While it seems important, most companies do a really poor job understanding what their competitors are doing. Competitive analysis isn't necessarily difficult - the data is out there in most cases - but few companies take the time to understand what their competitors are doing and determine the implications. This is somewhat tragic, because watching what competitors do and being prepared to respond is the easy part. Most true disruption, most true innovation comes not from the familiar competitors you see and ignore every day. Most really interesting innovation comes from companies or sectors that you don't consider as competition, until you realize that they've eaten your lunch.

Unexpected Innovators

In a strange twist of fate, the companies most likely to disrupt your industry or market are those that seem to have the least to do with the industry or market currently. If you think about it, this will begin to make sense. Current competitors who participate in a market have the same interests, same business models and follow the same conventions as you do. They are interested in preserving the existing market or industry, all the while making incremental change that they hope will benefit them. Crazy new ideas about standards, conventions, revenue models, channels and other disruptive factors aren't introduced by the existing players. They are introduced by wildcards who have no stake in the existing industry or market. History has demonstrated time and time again that the company that will disrupt your market or industry will be the one that seems to have the least relationship with the existing structure, conventions and models.

Examples

Netflix destroyed Blockbuster not by trying to lock up more real estate and retail stores, but by eliminating the store altogether. Apple disrupted Tower Records not by creating better record stores but by capitalizing on the move to digital music and by creating a channel to distribute and manage that music. Spotify and Pandora did Apple one better by removing the need to distribute and manage the music files. And so on. Major change and disruption will originate in most cases from players outside the industry. What does this mean for you?

How to spot disrupters

By all means pay attention to your competitors. You probably aren't doing enough of that work now, but don't stop watching and interpreting their actions and investments. Then, once you can analyze and interpret what your competitors are doing, start looking at adjacent markets, products and technologies. These are the most likely launching points for a new, disruptive entrant. Also, pay attention to what you and your competitors consider as "sacred cows" in your business models, revenue models, channels of distribution. What would a new entrant choose to emphasize that you ignore, or ignore that you emphasize? Then you can begin to spot potentially disruptive entrants and create barriers or move in the disrupter's slipstream.

While it may seem a significant amount of work, in this case a little observation and interpretation will help you sustain your business, while ignoring competitors and potential entrants could mean the end of your business.