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Why 20 Million of You Can't Be Wrong

A long-time Inc. contributor surveys the current entrepreneurial scene and reports his findings. How do things look? Well, one answer might be "Never better, thanks!"
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Page 3 of "Why 20 Million of You Can't Be Wrong"

Natural-born disrupters

Seven years ago a lanky (six-foot-eight) Harvard Business School professor named Clayton M. Christensen published an unassuming book titled The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. It was a scholarly work, densely packed with research. But it promptly hit the bestseller list on the strength of its novel and provocative thesis. Some innovations, said Christensen, sustain an industry--they offer better performance, more features, everything that existing customers are looking for. Other innovations disrupt an industry. They may not work as well as what's already out there, but they bring useful products or services to people who never had them before. A classic example is Canon's small-scale copiers, in wide use by the early 1980s. The inexpensive copiers couldn't do nearly as much as the big Xerox machines of the time, but they made desktop copying available to small businesses that couldn't afford a Xerox. Christensen's insight was that disruptive innovations are rarely attractive to the companies that dominate an industry, just because they carry lower profit margins and don't serve the needs of those companies' best customers.

Much of Christensen's message--elaborated in a subsequent series of articles and in a second book published just last year--is designed to help large companies become more innovative. But it's easy to see how growth companies can compete in a Christensenian marketplace. For one thing, smaller businesses always have a built-in advantage as experimenters and explorers. Almost by definition, large companies have high cost structures. To grow they need big new markets. So they hesitate to invest in innovations where the profit margins and the market size are essentially unknown.

It's hard to imagine a better description of today's technology world. A reasonable observer in 1984 might have foreseen the explosive growth in PCs, and in 1994 the rapid expansion of the Internet. But in 2004? Um, quick, how big will the market be for Internet-based telephony? For polymer-based computing chips? Large companies are nosing around many such markets, but nervously--which means that much of the innovation will be undertaken by start-ups and nimble young companies that sniff out a niche worth exploring. Right now, for instance, a handful of entrepreneurial businesses are leading the charge into wireless networks composed of tiny interacting sensors that can monitor aspects of the physical world, from the performance of commercial refrigeration units to the movement of armored vehicles on a battlefield. Kris Pister, CEO of Dust Inc. in Berkeley, Calif., has told more than one reporter that sensor networks will be "hugely revolutionary," capable of doing "for the physical world what the Net did for the world of ideas." He may be right--but who knows? And who knows how big the margins in such a business would be? Absent clear answers to such questions, this and many other high-tech markets will be the province of entrepreneurs for years to come.

When you look at innovation through Christensen's lens, you see ways in which entrepreneurs can create their own markets.

Nor is it only technology businesses that face daunting uncertainty. Take what may be the biggest new consumer market to come down the pike in some time, that created by the aging of the baby boom generation. "The over-50 population will represent 80% of all the growth in the United States," argues marketing guru Ken Dychtwald, of Age Wave Inc. "There will be double-digit growth for decades to come in this marketplace." Parts of the new market are highly predictable: more demand for homes in Arizona and Florida, more need for walkers and wheelchairs. The big companies in these industries are already gearing up. But wait! This is the baby boom, and those frisky boomers are apt to want things that past generations of elderly wouldn't have known what to do with. Adventure travel! Back-to-school learning opportunities! Bill-paying services! Some such niches may turn out to be huge--but until somebody finds out which ones, the large companies will hold back. "Dreaming up novel ideas, getting them launched, proving they can work--the Fortune 500 can't do that," says Dychtwald. "So they have respect for, and interest in, the entrepreneurs who can take the ideas and make them real."

Christensen also shows that real disruptive innovation typically occurs when an industry has overshot its mark: when its products or services offer more than most customers need, and when they are so costly that large portions of the market are excluded. If there is one industry that fits this description today, it is health care. Many people who visit a hospital don't need its expensive technology and services. Many who visit a doctor could make do with a nurse. The solution? Disrupt the health care system, of course. "You bring technology that enables people to do in their homes what they used to have to go to a doctor's office to do, and to do in a doctor's office what they used to do in a hospital," says Christensen. "You enable less expensive venues of care to become more capable, and less expensive caregivers to become more capable."

Medical-device upstarts have already created new business opportunities from such disruption. LifeScan Inc., now owned by Johnson & Johnson, developed portable blood glucose meters for diabetes, enabling patients to monitor their own glucose levels without relying on large-scale hospital labs. Sonosite, based in Bothell, Wash., developed an inexpensive handheld ultrasound device that for some applications can replace big cart-based ultrasound systems. Now disruptive innovation may be changing the delivery of health care services. A company called MinuteClinic, headquartered in Minneapolis, has placed a dozen health care kiosks in Target and Cub Food stores around its area. Staffed by nurses, the clinics offer diagnosis and treatment for a carefully circumscribed list of common conditions, including strep throat, ear infections, and sinus infections, plus screenings for such measures as cholesterol and blood pressure. They can't provide everything a doctor's office can, but they do offer convenient walk-in service (typically requiring 15 minutes or less), and they charge only $41 (or an insurance copay) per visit.

When you look at innovation through Christensen's lens, you see ways in which entrepreneurial companies can create their own markets. They can experiment and explore in terrain that big companies fear. They can introduce products or services that undercut the market by making something simpler, more convenient, cheaper, or more accessible. Entrepreneurs are natural-born disrupters: Look for more of them in the next five to 10 years.

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Last updated: Apr 1, 2004




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