I used to think that disruption referred to any dramatic breakthrough innovation in a certain field. But when I researched the origin of the term 'disruptive', I learned it meant something different to the way it's used today. Disruption is a theory of competitive response. It says that some innovations will cause competitors to attack, while others stay off the radar for a long time.

Products that target the same customers as existing players are called 'sustaining innovations'. Competitors will react to protect their turf. In contrast, products that are disruptive go after non-consumers that are priced out of the market. They are inferior to today's products in some dimension that's important to today's customers - allowing them to safely go under the radar of existing players.

Airbnb is the classic example of a disruptive product

At the start, Airbnb allowed you to sleep on an airbed in some random person's living room for a really low price. People that were attracted to Airbnb were not the same people that were attracted to Marriott as it had none of the good qualities of a hotel. It's business model allowed for these low-value customers because it didn't require Airbnb to own the property or employ the operating staff. A low-cost solution to a low-value customer.

Of course, as Airbnb grew in popularity, the quality of its offering increased. They begin to address the needs of higher-value customers that would otherwise stay at a nice hotel. But now Marriott, with its asset-heavy business model can't compete.

Uber is not a classic case of disruption

Uber started off as a high-end car service that offered a high-quality alternative to taking a taxi. Cars arrived quicker and could be summoned by tapping a single button. Uber started at the top of the market, competing directly with existing and worked it's way down. As Clay Christensen himself says, this is the definition of a sustaining innovation.

Uber faced a direct competitive response from the beginning. All around the world, taxis protested with the mission to eliminate Uber as a competitor.

One caveat: there is an argument that says Uber may go on to disrupt car ownership by offering a cheap alternative to owning a car. I've heard this called 'Full Uber'. In this sense, it would be considered disruptive to the car industry and time will tell if this happens.

Is your product really disruptive?

To understand if you are building something genuinely disruptive, here are some questions to ask yourself:

  1. Are existing competitors pricing out a large, untapped need?
  2. Does your business model allow you to serve customers radically cheaper than existing competition?
  3. Will your future competitors write you off as low-quality?
  4. As your product develops, will the quality increase to satisfy higher-value customers?

If the answer to all the above questions is yes, you're sitting on a potentially disruptive product. Remember, to stave off the competitors, don't compete on their definition of quality. Instead, focus on creating a business model that's structurally cheaper than your competitors.

If you're non-disruptive, don't underestimate the competition. Marketing to the customers of big players is expensive and getting people to switch product is notoriously hard to do. The rule of thumb is that you need to be 10X better than what exists today.

Published on: Apr 25, 2017