers – that are often more effort than they are worth.
A small start-up business with low overheads can then attempt to service those unloved customers with more basic, low-cost products. Over time, that start-up gathers market traction and will evolve by offering increasingly upmarket options. In time they’ll improve the product offering and as a result, ‘disrupt’ the bigger business by taking their profitable customers.
Good examples of disruptive innovation in South Africa would be Capitec, Mr Price and Shoprite. They’re not offering the best products in the world, but they’re ‘good enough’.
When you look at disruptive innovation through this narrow lens, you realise that the African continent is the perfect place to introduce an offering to a previously neglected customer base. Thanks to technology and the lack of any kind of ‘legacy infrastructure’, lean and efficient business models can be designed from scratch and scaled as prospects grow.
So then, what are the recognised steps for crafting a disruptive strategy?
1. Decide on your path. It’s either low cost or brand new
- People flying between Cape Town and Joburg really just want to get themselves from one place to the other in 2 hours. They care less about hot towels or free drinks. This is the opportunity that the low-cost airlines took and disrupted that industry.
- Thanks to QR code technology and the widespread use of smartphones, SnapScan created a brand new market for inexpensive merchant transactions, disrupting the existing model of physical terminals provided by the banks.
2. Don’t overthink it
Don’t let your idea of the model or the product overtake your mission to solve a problem for people. Worrying too much about getting the product right takes away from your focus of servicing the unserviced.
3. Pick a category that already exists
Solving a problem people didn’t even know they had is going to be a long hard slog. Pick an industry that already has market demand, but where the players have become lazy. Try not to reinvent the wheel.
4. Disruptors don’t stay disruptors forever
Disrupters don’t stay low cost and lean forever. Over time they evolve by improving their products and welcoming more and more of the mainstream market to their offering. This is the point at which the yapping puppy becomes an adult dog and starts to demand respect.
5. There is no recipe for disruptive success
As much as it would be nice to follow a simple plan to unseat the established players of any industry, there is no such thing. But a good place to start would be to keep searching for a way to contribute to something that helps humanity. A business that helps to solve society’s challenges is a valuable business all round.
So in summary, following a disruptive innovation strategy means doing business with customers that are not wanted by the bigger players. Because of this the more established companies won’t bother to compete for the business until the disruptor starts to eat into their primary customer base, at which point it’ll be too late to do anything about it.