If you have ever browsed Netflix, worn a pair of Nike shoes, or even eaten a California sushi roll, you have benefitted from disruptive innovation, or “disruption.” Disruption in business causes radical shifts in industries by offering unique, niche, more affordable, or untapped solutions to old or new problems. Sometimes, disruption upends existing markets; other times, it creates entirely new ones.
Disruption can potentially affect every facet of the market landscape, so small businesses and startups alike should understand how disruption works, learn from success stories, and be aware of the pros and cons.
What Is Disruption?
Business disruption refers to any innovation within an industry that radically and lastingly changes the way all companies in that industry operate. The term “disruptive innovation” can be traced back to the late American academic and business consultant Clayton Christensen.
According to Christensen, disruptive innovation occurs when a new market entrant intentionally targets those overlooked corners of the market by offering a design or new business model that is more affordable, convenient, or simpler than the existing offerings. Disruptive businesses, or disruptors, successfully challenge industry giants and established businesses with fresh takes on old problems.
Disruptors initially focus more on efficient solutions for their target market’s unmet needs than on winning awards for innovation.
How Does Disruption Impact Industries?
Disruption is a recurring cycle of “creative destruction”—a term coined by economist Joseph Schumpeter—that tends to cause market destabilization and, often, industry panic. Netflix is a prime example of this, as the content company disrupted itself and its market twice, first through DVDs by mail and then with streaming. This phenomenon is a valuable source of economic renewal, according to the economist and scholar Mark J. Perry. Had brands such as Kodak, Blockbuster, or Borders focused on developing improved versions of their original, beloved products and offerings, or incorporating new technological innovations into their offerings, they might still be dominant in their markets today. Here are two other examples of businesses that successfully facilitated disruption in their respective industries.
What Nike Did for the Environment
Following scandals in the ‘90s surrounding Nike’s manufacturing labor processes and significant adverse environmental impact, the shoe and apparel giant wisely decided to absorb the criticism and improve its business practices.
After the scandals broke, Nike committed to disrupting its traditional approaches to sourcing materials and manufacturing athletic shoes, spurring an era of sustainable innovation and increased transparency about its labor practices. In the process, the brand created several initiatives to improve how it operates.
First, Nike unveiled a recycling program in the early ‘90s called “Reuse-A-Shoe,” which has resulted in tens of millions of pairs of discarded shoes being transformed into valuable material. Second, in response to the unavailability of ethically sourced cotton, Nike became a founding member of the “Organic Exchange,” a vast organic cotton farms network dedicated to addressing challenges such as significant water footprints, high pesticide use, and the pressing social issues associated with conventional cotton farming. Finally, as material sourcing was one of its primary environmental concerns, Nike created a “Materials Sustainability Index,” which ranks materials based on their environmental impact. This index also allows other industry leaders to make educated decisions when sourcing materials.
Nike, which continues to maintain high brand value (especially among teens and Millennials) and market ranking, had the foresight to assume responsibility, look for new solutions to old problems in its industry, and disrupt the very market in which it operated.
What the California Roll Did for Sushi
Before the introduction of the now-famous “California roll,” sushi was not quite as ubiquitous in America as it is today.
While its creator’s identity has been disputed, many credit the California roll to Canadian chef Hidekazu Tojo, who introduced customers to a new maki-style sushi roll in which he combined familiar ingredients (rice, avocado, cucumber, sesame seeds, and crab meat) in a new way. As a result, the chef helped make sushi more accessible and invigorated the palates of American restaurant patrons, while elevating a dish in an almost non-existent market.
Americans now consume approximately $2.25 billion of sushi annually, thanks in part to the California roll, which provided a gateway for more consumers to discover and enjoy Japanese cuisine. In addition, the roll gave rise to a new rule, the California Roll Principle, which depends on making the unfamiliar more familiar.
Tip: The lesson of the California Roll is simple: People don’t always want something brand new. Sometimes, they just want the familiar done differently. As such, disruption doesn’t always require a new offering, but rather a modification of what already exists.
Disrupters vs. Startups
In 2015, Clayton Christensen clarified the difference between a startup and a disruptor. It has to do with the business plan’s intention and the rarity of the idea, as well as the offering’s desirability. Almost any business can create and sell a service or a product. However, a disruptive business model revolutionizes an industry by giving customers innovative products or services they want for niche, unmet needs at desirable prices.
|Innovation plus intentional utility||Idea plus financial backing|
|Desire to completely revolutionize their market and provide value||Desire to dominate their market and gain customers and capital|
|Focus on customers’
unmet “pain points”
|Focus on the product or service performance alone|
|Seek to impact the market positively||Seek to dominate the market|
|Creative, out-of-the-box thinking||Results-centered thinking|
|Agile adaptability||Focused enthusiasm|
What is the recipe for disruptive success? Here are some of the ingredients:
- Intentional innovation: Disruption success starts by thinking broadly about innovation. Something as overlooked as packaging, tools, or disposables could be what makes you a household name. Tetra Pak, ballpoint pens (modernized by László Bíró), and Kleenex are great examples of this.
- Desire to revolutionize: Disruptors seek to create new markets or revolutionize old ones by innovating something existing or adding new products or services. If it improves lives and spurs markets to evolve, disruptors are interested and motivated.
- Focused on the consumer: Disruptors collect local insights and look for meaning in numbers. It can be challenging to innovate without understanding consumers’ values for what you're trying to innovate. Focus first on listening to customers and improving their lives, rather than just relying on their classic “needs and wants.”
- Positive impact goals: Can waste reduction be improved in the manufacturing of a product? Can a service be more user-friendly? Can costs and price points be decreased, increasing accessibility without sacrificing quality? By answering these questions, innovative market leaders can positively impact their industries for generations.
- Anti-status quo creative thinking: Disruptors take advantage of their underdog mentalities and untested ideas to surprise markets. Disruptive innovators keep momentum by continually adapting and pushing established market standards, long after they have broken into a market.
- Agile adaptability: Disruptors maintain focus while remaining flexible. Agility is critical for staying afloat in quickly changing global markets. If you ignore or reject a disruptive change in your industry, you could soon join others like Blockbuster, Yahoo, and Nokia in the market graveyard.
A startup can transform into a successful business without ending up being an industry disruptor. Let’s take a look at why that happens.
- Married to an idea (and money): Startups seek to develop a product or service for which they believe there is demand. They start with high costs and limited revenue, so acquiring capital and a winning idea is often the sole focus.
- Tunnel vision in a desire for success: Startups shake up the status quo with their zeal for unproven opportunities, but too much focus on the end goal while ignoring necessary preparation can cause many to fail.
- Too focused on results: If a startup focuses too much on the offering itself rather than building a viable business model that meets the untapped needs in an entirely new or vastly improved way for an affordable cost, it can ultimately fail.
- Enthusiasm alone won’t disrupt: Not all startup innovations end up being disruptive, even if they are revolutionary or valuable. Enthusiasm and a viable offering alone won’t grow a startup into a disruptive business.
Pros and Cons of Disruption
|Innovation spurs more innovation||Not everyone survives the changes|
|Competition rejuvenates the market||Risk does not always equal reward|
|Builds environmental impact awareness||Innovation at the expense of ethics|
- Innovation spurs more innovation: American physicist William Pollard summarized this concept well when he said, “Without change there is no innovation, creativity, or incentive for improvement. Those who initiate change will have a better opportunity to manage the change that is inevitable.”
- Competition rejuvenates the market: When outside-of-the-box thinking leads to competitive innovation, the results are disruptive innovations that ultimately give consumers more value and choice. If the financial timelines of Apple, Amazon, and Facebook have anything to say about it, disruptive innovation certainly pays well.
- Environmental impact awareness: Disruptive innovation can be a powerful driver of improved industry ecological practices. Without one company setting a standard, many industries would still be operating in morally questionable ways, instead of becoming “green.”
- Not everyone survives the changes: Ultimately, the biggest downside of disruption is the imminent demise of companies unwilling or unable to adapt to market evolution.
- Risk does not always equal reward: Disruptors are often viewed as threats to established markets, and may face a barrage of lawsuits and other obstacles from entrenched, threatened companies, which could eventually make it impossible for them to stay in business.
- Innovation at the expense of ethics: Disruptive innovation and market domination can lead to significant ethical, legal, and financial dilemmas. High-profile disruptors such as Facebook, Amazon, and Tesla have been accused of various ethics violations, such as unsafe manufacturing practices, tax evasion, privacy invasion, or disregard for workers’ rights, while riding waves of success.
- Disruptive innovation is a radical change in an existing industry or market by any entity offering unique or untapped alternatives.
- Disruption benefits the disruptors, existing businesses that “ride the wave,” and most importantly, consumers as better options become available for improving their lives.
- Your business model must include the ability to weather market disruption. If your business stays true to its core offerings, prepares for change, and remains adaptive, being “disrupted” won't be an issue.
- There is no perfect formula for disruptive innovation. Disruption success stories are as unique in origin and methods as the disruptors themselves.
- Visionary, consumer-first innovation always wins. Most innovation may start with a bright idea, but successful disruptive innovation is a complicated journey that requires strategy, values, and adaptation.