By Martin Zwilling
Every entrepreneur with a new technology tells me that his innovation will be industry-disrupting, meaning that it will render the existing technology obsolete, and create a new market. Yet truly disruptive innovations, like the smartphone from Apple and the rise of the Internet, are very rare, and are generally unpredicted. So why would any investor ever believe any of these claims?
In fact, as a mentor to entrepreneurs and an investor, I recommend that entrepreneurs avoid using the term disruptive with investors, since many see it as implying extra high risk, a long time for payback, and extensive marketing to build the new market. Yet a win in this department clearly has huge implications for success, and a very real potential to change the world.
Thus, it’s worth some extra effort to understand attributes of the market, in concert with your new technology, which might really indicate that industry disruption is possible with your innovation. In a classic book, ‘Disruption by Design’ by the renowned innovation consultant Paul Paetz, I found a list of common patterns and recognizable attributes that I like, called disruption fingerprints.
I suspect that several of these will surprise most entrepreneurs as being counter-intuitive to their thinking. Entrepreneurs tend to look for big changes and big markets when seeking disruptive opportunities, when the opposite may be more effective. I agree with Paetz that the following approaches are often more likely to find a disruptive opportunity around the corner:
Initially address a small market niche. Disrupting a huge market intuitively has greater potential, but it’s also like turning an aircraft carrier. It takes a long time and lots of effort to overcome existing momentum, and both investors and customers want to see results on a small scale in their lifetime, before they line up to join the movement.
Pick a technology that somehow seems inferior to the major incumbents. Existing players normally think in terms of bigger, better, and faster, whereas more customers may really be satisfied by smaller, cheaper, and simpler. Think personal computers compared to mainframes, or smartphone cameras compared to professional cameras.
Target large but moderate-to-low-growth segments. Usually these are low-growth for a reason – a new technology or price point could easily be the trigger to a large opportunity. On the other hand, high-growth segments may look more attractive, but are likely being attacked by the big players and many other competitors.
Look for sizable customer populations unattractive to incumbents. These may be people who can’t afford existing products due to income levels or location, but need the solution. Remember the explosion of cell phones throughout the world when cheap versions and new pricing models were introduced a few years ago.
Explore industries where you are an outsider. Most business advisors recommend that you stick with the business area you know, where you have inside knowledge. Often entrepreneurs are more able to think outside the box and bring disruptive change to less-known business domains. Consider Apple’s move into music, telephones, and watches.
Compete against non-consumption and non-existing markets. The most disruptive products are ones that never existed before, and no forecasts are even available to size the opportunity. Facebook built the social media market before customers even knew they needed it. Naturally, these are very high risk efforts, but have unlimited potential.
Of course, entrepreneurs looking for disruptive opportunities should never forget the more likely disruptive alternatives, such as bypassing existing channels to go direct to the customer, finding an order-of-magnitude cost breakthrough, addressing underserved needs, or offering dramatic improvements in ease-of-use and convenience to new and existing users.
Yet, even with these alternatives, market disruption is rarely predictable – it’s obvious only in hindsight. Every entrepreneur should aim for it, but restrain themselves from highlighting that focus to early investors, or even early customers. It’s one of the quickest ways to lose your credibility, and maybe even your opportunity. Pitch your innovation against today’s market.
