What makes a startup disruptive and how you can try building one

Disruptive innovation is an “ambiguous” term, and the media that writes about the technology made it so.

Originally, the term appeared in the Theory of Disruptive Innovation in 1995; it was coined by Clayton M. Christensen.

“Disruption,” in his understanding, was a process where a small company with very few resources that challenges established businesses and the status quo they’re operating under. After the disruption, big companies have no choice but to confer and transform to keep up with new, alternative rules the disruption has introduced to a market.

Disruption, by definition, also often characterizes more functional and more affordable services or products and serves customer segments that are usually overlooked, underserved, or both. After entering the market and challenging the wide-spread incumbents - mature corporation - the disruptive company grows fast and performs well enough to snatch big businesses’ customers from their audiences and offer them the advantageous product at a lower price. In other words, disruption happens when accessible, functional, and affordable choice starts serving the needs of the big market.

And that’s where disruption occurs: when big companies start to realize they gotta change their ways to keep up with the new competition.

So, disruptive technology either

  • Serves less demanding and less wealthy customers, creating affordable and still well-functioning product or services

  • Often create markets: turn people who don’t buy into people who buy

It’s what Airbnb did when they introduced a model of renting housing for travelers, as an opportunity to not go to the hotel and, at the same time, as an opportunity for locals to engage with tourism in a comfortable, convenient way. The travel industry’s way of doing things has been challenged.

How low-end disruption occurs
How low-end disruption occurs

Netflix, another disruptive company, introduced streaming movies from the Internet: it targeted people who wanted to watch the show on the Internet and not pay a lot. It disrupted the cable industry to the bone, and initially, it targeted people who weren’t willing to pay for cable or buy or rent movies and quite possibly have been devoted users of pirate websites. Both the cable industry and movie stores have been hit.

Another thing disruptive startups have in common is that the majority of people don’t see them coming until it’s too late. They are the low-cost accessible choices for low-end markets, and that means they have lower margins at the beginning - so when they expand (because of the benefits low price and accessibility provide), they do it slowly and carefully; and then they don’t.

“Obliteration by incorporation” of disruptive theory

Since Christensen wrote his Theory of Disruptive Innovation, business people started applying the term disruptive startups to every innovative or close to an innovative solution.

Here’s an example: knowing that disruption - by definition - mostly targets non-customers or starts at the low-end market segment, can you honestly say that Uber and Tesla are truly disruptive technologies? You can’t.

They provided an alternative, and, yes, an opportunity for people to use a more convenient/affordable/or even more sustainable transportation. Those who want to buy an electric car bought an electric car. Those who have already been used to getting rides started using Uber. Both of these companies didn’t originate in low-end and targeted already established, mainstream markets.

So, to the obliteration by incorporation point: the term disruptive innovation has been overused and overpopularized in situations where it’s not applicable. It became a buzzword, like “data science” and “blockchain” in 2016. In his 2020 interview with MIT Sloan, answering to what people misunderstand about his theory, Christensen said: “...disruption does not mean “breakthrough” or “new and shiny,” [and] far too many people assume that disruption is an event. Rather, disruption is a process.

Disruption is a process that reveals itself when big businesses are forced to change

...so it’s kind of hard to predict what exactly will be a disruption.

Initially, we wanted to write an article that will account for all probably disruptive startups that are already here and already have it out for big corporations and processes, but, tough luck: we found none. But, as you already know, disruption is a process and it can either be successful (where the big companies are like: uh; we guess we have to change things) or not successful (where nothing changes).

And we can find a lot of startups that, for instance, provide services for underserved people. Spora Health provides affordable and quick primary care services for Black people and people of color. Folx Health provides health services for the LGBTQIA+ community. Both of these groups have been historically underserved and mistreated when getting medical services, both of them, due to discrimination, are on the low-end of the market. As the customers of another startup, Leaf, that provides financial services to the stateless.

All of these startups could change the way people get medical or, in Leaf’s case, financial services for the better. Their launches might be the start of a disruptive process. And they might not be. It depends on the adoption, on the industry, on the founders’ desire to keep growing from an underserved market without tapping onto incumbent territory until the incumbents' customers start to look at them.

So: how can you become a potentially disruptive startup?

Well, as we’ve mentioned, disruptive startup

  • Turns non-customers into customers and create new markets, or

  • Serves low-end customers

The simple way to build a potentially disruptive startup is to look at audience segments big companies or big industries overlook and don’t serve. Or at people who don’t use the products or services or some company. Find out why these people aren’t in focus. Find out why they don’t use products or services. Start making something to deliver products or services to them.

Amazon (not a single article goes without mentioning it, but it did disrupt the book industry)’s Kindle made every bookstore in the country worry. They’ve seen the demand for affordable and convenient opportunities for people who rarely buy books because they’re too expensive and have been online and didn’t like to read from the blue screen because it hurt their eyes.

Create a product or service that enables people who weren’t in the focus before.

Find a more affordable way of doing things.

Find a free way of doing things (like Wikipedia did, hey.)

The iPhone wasn’t disruptive because it was a new way of calling people; no one needed to call people more. iPhone disrupted the PC industry: it gave people a new way of access to the Internet. Apple caused a shift in the way we access information so much that in many counties, USA included, rural centers jumped over PC digital adoption and started with smartphone-based digital adoption: affordably, due to lots of smartphones that started to pop up after the first iPhone release.

Another thing to remember: you don’t have to be disruptive - in the true meaning of this term - to be innovative. Uber, Google, and Spotify are both innovative companies, but they aren’t disruptive; and they are doing great.

Another thing to remember: the industries might be resilient to change. Industries with short sales cycles will bend under disruption faster than industries with long ones, just like the industries that are heavily regulated.

In some sense, creating a potentially disruptive technology means a commitment to stealth, gamble, and turning solutions for people or problems the majority doesn’t notice into the force to be reckoned with.

Good luck! If you need some help with your startup: software, business consulting, or any other services startups might need - disruptive or not - contact us.


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