To Tech Startups: Do You Have A “Disruptive Innovation” Under Your Sleeves?

“Disruptive innovation” is a term we love using to describe an emerging innovation that has shaken up the industry and stumbled the previously successful incumbents. The word “disruptive” possesses some sort of magic that really fascinates the people today: it represents the kind of story about a hero with a humble background, through his effort and hardworking, eventually overthrew the tyrant that has terrorized the realm for years and rebuilt a new dynasty. In our culture, we cherish these kinds of stories as they represent the American Dream ideology. When talking about our favorite innovations, we love narrating the successful stories following this “disruptive innovation” storyline. For instance, people regard iPhone as a disruptive innovation as it shattered the old domination of the tradition cellphone and introduced the concept of the smartphone. People regard social media (Facebook, Twitter, TikTok, etc.) as a disruptive innovation as it broke the walled garden created by the traditional press and bestowed power of creating content to every one of us.

"Disruptive Innovation": An Overused Term

In the past five years, there was a dramatic growth in the number of articles using the term “disruptive innovation” or “disruptive technology.” For Tech startup entrepreneurs, they love hearing these stories and are seeking to become the next “disruptive innovation” by mimicking the successful cases. Some have succeeded and become the next unicorn, yet more have failed and become the steppingstones for the others. How come? The problem is that many researchers, writers, and consultants use “disruptive innovation” way too liberally: they are calling anything that is causing a buzz in the market as a “disruptive innovation.” The successful stories of the real “disruptive innovations” cannot be simply replicated to any companies in a shifting market. If using the term sloppily, the entrepreneurs may end up using the wrong tools and making ineffective business decisions.

For this article, we will take a look at what makes a “disruptive innovation” disruptive and discover how you can determine if your business fits into the disruptive innovation model.

Christensen’s Definition of a “Disruptive Innovation”

Clayton Christensen, an American Scholar and a professor at Harvard Business School, introduced the term “disruptive innovation” in his 1997 book The Innovator’s Dilemma.  According to Christensen’s explanation, “disruption” involves a smaller company with fewer resources successfully challenge established incumbent businesses.

There are two players in Christensen’s model: an incumbent and an entrant. At the beginning of time, the incumbents were dominating the market and targeting the most profitable customers. In contrast, the entrant started with the low end of the market that was not seen as competitive. At this point, the incumbents would not see the entrants as something they need to respond to as the entrants were targeting the less profitable segment that the incumbents overlooked. As the time comes, the entrants were able to move upmarket and reach the mainstream customers. That’s when the disruption starts to occur and shakes up the existing industry.

The Disruptive Innovation Model below demonstrates how an entrant follows a disruptive trajectory and challenges the incumbents’ dominance.

There are two premises to make an innovation disruptive:

1). It should originate in low-end or new-market foothold.

Christensen believes a disruptive innovation needs to start out as “less for less” because a low-end market and a new market are the two types of markets that the incumbents tend to overlook and got caught flatfooted.

2). It does not catch on with the mainstream customers until quality catches up to their standards.

Christensen believes the disruption theory differentiates from the “sustaining innovation,” which makes the good product better throughout time. A disruptive innovation should begin with something the customers find inferior and unwilling to purchase. As quality improves, people start to see the value of that product and thus cause disruption. A Textbook Example of a Disruptive Innovation

The founding story of is a perfect demonstration of how a disruptive innovation would look like. is a customer relationship management (CRM) service provider founded in 1999. CRM is strategic solution companies use to manage their interactions with customers and sales prospects in every area of their business. At that time, the CRM market was dominated by major enterprise resource planning (ERP) vendors, including Oracle, SAP, and PeopleSoft. When CRM software was just introduced to the market in the 1990s, it only targeted large businesses with complex requirements and systems infrastructure. The cost of implementing and maintaining the system is too daunting, requiring the business to invest a huge amount of money and time into building a complete IT infrastructure. Only large companies with abundant capital could afford to set up and integrating the CRM system. For medium and small businesses, they used alternative tools such as Excel spreadsheets or other database programs to store the information. Some even manage their documents using the old fashion ways, such as a filing cabinet.

Just as the whole business world was terrorized by the expensive on-premise CRM platforms and the incumbents like Oracle were feeding off from the most profitable customers(the large businesses like Coca Cola), our hero Salesforce entered the market providing web-based on-demand CRM system. Rather than relying on the expensive on-premises CRM software provided by Oracle or SAP, Salesforce used cloud computing to allow companies to access a CRM system through any computers at a significantly lower price. There was no need for a huge investment in building and deploying the system, which was good news for companies with limited funds and resources. Salesforce’s early version was not as robust as the incumbent’s on-premise CRM systems. Thus, Salesforce decided to strip off the excessive functions and only put the focus on fulfilling the customers’ core needs. They targeted specifically those small and medium-sized businesses that were within the less desirable territory to the incumbent companies. As Salesforce was continuously capturing the market share and improving its product throughout the years, it eventually reached the mainstream customers and became a truly disruptive innovation.

With Salesforce’s unique value innovation and masterful positioning strategy, it disrupted the CRM market that was dominated by a few incumbents and grew to be the world’s largest hosted CRM service provider within four years since its birth.

How can I tell if my innovation is disruptive or not?

Use the five questions below to evaluate disruptive innovations:

1). Does the product either target overserved customers by offering lower performance at a low price or create a new market by targeting customers who could not use of afford existing products?

2). Does it create “asymmetric motivation” (the existing player aren’t motivated to fight the disrupter after it enters the higher performance segments)?

3). Can it improve performance fast enough to keep pace with customers’ expectation while retaining its low-cost structure?

4). Does it create new value networks, including sales channels?

5). Does it disrupt all incumbents, or can an existing player exploit the opportunity?

Now that you know if your brilliant innovation is a disruptive innovation, what’s next? How can you leverage your business’s competitive advantage and position yourself in this shifting market? Stay in tuned for our next blog post.

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