Every once in a while, a new product or service is so innovative that it creates entirely new markets.
Amazon’s disruptive innovation of marketplaces, Apple’s digitized music listening platforms, and GrubHub’s centralized food platform are a few examples of disruptive innovation companies that changed how people do things.
Likewise, emerging artificial intelligence has changed more than just how you draft messages — it can tell you what over-the-counter medicine you should take for a headache, analyze investment risks, and compose music.
Not every entrepreneur needs to aspire to build a business model that becomes the next Google. But learning what disruptive innovation is can help you take up a larger market share and create a culture of experimentation that motivates your workforce to stay ahead of the curve.
What’s disruptive innovation?
Disruptive innovation unsettles the foundations of an established industry and brings access to a new or overlooked customer base. This involves making existing products and services more affordable and accessible.
Professor and author of “The Innovator’s Dilemma,” Clayton Christensen coined the term “disruptive innovation.” According to his theory, disruption typically starts at the bottom of a market. A person or company introduces a disruptive technology or idea into an existing market, and as consumers catch on and accept the new product, it moves upmarket and displaces the industry’s top competitors.
Disruptors often use new forms of technology to change the functionality of their products and services. Their innovation flattens the market, forcing established companies to adapt to the new market segment to remain competitive.
The emergence of the gig economy is an excellent disruptive innovation example. Hotel chains cornered the hospitality industry and taxi services controlled private transport before companies like Airbnb and Uber arrived.
These companies didn’t just streamline service use for consumers — they widened the barrier of entry to providers. Now, their use is so widespread that Uber and Airbnb are verbs synonymous with finding a vacation stay or calling a car.
Opportunities for disruptive innovation
1. The possibilities of new technology
Innovative technologies offer the chance to develop new and better products and services. Likewise, companies and consumers might not currently use existing technologies to their full potential, leaving holes in the market for you to fill.
Many products and services you use daily were likely created this way — by business owners using current technology or product in a new way. The assembly line improved the printing press, transistor radios took advantage of the broadcast network, and personal computers expanded on centralized mainframes.
2. An available target market
A good idea is only half the equation. For a disruptive innovation to be successful, you have to develop a clear understanding of your target market.
Even the world’s most successful companies didn’t try to go after the Goliaths of their industry head-on — they thought outside the box to target underserved customers or broke into the bottom of the market.
3. A coherent value network
To bring a new product or service to fruition, everyone involved must be capable of pushing it up the supply chain. If you don’t have the suppliers, distributors, and vendors to allow innovation to take hold and scale, you might prematurely launch your idea.
2 types of disruptive innovation
Businesses can disrupt their target markets in two ways — low-end disruption and new-market disruption:
Low-end disruption introduces a product or service at the bottom end of the market to move upward. The focus is on capturing consumption from consumers competitors already serve. Netflix is a good example of low-end disruption innovation.
In the early 2000s, Netflix focused on video renters by alleviating common complaints against Blockbuster. They eliminated late fees, had open return policies, and created a flat-fee subscription service. As internet use became more widespread, they moved up the market and redefined the industry.
New-market disruption introduces a product or service that targets the needs of consumers who’ve been pushed out of the market.
For example, unlocked cell phones without carriers or phones designed for messaging and calls open the smartphone market to a broader audience, like lower-income customers, travelers, and older generations.
Disruptive innovation versus sustaining innovation
According to Christenson’s theory, businesses typically engage in disruptive or sustaining innovation. Although they represent different business models, the two intrinsically interact with one another.
Many companies innovate and improve faster than their customers’ actual needs, which results in products or services that are too sophisticated or expensive for a significant percentage of the consumer market.
Instead, sustaining innovation at the top of your market is ideal for achieving higher profit margins — you corner the market on demanding customers and high-value products and can constantly release new updates.
Sustaining innovations open the door for disruptive innovations at the bottom of the consumer market, which may offer lower profit margins initially.
Disruptive competitors aren’t interested in creating new products or services, instead emerging with lower prices and more accessibility to hook customers neglected or underdeveloped by competitors.
Is one type of innovation better than the other?
Neither option is better than the other, and many companies leverage both disruptive and sustaining innovation to scale.
Apple, for example, constantly sustains its high-end target market with new products and services, like the Apple Watch. Likewise, they improve the quality and accessibility of existing products, like successive launches that lower the cost of outdated or refurbished products.
How to encourage disruptive innovation in your business
Innovation doesn’t happen overnight — here are five ways to encourage disruptive innovation in your business.
1. Consult with market research analysts
If your marketing department doesn’t have a dedicated research team, consult with a market research analyst to examine quantitative and qualitative data on your target industry. They’ll determine how consumers currently use your products and services and find ways you can improve their experience.
2. Build a culture of experimentation
Creating a company culture that allows anybody to experiment and test ideas encourages creative and innovative thinking. Conduct regular brainstorming sessions, encourage democratic leadership styles, and hire diverse teams to welcome experimentation and break down any resistance to change.
3. Break down silos
Closed-off communication restricted to a single department might hinder employees from sharing great ideas across channels. Likewise, you might experience stalled product launches caused by poor interdepartmental communications, giving a competitor time to step in before you do.
4. Mix optimism with reality
You have a great idea and the possibilities feel endless, but rein in your innovator’s bias — feeling your idea’s foolproof — to ensure you don’t push product development, operations, and finance past their brink. Encourage your teams to dream big but always bring them back to Earth by considering what you can truly achieve.
5. Do more than just survive
Constantly re-evaluate your business’ value to make sure it’s not stuck in the status quo and vulnerable to dissolution by a low-end disruptor. Doing more than surviving means pushing toward further innovation. Even if you don’t find it, your workforce will be more resilient and bounce back after setbacks.
4 examples of disruptive innovation
Disruptive innovation is a natural part of consumption. Technologies change consumer needs, and innovative entrepreneurs take their opportunity to redefine an industry.
Here are four recognizable examples of businesses that disrupted consumer behavior and their respective markets.
1. Amazon Kindle
The Amazon Kindle is an example of sustaining innovation. Already a giant bookseller, Amazon improved its product offering ahead of customer needs by combining innovative technology with its existing inventory, making its books more accessible to all customers.
Spanx was launched in 2000 with its signature line of shapewear hosiery. The company developed a new patent with waistbands that fit different-sized consumers and products comfortable enough for everyday use.
Spanx is a low-end disruptor, growing its investment from $5,000 at the bottom of the industry to a billion-dollar business that recreated the shapewear market.
With an on-demand streaming service, Spotify expanded on Apple Music’s digital transformation of music listening to create a brand new offering. Their business model created a new market and value network, and now music streaming is the norm, with most established music companies offering it.
This file-sharing and document storage company used available cloud-based storage technologies to create a service that provides more accessible and convenient options to anyone with an internet connection.
Its continued innovations, like allowing real-time collaboration, have shifted how other file storage services work.
Disrupt or be disrupted
There’s room for disruption everywhere — it’s just a matter of finding the right opportunity.
Understanding what disruptive innovation is, using it as a guide to lead product development, and equipping your team to be their most creative will put you one step closer to being the next great disruptor.