The Disruptive Leader
Market disruption is a goal for many businesses but what does that actually mean. What is the real power of the disruptor?
When startup companies pitch to potential investors – usually VCs or angels – they will often express an ambition to “disrupt” their chosen market and usually they’ll set out a strategy to do just that.
And there’s a good reason for early-stage businesses to focus on disruption. Their investors are looking for rapid growth. A disruptor that enters and reshapes a market has the potential to build its customer base at a much more rapid rate than a rival delivering a similar product but doing so using a more traditional modus operandi.
Truly disruptive businesses can become dominant in their markets in a relatively short space of time – think Netflix in the home entertainment space. Equally, a disruptive approach can enable a business to reach demographics that elude others. That’s something that has been proved by challenger banks and financial services companies, such as Monzo and Revolut.
But what exactly are we talking about here? What is disruption? Why is it so powerful? And most importantly, what can a strategy of constant innovation and disruption help you achieve?
Let’s start with that first question. There is a purist definition of disruption, coined by Harvard Business Review. According to HBR, disruption is not simply about doing things differently – for instance finding an innovative way to deliver a product to the customer. By this definition, disruptors find a foothold at the low end of the market and build from there. Equally important, they find people who were not previously consumers. HBR quotes the example of companies that offered cheap personal photocopiers in the 1970s. Suddenly, this was a technology that individuals could buy for home or small office use. Apple and Microsoft did something similar with the PC market. Indeed Bill Gates expressed the ambition to put a PC on every desk.
That definition speaks to one aspect of disruption that can be forgotten. A business that comes into a particular market and offers either a lower-priced product or one that is appealing to a hitherto unserved group has access to an untapped market.
This in turn enables your business to become an industry leader in a very short space of time. There are no – or very few – rivals. Once that bridgehead into the market has been established, the company is free to extend its reach towards more traditional consumers.
A case in point would be Netflix. The company actually started out by posting physical product – DVDs – to customers, winning a relatively small market share in the process. The shift to streaming was initially confined to a young or early-adopter demographic. As the range of content grew, Netflix entered the mainstream.
Press coverage of disruptors tends to focus on the early-stage businesses that look but established businesses can look beyond their current boundaries and find new opportunities.
And incumbents may actually have an advantage. As observed by the Harvard Business Review, products offered by early-stage business disruptors often don’t become mainstream until their quality catches up with that of longer-established and better resourced rivals. Incumbents that already have quality products and services can use that fact to their advantage. Assuming of course, that they can also adopt a disruptive mindset and are prepared to experiment and embrace technology.
Bringing Down Costs
Disruption usually requires investment – and today that usually means buying in and skills – but in the longer term it can lead to lower costs. For instance, challenger banks have been able to grow relatively cost effectively by focusing their customer service resources on call centres and online chat, rather than branches. Equally important, they use made for purpose IT rather than legacy systems.
However, once a market is disrupted costs may also fall for the wider industry as well as the consumer. To take an example, the growth of music streaming services has reduced distribution costs for record labels. And on the consumer side, listening to personalised music choices – rather than the radio – has become cheaper, or even free.
And there is another factor to consider. Technology is the key to disruption and that in turn can make businesses much more productive. This was demonstrated during the pandemic, when many organisations changed their working practices and pivoted on their route-to-market strategies. As a white paper by Verizon and Boston Consulting Group points out, many became more productive in the process.
Disrupters rarely stand still. They invest in emerging technologies and in the case of the bigger players they find new customer groups, sometimes but not always within the same sector. For instance, Amazon is no longer simply a retailer. It also provides music and video streaming and cloud services for businesses. Every extension of its brand has opened up new revenue streams.
This willingness to experiment means disruptive companies tend to be extremely agile. They are constantly looking for ways and means to deploy technology and unlock opportunities.
Not all disruptive business ventures succeed and this is something that incumbents need to be aware of. There is a need to take risks. But the rewards are huge and not just in terms of market share. To take some examples, Apple, Uber, Netflix, Monzo and Spotify are very different companies, but in disrupting their industries they have created strong brands. That is the power of disruption.
