Since publishing The Innovator's Dilemma in 1997 Harvard Business School professor Clayton Christensen has become a global disruption guru.
These days everyone seems to be using the word 'disrupt' in as many sentences as they can in pursuit of capital and media buzz.
But it turns out that Christensen's book featured an idea -- that companies should spin off disruptive technologies into separate organizations tasked with killing the parent -- that I have been criticizing on an off since January 2000 with no effect.
More recently, I pointed out the flaws of this approach in a letter to the New Yorker that appeared in July 2014.
On July 12, I spoke with Ash Ashutosh, the CEO of Actifio, "the copy data virtualization company," that tried Christensen's approach, found it didn't work, and quickly took a different path.
Will that switch be enough to help Actifio -- which was valued at $1.1 billion when it last raised money ($100 million) in March 2014 -- reach its long-held goal of going public?
Before getting into how Actifio decided to manage disruption, let's examine Christensen's definition of a disruptive technology. As he wrote, a disruptive technology has the following attributes:
- Different customers. A disruptive technology targets different customers than those that buy a company's core product.
- Different value proposition. A disruptive technology offers those different customers a different value proposition from that of the company's core products.
- Different partners. A disruptive technology requires different partners than does the core product.
Why do companies buy Actifio's products? In a nutshell, companies waste a lot of money making and saving copies -- as many as 12 per company for uses like backup and application testing -- of their data.
Actifio saves companies money by letting them do all those things with a single "golden copy." For every dollar a company invests in Actifio's product, customers save as much as $15.
In February 2015, Actifio had been growing for years by selling its product to very large companies. But as Ashutosh told me then, he was thinking about finding a way to add more predictable cash flows to Actifio's income statement.
To that end, the company created a service, Actifio One -- a "business resiliency cloud" -- that would deliver the company's technology to small and medium-sized enterprises (SMEs) via the cloud using a Software-as-a-Service (SaaS) model that would yield monthly cash flows for Actifio and would be sold and serviced to SMEs through distribution partners.
He envisioned that ActifioOne would be targeting a huge market opportunity -- worth $580 billion which was the amount Ashutosh said SMEs spent on IT.
As he told me recently, he thought that it would be much more efficient to sell to distribution partners who sold to SMEs. "With big companies, it takes us 83 days to convince them that we can generate business value. But it can take six to 14 months for their procurement departments to qualify us and pay us as a first-time supplier. Working with distribution partners who sell to SMEs, the procurement process is shorter -- 20 to 80 days."
Using Christensen's definition, Actifio One was disruptive because it targeted different customers -- SMEs instead of huge companies; had a different value proposition -- low monthly fees and a service delivered via the cloud instead of a more expensive "appliance;" and different partners -- selling via distribution partners instead of direct sales.
Ashutosh told me recently that he set up Actifio One along the lines that Christensen prescribed. As he said, "We spun out a separate group across the street. After one-and-a-half quarters we realized that the logic was right but the reality was that we had the organizational DNA of working closely with large enterprises -- developing technology solutions to work with petabytes of data."
Actifio then realized that it lacked the capabilities to succeed in selling to SMEs. "One of the biggest differences in working with SMEs was how we needed to run finance. Whereas big companies might make three to five big payments during a contract, SMEs would pay monthly. To bill and collect from them we needed to add 20 people and be PCI-compliant so we could accept credit cards from them. Also, we were uncomfortable not having a direct relationship with the end-users of our product," he said.
Actifio decided to scrap its separate subsidiary and instead license its technology to bigger "service providers" -- companies that deliver an array of IT services to SMEs. As Ashutosh explained, "We license our technology to five of the 10 largest service providers that deal with SMEs. Like large organizations, they make a smaller number of large payments. And they may have 100 to 600 SME customers within a region. To sell to them, we need to show that our technology will help their SME customers to cut capital expenditures and achieve operational excellence."
In 2012, Ashutosh told me that he wanted Actifio to go public in 2014. That did not happen. And in June 2016, he told CRN that Actifio did not need to go public and its goal now is to get cash flow positive in 2016.
Actifio took Christensen's advice for managing disruptive technology and ran into the same problems as others who did that about which I have been writing since 2000.
The company changed its strategy quickly, but it remains to be seen whether that change will yield the cash flow smoothing effects that Ashutosh sought back in 2015.