The Disruptive Start-Up: Clayton Christensen On How To Compete With The Best

How can you tell if your plan to take on a big swinging company is smart or foolhardy? Harvard Business School professor Clayton M. Christensen might have the answers.

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Harvard Business School professor and author Clayton M. Christensen has attracted a lot of fans who are heavy hitters. Fans like Andy Grove, chairman of Intel Corp. In a review of Christensen's 1997 business best-seller, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, on Amazon.com, Grove wrote: "This book addresses a tough problem that most successful companies will face eventually. It's lucid, analytical, and scary." Then there's George Gilder, of Gilder Technology Report, who called it "the most profound and useful business book ever written about innovation ...." And when we interviewed Michael Bloomberg recently, the man who is now mayor of New York City credited Christensen with helping to shape his ideas about innovation in running his successful media company, Bloomberg LP.

Christensen's thesis: that the best run of the large corporations -- those that are well managed, pay attention to their customers, and invest in new technology -- are vulnerable to being outwitted by disruptive innovators.

Christensen, a professor of management at Harvard Business School, has, in his writings and his work as a consultant, been focused largely on helping big companies to understand disruptive innovation and to avoid becoming victims of it. Recently, he's looked at the process from the point of view of the disrupters themselves. He has come up with a series of tests to help entrepreneurs judge whether their ideas are likely to succeed in the marketplace. To find out more, senior editor Nancy J. Lyons interviewed Christensen at his Harvard office.

Let's get right down to brass tacks here. When I first heard you speak, you threw out this phrase: "If I wanted to start a new growth business, I'd ..." What is it that you'd tell entrepreneurs to do?

No idea for a new growth business ever comes fully shaped. When it emerges, it's half-baked, and it then goes through a process of becoming fully shaped. I've developed tests that I'm hoping can help entrepreneurs manage that shaping process, so that the business plan that comes out the other end has a very high probability of success.

So you have been able to identify the strategies that allow new growth companies to succeed?

The whole story is about motivation. The leaders in every industry have vast resources at their disposal. If I try to grab a piece of real estate that the established leaders want, where the customers are attractive and the business is attractive, the evidence is overwhelming that the leaders will win. So what I want to do is to craft a strategy that takes advantage of what I would call asymmetry of motivation. That is, a situation where I'm motivated to go after the business of the market leaders, but the piece of their business that I can most naturally go after is the one that they're the least motivated to defend.

The established companies are always looking ahead to products that better satisfy their prime customers, where their profit margins are highest. Does that mean they're not that concerned about the lower-margin end of their business? And that's where the opportunity lies for start-ups with new ideas?

Remember that when a new idea emerges in an established company, it needs to get funded. And the only ideas that get funded are those that help the established company make more money. That process favors the ideas that create improved products for existing customers, and tends to reject more innovative, or disruptive, ideas. That is what creates disruptive entrepreneurial opportunities.

Tell me more about what a disruptive idea or innovation is.

A disruptive innovation is a technologically simple innovation in the form of a product, service, or business model that takes root in a tier of the market that is unattractive to the established leaders in an industry. Very often this occurs at the low end of a market -- that is how Toyota attacked General Motors, for example. Or it takes root by providing a simple and inexpensive product that enables a new population of customers to begin participating in a new application in the market -- as was the case with personal computers.

I don't feel that this concept of disruptive technology is the solution for everybody. But I think it's very important for innovators to understand what we've learned about established companies' motivation to target obvious profitable markets -- and about their inability to find emerging ones. The evidence is just overwhelming.

How would you go about coming up with an idea for a disruptive technology?

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