The Disruptive Innovation Model

How can a Startup or small company compete with an industry giant? Clayton M. Christens argues it's through Disruptive innovations.

Many well-established companies focus on sustaining their current business and innovating to upgrade their current services and products. They aim to appeal to and target higher-paying customers. By doing so, these companies often disregard their ‘regular’ customers which are looking for simpler alternatives at a lower price range. Often entrepreneurs try to fill that gap and start by targeting consumers in a lower price range and then progressively improve their product and service. Clayton M. Christens, the economist that first came up with the notion of disruption describes it as “a process whereby a smaller company with fewer resources can successfully challenge established incumbent businesses”.

The terms "disruptive innovation" and "disruptive technologies" have become increasingly popular in the last five years. The phrase has made its way into the lexicon, appearing in newspapers, books, and debates all over the world.

However, one must be careful not to overuse this term and place it on an innovation that is not disruptive since different innovations require different strategic managerial approaches. Every industry is constantly innovating, but for an innovation to be truly disruptive, it must completely transform a product or solution.

This article will start by redefining what is a disruptive innovation to have a clearer understanding of when a Start-up can be coined as disruptive.

Disruptive innovation is frequently a much more basic, low-grade solution that is more affordable and accessible to a larger population, allowing it to reach a wider audience.

Here are listed a few of its characteristics:

• They are inexpensive and widely available - Due to their accessibility, they initially serve a smaller low-end target market before expanding to a larger market.

• Their gross margins are lower than their competitors or incumbents.

• They originate in the low-end or new-market - Disruptive innovations are enabled by the fact that they emerge from a market that incumbents ignore: the Lower-end market. Incumbents usually aim to offer ever-improving goods and services to their most lucrative and demanding customers while paying less attention to less-demanding customers. Incumbents' offers often surpass the requisite level of performance demanded by their customers. Secondly, disruptors also tend to create and target non-existent markets. Therefore, incumbents often don’t feel threatened by disruptors as they don’t compete for the same consumers at first.

• Disruptive innovations are often initially overlooked - Disruptive innovations usually emerge at the bottom of the market, where they can meet the same needs as high-end solutions simply and inexpensively. They are frequently underappreciated at first, and are perceived as "low-class." In the eyes of the incumbent’s existing consumers, disruptive innovations are often inferior. Usually, consumers do not switch to disruptive innovation immediately because they are not regarded as qualitative enough. However, because of their low costs and other advantages, they quickly rise through the ranks of the market and eventually outperform their more sophisticated competitors. They're difficult to predict and aren't taken seriously. They "climb the ladder" slowly and quietly, and it can take years or decades for them to gain traction.

More info on: HBS - https://hbr.org/2015/12/what-is-disruptive-innovation