What if we could predict which businesses would survive, and which would crumble? Which new ventures would be worth funding, and which only worth scrapping? It might be possible, writes Michael Raynor, author of The Innovator's Manifesto: Deliberate Disruption for Transformational Growth. The director at Deloitte Consulting has worked alongside Clayton Christensen on the Innovator's Solution, and has since been applying Christensen's landmark Disruption Theory to dozens of case studies. He claims that applying Disruption Theory when analyzing a new venture can help managers more accuragely predict which businesses will survive. "In other words, not only is Disruption effective, it can be readily and sucessfully taught and applied," he writes. Raynor speaks with Inc.com's Christine Lagorio about why some industries are "disruption-proof," why we don't study sea turtles, and why "fail fast" just isn't enough.
What inspired you to work on this book?
Thomas Thurston at Intel was interested in determining whether disruption theory would help him launching new business inside Intel. He started by looking at a portfolio of companies Intel funded. And he said, if I'd use disruption theory, what would I have funded, and what would the success rate? Of the six he would have funded, four survived. That's quite different than the actual 10 percent of those that Intel had funded that survived. I collaborated with Thomas with a number of experiments at Harvard, along with MBA students. We asked each student to read six of the 48 Intel case studies we had, and predict which companies would survive. Then we asked them to read disruption theory, and then predict which would survive. Their accuracy rate increased significantly. Disruption is the first theory of its kind in innovation that's been proven in this way.
I love in Professor Christensen's introduction to your book he says, "science—at least in this one instance—truly is making a difference in the practice of management." Let's start there.
Yes, there are ways you can apply disruption theory to your business. But it's a fundamentally different paradigm. The whole notion behind innovation tournaments, and policies like Google's, say, having 20 percent of your time to work on creative projects–these exist just in order to increase the variance. It's the whole let's-try-something-new, let's-let-1,000-flowers-bloom way of thinking. The problem is that the thousand things you let bloom are not usually flowers.
How can you bloom more flowers, so to speak?
If we now feel like we can identify the predictors of disruption, then we can go find and create those circumstances, and therefore increase our likeliness of success. The framework I'm suggesting is Focus, Shape, and Persist. Focus on the disruptive, shape them, and then stick with it. The claim is you will have a greater likelihood of success.
Do you really think we can predict successful disruptive innovations?
The evidence suggests that careful application of disruption theory makes it possible to predict more accurately which businesses will succeed or fail. Disruption theory is the only theory of innovation that has predictive support.
Shouldn't you be the world's most successful VC with that skill?
Well, in the book it's a modest claim vigorously made. If this did get anywhere close to 100 percent predictive accuracy, I wouldn't put it in a book at sell it for $14.95.
You say that the goal of "fail fast" just isn't enough. What else can a company do to make innovation part of its culture?
I think there's an important shift in language that I would say right off the bat. When you're a small group of folks, you've cashed in the 401(k), you have a second mortgage, there needs to be this shift in language from fail fast to learn fast. The problem with fail fast is that you don't always have the resources to fail. I've suggested we shift. So the question becomes what are we trying to learn?
But isn't there value in failure?
There's a Thomas Edison quote when he was trying to find the filament of the lightbulb, something like "I haven't failed 10,000 times, I've found 10,000 things that don't work." We need a much higher-probability way to find solutions. To get there, I would suggest picking your fights carefully, designing your solutions with the best probability of success in mind. But like any good scientist you want to remain open-minded.
You write that certain industries are just be "disruption-proof." Howso?
My favorite example is hotels. The reason I think so is there's no enabling technology that allows an alternative business model to compete for mainstream segments. If you look at the varying segments in the hotel industry, take Four Seasons at one end, and Motel 6 at the other—that's what I'm going to call a classic segmentation model of an industry. As long as there are no disruptions, that works. Motel 6 created an entirely different market, the way the PC changed the computer industry. That's because there was disruptive technology in the microprocessor. Now we have more computing power in yoru phone than was used in the Apollo moon mission. But that doesn't happen in hotels. because if Motel 6 wants to increase the experience, there is going to be higher cost. So as a result, you get a more greatly segmented market. But nobody disrupts anybody, because there’s no enabling technology at play.
And this is explained a bit in a figure in your book.
You'll see there that I have Four Seasons under the fail. You'll see that Four Seasons is a long way from failing, but this model would have predicted failure due to the way it entered into the market. This is empirical management—we can say things with some confidence, but it's important to face up to the limitations of our knowledge. Clayton [Christensen] was on record in 2007 saying he thought the iPhone would fail, because it was an entrant into the market that was sustaining.
The first question here, is it sustaining, yes or no. whether the solution is better than existing solutions, and targeted at the most lucrative audience. The “autonomous” question means: do you have the liberty to pursue a strategy within a company; can you be autonomous from the mothership? Do you have a new productivity frontier? The reason that's important, because if you don't have that, you're just a strategic differentiator, like the Holiday Inn or Best Western. They’re different spots on a common frontier. If you do, we ask, do you have an enabling technology. This is what allows you to move up market without changing the business model. If you do, then you're a disruptor.
What advice would you give to young entrepreneurs hoping to disrupt their field?
If you want to study genetics, don't study sea turtles. If you want to study genetics, you study fruit flies. In tech, we see disruption happen so fast, because the enabling technologies move so fast that you can see the disruption happening in front of you. How quickly you disrupt is a function of the technology today. If you want to disrupt quickly, you should focus around those technologies that move the fastest.