For startups today, disruption is the endgame. To get venture backing, a startup needs to make a credible claim that it has envisioned a future where an incumbent industry is changed forever by its innovation. Woe to the entrepreneur who forgets the market disruption slide in their pitch deck. If you don't know whose lunch you are going to eat, don't expect a call back.
And yet, here's the catch. The idea that anyone can predict disruption is flawed fundamentally.
The hard thing about disruption is that it's only obvious in hindsight. A true market disruption happens when there is a confluence of multiplicity of events, most of which are invisible to the entrepreneur, including seemingly unrelated technology advancements in adjacent industries, the innovation's amplification by emerging complementary technologies and market readiness for change.
Recently, I had the opportunity to connect with several tech industry veterans at the Mobile Future Forward executive summit where we discussed disruption and its messiness.
"If I told you in 2007 that Motorola, Blackberry and Nokia would sell for a total less than what Facebook paid for WhatsApp in 2014, you would have thought I was crazy," said Alberto Torres, CEO of Atheer Labs, an augmented reality startup and former Nokia executive.
Another hallmark of disruption is that the catalysts aren't always the beneficiaries. Although your startup's innovation may very well disrupt a market, it doesn't mean you will profit from it.
"We are quick to think of Uber and its financial success, but forget about Napster, whose only money came from selling t-shirts with their logo," said Joao Barros, Co-Founder & CEO of Veniam, a mesh network startup.
So if disruption is unpredictable and not always beneficial to the catalyzing startup, what's an entrepreneur to do? Thankfully, there are ways to navigate these tricky waters.
First, look to industries where key players have locked into legacy glory. The seeds of disruption are sown when companies (industries) attempt to secure their market position by overinvesting in their original business model and/or innovations that got them to the top. This common corporate behavior tends to feed a culture of consensus, which promotes the status quo.
"What we know from evolutionary biology and the sciences that stasis is an anomaly--change is the norm," said Narayan Sainaney, Co-Founder and CTO of Mojio, an open connected car intelligence platform startup. "Equilibriums are often punctuated by outside forces so it's not surprising that this also applies to the business ecosystem." Simply put, a company or industry that clings to what made it once great is begging for cataclysm.
Second: carefully consider what future must manifest for your venture to be successful. If your success depends on a very narrow set of favorable future conditions, rethink your approach. The art of the pivot has everything to do with rewriting the disruption narrative when market conditions fail to materialize or underwhelm. If you are dependent on a very specific future state, it can spell disaster.
"In 2006, I had a vision of radio shows streaming through our mobile phones," said Erik Schwartz, CEO & founder of FoneShow and currently working on product at BitTorrent. "By 2008, the iPhone had dramatically reduced the number of feature phones in the US, particularly among the critical market segment of the early adopters. It was game over."
Third: consider how well you understand the real unmet market need. Here insiders may seem to have an advantage. And yet, history demonstrates clearly that successful startups tend to come from outside the disrupted industry. Outsiders can see things that insiders simply cannot, as it's the water they swim in.
"If a taxi company tried to create Uber, they would keep the dispatcher, the obligatory tipping, stuck some ads in the app and left out the prepayment method, along with any ability to rate the experience," said Jeff Nolan, VP of Marketing for Knurld.io, a voice authentication startup.
As for being the beneficiary of your disruption, that's far more difficult. Pioneers often find themselves out-funded by late entry competitors. Essentially, your pioneering work has derisked the investment for future startups. Having lived through this personally, allow me to say that the first mover advantage is wildly overrated.
The best way to counter this particular risk is to have deep-pocketed early investors who are prepared to go round after round and have an established network to facilitate future financing. An alternative is to have a business model that has a mad revenue curve with ridiculous profit margins capable of funding all necessary growth. While the former is hard to find, the latter is exceptionally rare.
The startup game may seem sexy from afar. Those closer to it know how hard it is to surf the tsunami of disruption. Experience and skill certainly help, but in many ways it is table stakes. Through our exuberant celebration of the few winners, we are blind to the vast body count. For every ship that comes in, thousands have foundered in the frightening, unpredictable waves of disruption.
Kelly Fitzsimmons is a well-known entrepreneur who has built and sold several companies. Currently, she is the co-founder and director of HarQen, a next generation web-telephony company. She is an alumna of Springboard Enterprises, and a contributor to Springboard's Been There, Run That column.