Understanding How The Innovator’s Dilemma Affects You

Posted on Nov 4, 2010 | 98 comments


One of the most influential books of my career is The Innovator’s Dilemma by Clay Christensen.  I cannot recommend it enough for people in the technology or media sectors.

Many people bandy about the definitions of “disruptive technology” or “the innovator’s dilemma” without ever having read the book and almost universally misunderstand the concepts.

Let me start with Professor Christensen’s definition:

“An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.”

Professor Christensen uses real data from the disk drive industry to make his points.  Reading it felt like read a university book for an economics class and no wonder since he’s a professor at Harvard Business School.  It is not a beach novel to be sure.  The framework of his book has profoundly altered how I think about the technology market and affects how I thought about building my businesses and how I think about investing in venture capital.

The thesis of the book is that incumbents in markets – especially large and well entrenched markets – seldom survive fundamental technology changes in their industries.  In a world where we’ve seen newspapers crumbling, record labels struggling and Blockbuster imploding and making way for the rise of Netflix it seems kinda intuitive to most of us but we can’t quite place why this happens.

But understanding the framework rather than just thinking “those dumb fucks don’t get it” is very useful for thinking about how markets evolve.  It should affect how you think if you are an incumbent but also if you’re a startup.

Let’s start with the incumbents position in a market.  I’ve characterized it in a chart below.  It is often the situation that the incumbent offers a product that is vastly superior in the market in terms of performance or functionality.  This is important because the customers they serve (the red line) demand a product that meets their complex requirements.

Think of incumbent line as Siebel and the red line as the large enterprise customers that they served who demanded 1,800 features and sent out RFPs with checklists that had to be ticked off to even be in the running for their business.

When new companies enter the market they really have no chance to initially unseat the incumbents because the performance gap is too large and the costs / time of catching up too unachievable.  In fact, the incumbent is usually very dismissive of this new competition as our the large buyers of the incumbent’s products.

And weirdly the buyers of this technology often have a vested interest in buying from the incumbent.  They see it as a source of differentiation for them as a company because their less financed competitors can’t afford it (and often their careers are wrapped up in the multi-millions of dollars they’ve spent implementing it).  In short, they ain’t just gonna throw that away for some new fangled tech toy.

So the startups tend to focus on totally new customers.  They try to capture people that didn’t buy the expensive stuff in the first place because they couldn’t afford it.  Often the startups are actually serving a slightly different kind of customer or a slightly different market need.  The thing about “disruptive” technology as I interpret it is NOT that it is a major breakthrough in performance or functionality as most people conceive it.  It is often LESS performant.  What is “disruptive” is that is also dramatically less expensive.  And the providers take a much lower margin – they have nothing to lose, nothing to protect.

Enter Salesforce.com.  In 1999-2000 they weren’t doing enterprise-wide installations at Merrill Lynch, Dell and Cisco.  That would have been laughable.  They were serving a latent market need for mid-sized businesses to use CRM.  They offered a product that didn’t even try to compare with Siebel.  In fact, they tried to totally redefine the market.  “Siebel cost you $2 million and 18 months to implement?  How about $30,000 and 3 weeks?”  They didn’t exactly grap the top end of the market.

So what did happen?  And what does happen in many other industries?  First, over time Salesforce.com’s technology got better and better yet the price didn’t shoot up dramatically relative to Siebel.  And after a few years enterprise customers started looking at the cost disparity and saying, “maybe Salesforce.com is good enough to meet our requirements?”

Incumbents feel threatened.  Often their response isn’t to radically cut cost and try to hold on to customers.  They can’t.  They have big installed bases.  They have existing customers who already paid big prices who would be seriously pissed off if the next guy bought the same thing for 10x less.  The incumbents have expensive product features to maintain and often expensive sales channels.  Think Compaq when Dell first went direct over the phone then Internet.

And if the incumbent did dramatically cut costs all they would seemingly do is start following the lead of the new entrant?  There you have the innovator’s dilemma.  The incumbents curse.  You can’t take a $5 billion revenue stream and say “Fuck it.  They’re going to eat our lunch anyways – let’s just cut our revenue to $1.5 billion and wipe ‘em out.”

So they do the opposite.  The increase spending on features / performance / functionality.  They gather with their cadre of high-requirement customers and have planning sessions about how they can make even more performant products.

But here’s the thing.  Often customer requirements don’t grow exponentially relative to their existing line.  And as you trace the red line in the graph above as it gets closer and closer over time to the new entrants functional offering there is a huge and rapid sucking sound that pulls the bottom out of the market as waves of customers “trade down.”  And Salesforce.com becomes a $15 billion company doing $1.2 billion in recurring run-rate revenue and growing while Siebel is sold to Oracle for a mere $5.8 billion.

The take aways for me are:

  • The incumbent eventually realizes what is happening to them.  They are run by smart & shrewd people or they wouldn’t become leaders in incumbent organizations in the first place
  • They are blinded for too long – reinforced by big revenues & profits that come from customers that corroborate their misinformed views of the future because they have a shared & vested stake in status quo
  • Disruptive technologies are often those the are less performant and feel “chintzey” relative to their well-heeled competitors.  They are radically lower in price.  They initially create deflationary pressures in a market.  They are nearly impossible to react to.  But while the price points are dramatically lower this often encourages more users, more innovation in the eco-system and therefore often a bigger market opportunity than even the incumbents perceived
  • I am reminded about how dismissive traditionally television media is about YouTube – even to this day.  About how dismissive traditional print was about blogs or the airlines views the “peanut serving” Southwest Airlines.  About how Microsoft viewed Google Apps.  Sony, the iPod.  US automakers made the mistake with the “low end” Japanese manufactures until the Toyota became the Lexus.  What future have telcos for call-based revenue in the era of Skype?

I know that Clay Christensen has written a book that proposes solutions for incumbents.  I haven’t read it.  Maybe I should.  But anecdotal evidence tells me that incumbents eventually struggle to massively disrupt their own large and profitable businesses – that change has got to come from outside.  Some have tried to artificially create “innovation labs” from within but I struggle to believe that this model will work for disruption.

Perhaps the best they can do is to help fund their successors.  Perhaps they can spawn the next generation of innovators and leave a footprint of their DNA along the way.  Or at least diversify the future fortunes of their shareholders in the way that Yahoo! earned handsomely from Google’s success.  I don’t know – it may not be intellectually or emotionally possible.

But if I studied every incumbent industry around me and saw the destruction that technology and the Internet was bringing I would at least want to have an ownership stake in my pillager’s future cashflows if I knew the sacking of the castle was inevitable.

  • http://www.canvera.com Dhiraj Kacker

    Mark – I just don't know how you are able to come up with so many relevant topics consistently!

    I just wanted to share what I've learnt about Netflix on how incumbents can disrupt themselves. You mention about Netflix providing competition to Blockbuster but even Netflix (and I am just restating what Reed has said in the media) started out as a DVD-by-mail business knowing that streaming is the future (hence the name Netflix) but made the transition from DVDs to streaming. And I can't imagine that having been easy on the organization. And the only real answers on how they successfully made the transition I think can be found in this presentation by Netflix which talks about their culture:

    http://techcrunch.com/2009/08/05/other-companies-should-have-to-read-this-internal-netflix-presentation/

    I don't think it was a given that Netflix would survive the onslaught from Walmart, Blockbuster and then the streaming disruption. But they have and how!

  • skyrank

    Excellent summary of disruptive technology. Thank you for writing this. In 5 minutes it clarified one of my businesses true value propositions and an area to define our service offering based upon that value. Truly a valuable piece. Thanks.

  • http://twitter.com/leonc Leon Chism

    The Innovator's solution is absolutely worth your time to read. You've laid out the Cliff's Notes version of “compete with non-consumption” very well here, as well as the cultural and financial issues that prevent response from incumbents. It is important to note that the incumbents get destroyed not by “not getting it” but by doing exactly what they are supposed to do: better serve their best customers who provide the most revenue and profit.

    The bit about markets and technologies swinging back and forth in where the money is is also important. When PCs sucked, and you could type faster than letters appeared on the screen, the money was made in selling the whole system. When performance we good enough and parts/interfaces standardized, profits moved to the parts, where better RAM, CPUs, and disks made the difference (and the profit.) And then along comes Steve Jobs, with iLife, and we learn that the basis of “good enough performance” we had been using was the wrong measuring stick. Computers and OSes aren't good enough, and profits move back to the seller of integrated solutions, like Apple.

    Innovator's Solution lays out the mechanisms successfully used by some incumbents to combat the process. And yes, some have done it successfully. Dr. Christensen says it best, of course, but the core it is to react to the process as a life threatening event (at Orbitz we called them Extinction Level Events in a nod to the horrible movie Deep Impact) to fund and staff the response, but then move that group to a separate business unit with a separate cost structure so that they can view the disruptive business as an opportunity. Both parts were necessary: threat to shock the business into the investment, opportunity to pursue the new course as aggressively as the disruptor.

  • http://www.jasonwolfe.co.uk/ Jason Wolfe

    Fascinating topic. My thoughts are immediately deflected onto a slight tangent. I'm building a product/service that would “disrupt” a large existing model. I'm OK with that (unsurprisingly).

    But what I'm wondering now is: Should I be doing anything with my fledgling business to build in long-term defence against this sort of thing happening, in turn, to me? Indeed, is there anything that I CAN do?

  • http://lmframework.com David Semeria

    I think the title of the book should have been “The incumbent's dilemma”.

    The innovator's dilemma is to get someone to listen.

    People generally laugh at me when I say subscriptions are doomed, and that if you stop using a service you should automatically stop paying. It's disrupting the disruption.

    But I'm convinced this usage-based payment model will eventually become mainstream.

    Anyone hear that?

  • http://www.victusspiritus.com/ Mark Essel

    Fantastic post Mark, and very Kevin Kelly-ish. Kevin has written much on the nature of corporate optimization to the point of being unable to move to the next market peak through a chaotic valley.

    I commented on Chris Dixon's post about the next big thing to Antonio Rodriguez of Matrix (VC). I can't perceive of a BigCo or any incumbent that will purposefully contract their own market to become the next market leader.

  • dshen

    After reading all his books many years ago, the main point for me is that existing companies very, very rarely (almost never) can justify giving up and/or threatening their existing revenue streams to grow even when an incumbent shows up threatening it in that way. Most incentive systems within existing companies prevent employees from taking risks like that which could threaten their livelihood and certainly their jobs if they fail. I've observed it being one of the main reasons big organizations can't change, even as a smaller, more nimble competitor comes in taking market share away. The funny thing is, and something that is shown in his books, is that often this new competitor kills an old one, but eventually becomes just like the old competitor in thinking and they often get killed by the next incumbent. History is destined to repeat itself…?

  • http://bothsidesofthetable.com msuster

    Netflix & Facebook are the two companies that have totally and consistently exceeded my expectations. They are truly inspirational.

  • http://bothsidesofthetable.com msuster

    awesome!

  • http://bothsidesofthetable.com msuster

    At the phase your at I would ONLY focus on growth and customers. You don't have the luxury yet of thinking “who may one day try to disrupt me.”

  • http://bothsidesofthetable.com msuster

    I'm not sure. What I'm for is consumer choice.
    1. subscription …. netflix provides me a beautiful one and a cheap price that works for both of us
    2. individual …. iTunes is great for single song purchase
    3. ad free … I watch free TV or Hulu and am totally fine with ads
    4. Pay for content – I'm totally fine buying the entire season of Curb Your Enthusiasm on DVD. I want to content in full formate
    5. Incentivized purchases – some people don't mind doing a survey to get free loyalty points or a new game play. This isn't me but some people.

    Consumer choice in pricing is key. Bundles like cable are the ones that will die. They are forced on us and the bundle makes no sense.

  • http://bothsidesofthetable.com msuster

    Thus … The Innovator's Dilemma. Agreed.

  • http://bothsidesofthetable.com msuster

    Agreed. Creative destruction loop. Consumer wins.

  • philsugar

    Totally agree you can always move up market it is nearly impossible to move down. That might actually start to be a problem for Salesforce….but it certainly is a problem for SAP and Oracle.

    I think the reasons why the big customers are in bed with the incumbents is what I call the 5% rule.

    If you work at BigCo and hit the ball out of the park with an innovator you get a 5% raise. If it doesn't work you get fired. Its a given that your risk averse….you work for BigCo….so what decision gets made?

    This recession is actually helping the innovators because BigCo customers realize they might get fired for spending too much money.

    And the real challenge for incumbents is that fish grow to the size of the fishbowl. So if you're getting $5M from BigCo it costs you $4M to deliver that service. I'm sure it cost Siebel a ton of money per install. You see this with everybody including Google. Microsoft is a great example. How many people are working on Windows and Office compared to when the started.

    So its not only do you have to gut your revenue but you have to totally gut your staff and stop giving the service that you did (dedicated account managers that live at the client). Almost impossible.

  • philsugar

    David are you talking about Salesforce's practice of locking you in for yearly contracts???

    That has definitely changed..

    I would say Netflix definitely does not try to lock you in.

  • http://lmframework.com David Semeria

    Drink 10 cans of Coke, pay for 10. Drink none, pay zero.
    It seems pretty fair to me that your payments should be in proportion to your usage.
    People hate lock-in. Many times I have backed away from clicking on the subscribe button because once they get your c/c details cancelling can be a nightmare.
    Stop using, stop paying. Easy.
    People are more likely to walk in the front door if they can see the exit is wide open.

  • http://lmframework.com David Semeria

    I'm not referring to any specific company. See my reply to Mark below.

  • sbmiller5

    As you touched on briefly and already outlined in a previous post, the consumption of TV and movies is going to be exciting to watch. As an example, it's fascinating to watch how Hulu interacts with content owners who don't own a stake in Hulu – I know Viacom pulled Jon Stewart for a while, as they weren't getting the rev share they wanted. Comcast/NBC – with Boxee, Google TV, Apple TV, Netflix streaming, Comcast Xfinity, list goes on – we've got a classic case of new innovation and incumbents throwing sh*t against the wall, hoping something sticks. It will be fun.

    For a non-value add comments:
    1st paragraph under chart – “In fact, the incumbent is usually very dismissive of this new competition as our (should be “are”) the large buyers of the incumbent’s products.”

  • http://twitter.com/doranka Kevin Doran

    Where does Microsoft fit in?

    They're still killing it, and really haven't been meaningfully affected by Google Apps / Linux OS / Pretty much any competitor (yet at least).

    I don't think they can do it forever, but they're at the very minimum an abnormally long “incumbent”. They have tremendous business lock-in (doesn't make sense to switch to Google Docs when Outlook is still needed for company-wide calendaring and scheduling) as well as consumer lock-in. And they're able to move forward without touching their profits (ie: recent Bing success).

  • http://naamanetworks.com/ David Bloom

    Always amazing when a VC asks, usually disparagingly, “why can't ____ do this?” I understand the issue of defensibility, but worrying about a cash cow-stage competitor is not keeping me up at night. I first conceived of my startup when I worked at a Fortune 100 company. From the inside it was totally laughable that anyone would fund a business that would take more than a single performance review cycle to deliver results. That same company just became my first corporate sponsor. The guy who signed the agreement was the guy who replaced me. When you are established it is brutally hard to pivot. Hence corporate business development. Big guys eat little guys rather than get disrupted.

  • http://twitter.com/arniesingh Arnie Gullov-Singh

    Its also worth looking at the top 3 irrational reasons why customers continue buying from incumbents vs startups, even when the startup has a superior product.

    1. Middle Management CYA:
    Paying 10x for the incumbent's product is like buying career insurance. Everyone knows the implementation will be late and over budget but the comfort lies in being able to say “well I went with the market leader, its not my fault”.

    2. Fear of making the startup successful:
    “If we give the startup our business they are going to be successful and we won't get anything out of it”. Amazing how often this comes up in internal procurement meetings. Its totally wrong. Getting in early as a startup's marquee customer gives you a huge advantage over your competitors as you get to drive their roadmap and save a ton of money, which can help you in turn disrupt your competitors.

    3. Staying in the Comfort Zone:
    Most big companies have to hire someone to do their “IT implementation” and thus end up choosing whichever vendors the person has worked with in the past, regardless of whether the vendors actually have the right product. Usually results in upstream business processes having to change for no reason, causing further cost to the business.

  • http://jonathanhstrauss.com jonathanhstrauss

    I knew there's a reason we get on so well :-)

    As to the question of what disrupted incumbents can/should do, I tried to answer that as applied to the film studios in a blog post last year. From http://jonathanhstrauss.com/blog/2009/02/crystal-ball-for-studio-execs-or-wwjd/:

    “If I were the head of a studio, I would stop trying to figure out how to grow the buggy whip business by keeping down the automobile. I would also recognize that transforming my profitable if shrinking buggy whip business into a money-losing automobile business making it up in volume is probably not in the best economic interest of my shareholders. So instead of throwing good money after bad trying to keep the overall buggy whip market from shrinking, I would focus on getting as much share as possible while all my competitors spent their time futilely worrying about the cars. I would ruthlessly cut costs to maintain profitability in the face of shrinking demand. And, I would put all those profits into a dividend so my shareholders would stop pressuring me for growth that isn’t there. Finally, when it’s time to close my buggy whip factory’s doors, I would take all that dividend money I earned and put it into the best automobile company I could find (and then I would be sure to sell that ~80 years later ;-) ).”

  • http://www.jasonwolfe.co.uk/ Jason Wolfe

    You are, of course, right. However, I'm sure someone smarter than I will probably be able to develop a culture/methodology that will allow a startup to transition to a defensible business. Possibly by keeping a number of “lean” practices throughout the scaling phase.

    Probably needs someone like Steve Blank to nail it (assuming it can be done at all).

  • http://twitter.com/pillona Alexandre PILLON

    “The innovator's solution” is also worth reading for startups. I wrote a review underlining key concepts here: http://summoning-dreams.blogspot.com/2010/07/books-for-startup-strategist-part-one.html

  • http://twitter.com/L1AD LIAD

    Clays a genius. Read his books cover to cover many times.

    Particularly like “seeing what's next” where he takes the principles of DI and sets them against contemporary industries.

    (the innovators solution isn't really a playbook for incumbents, its more a deeper dive into the theory of the innovators dilema)

  • http://twitter.com/mfolgs mfolgs

    Great post, I think that the follow up book, The Innovator's Solution, is as good or better. The new diagram for that book has a z axis, showing a different consumer segment for new services like quicken (consumers instead of tax professionals) that allows the product to mature and start to capture the lower end of the incumbent's market. I like this explanation even more than the one you're referring to above. His examples in that book are great.

  • Jeffrey McManus

    The Innovator's Dilemma actually does call out a number of businesses that were able to consistenly self-disrupt by tearing themselves away from their high-margin business in favor of something that was a little bit worse and a little bit cheaper. Sony in the late 1980s and early 1990s was one company that Christensen thought particularly highly of in this regard.

    The Sony engineer who walked into a room and said “we're now going to sacrifice our $400 stereo receiver business by bringing a $40 cassette player to the masses” must have been laughed out of the room the first time he pitched the Walkman, but it turned into one of the major disruptive product innovations of the 1980s.

  • http://disruptivethoughts.com Fraser

    Great summary of a must-read book.

    A few times Steve Jobs has said something along the lines of 'if anybody is going to cannibalize us, I want it to be us.' This usually is in response to a question about the impact of ipads or ipod touches on items further up Apple's product line.

    Is this an example of an incumbent solving the dilemma, or is it something different?

  • http://www.brennanknotts.com Brennan Knotts

    Talking about Netflix going from DVDs to streaming – Amazon has totally exceeded my expectations with eBooks.

    People laughed at their $500 eReaders, but Amazon knew that was just the wedge they needed to open the eBook market. When the timing was right, they immediately made their Kindle books available on iPhones, Androids, iPads, and desktops. Now they're implementing electronic book loaning and I don't doubt they have plans to make reading social.

    The way Amazon is willing to zig and zag, I don't think a new entrant should bother trying to catch up.

  • http://bothsidesofthetable.com msuster

    Totally agree. Amazon is in the crowd of “expectation exceeders” … that's a mouthful.

  • http://bothsidesofthetable.com msuster

    Ah … thanks for the addition. Read too many years ago and didn't remember that. Thank you.

  • http://bothsidesofthetable.com msuster

    re: Salesforce … agreed. It was a big source of contention for me when I was there.

  • http://bothsidesofthetable.com msuster

    fixed. thank you. it is value-add.

    re: digital living room – I didn't name names cuz don't want to inflame people. BUT… this post was really a precursor to a corker coming up that does name names. Watch this space.

  • Menashe Salomon

    “So they do the opposite. The increase spending on features / performance / functionality. They gather with their cadre of high-requirement customers and have planning sessions about how they can make even more performant products.”

    Building on your point Mark – the issue lies in the DNA of most these Incumbent managers – they ignore sunk and fixed costs and try to leverage what they already have and build up from there with a focus on marginal revenues and marginal costs. But if you're trying to create a new business model because the world is changing around you then you don't want to leverage what's already in place. This is what helps Entrant companies win the game in most cases – Incumbents often compare marginal costs of leveraging what they have versus the full cost of creating something new, whereas the Entrant doesn't have anything that exists that they are tempted to leverage so they just create what needs to be created.

    Incumbent manager DNA tells them marginal revenues/costs analysis is key and business model innovation is not necessary but indeed business model innovation is the key driver of big sustainable growth.

  • Matt Talbot

    There are plenty of subscription models that are easy to get out of. In fact, I think subscriptions tend to be some of the best value models for the consumer because depending how it is used, you can get more bang for your buck (ie if you fly through Netflix rentals, you can end up getting a lot of rentals in a month for a very low price).

    I think what you are referring to is more of a customer service problem brought on by some companies trying to take advantage of subscriptions. Disruption would be making a better subscription model that's more transparent, not just getting rid of it (which may be what you are saying).

  • http://blogs.fluidinfo.com/terry terrycojones

    Hi Mark. The Structure of Scientific Revolutions is also well worth reading, if you haven't (http://en.wikipedia.org/wiki/The_Structure_of_Scientific_Revolutions). In particular it describes some similar characteristics of (scientific) paradigm shifts. E.g., that the new paradigm doesn't look better, let alone complete, it sometimes just provides an explanation for an extraneous observation or fact that no-one had been able to explain or which was being ignored (noisy data, experimental outlier, etc). The new theory looks ridiculous and so on at first. I'm not doing a good job of describing things, but I think there's a nice and provocative overlap between the two books.

  • http://www.linkedin.com/in/rajatsuri rajatsuri

    Disruption isn't only with lower cost structures. Apple's iPhone was a much more expensive phone, but feature and usability-rich. It was probably the single most disruptive consumer tech product of the last decade.

  • http://www.linkedin.com/in/rajatsuri rajatsuri

    Disruption isn't only with lower cost structures. Apple's iPhone was a much more expensive phone, but feature and usability-rich. It was probably the single most disruptive consumer tech product of the last decade.

  • http://www.cosential.com Dan Cornish

    Is Salesforce vulnerable to the same danger that Siebel was? It seems to me that Salesforce is leaving a large pricing umbrella over the market.

  • http://hdemott.wordpress.com Harry DeMott

    Mark – you owe it to yourself to read his other books – and really anything else you can get your hands on by Clayton. All of it is great stuff.

    In the media world you have seen just massive changes in distribution technologies – and where the content was easy to disrupt – it has crushed incumbents. Think Blockbuster to Netflix. Traditional radio to Pandora. Newspapers classifieds to Craigslist. Music albums on CD to MP3 file sharing.

    The only place in media that hasn't yet been really disrupted is in the realm of video content. Yes the cost of production has gone way down – and thanks to Youtube, distribution is ubiquitous – but for high quality video content there has really been no disruption.

    I'm sure it is coming though.

  • http://hdemott.wordpress.com Harry DeMott

    I agree. When you are just starting out – you have to make your business work first – then start worrying about competition. However, I would say that the forces that allow you to be successful in a given market often give rise to others who are able to do the same. So ask yourself as you look at your market: am I the low cost provider? Is my cost of acquisition less than any competitor could muster? Is my cost of production cheaper than anyone could compete with? Is there lock-in with my service? Is my service viral by its very nature? I'm sure there are a lot more of these but the basic process is the same.

  • http://twitter.com/gautambay Gautam Tambay

    Mark – Thanks so much for taking the time to write this. I've started read the Innovator's Dilemma twice and both times I put it down halfway because I thought I had more-or-less understood the point. Turns out I hadn't, as is evident to me after reading your post. This has motivated me to pick up the book again, and read it again, this time end-to end.

    I'm wondering, based on this understanding of 'disruption', would you consider, for instance a company like Kno disruptive? They will probably make textbooks cheaper, but at least in the short run, will increase the overall cost of learning (if one believes rumors that the device will retail at ~$1,000), and hence will not fit the deinition above. I ask because I have often cited Kno as an example of a technology that's disruptive (especially to founder Osman Rashid's previous startup Chegg).

    Separately and not directly related to your post, I recently came across this excellent piece by Clay Christensen — not about technology or entrepreneurship, but IMHO a must-read for almost everyone — thought I'd share it on this forum. http://hbr.org/2010/07/how-will-you-measure-your-life/ar/1

  • http://www.azteria.com Lloyd Fassett

    This was a very important book to me as well. My main take away was actually by cross breeding this book with Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant by Kim and Mauborgne (also Harvard Business Press). http://www.amazon.com/Blue-Ocean-Strategy-Uncontested-Competition/dp/1591396190 Both books get to the issue of pioneering new markets as underappreciated way of growing revenue, margins and a defensible customer base.

    Southwest is mentioned in your post and pretty well covered in Blue Ocean Strategy, but I don't think it's covered in The Innovators Dilemma.

    The chart rising up and to the right in Innovators Dilemma is really about price/performance though in processing, transport and storage of digital data, hence the disk drive deep dive. The disk drive space had technology disruption that made studying it like doing genetics with fruit flies – an amazing fast cycle time. I think he used the data from technology based price performance disruptions to get to the same point in Blue Ocean Strategy – develop new markets.

  • http://www.ryanborn.net ryanborn

    Spot on again! This is exactly what's been happening in the stock photography industry and what's happening now with the commercial music licensing space and so many other areas of content licensing. I hope investors seeking disruptive startups are taking note.

  • RichardWyatt-Haines

    Outstanding and thank you for summarising my world so beautifully.

  • http://twitter.com/nanodome Nanodome Ltd

    Nice article, though a lot of disruptive takeup arguably comes down more to fashion and peer buzz than to functionality increments. That is, getting to “product/market fit” is as much about modifying the market as about modifying the product.

  • http://twitter.com/mikeschinkel Mike Schinkel

    Awesome book, and great writeup. But unlike you, I was riveted while reading it; I couldn't put it down. It was and still is in my top 3 business books of all time. It's probably been at least 5 years since I read it, if not 10 and I still quote from it at least weekly.

    One phrase he used that you didn't quote was “good enough”; that was a key observation for me. It goes like this:

    “The incumbent's offerings are better, but hell the innovator is 'good enough', and half the price!”

    The Innovator's Dilemma absolutely helps a startup entrepreneur figure out how to compete with the big guys.

    BTW, I have and started the read his follow up book. I was so incredibly boring and devoid of real tangible solutions that I gave up not even 1/3 of the way through. It's mostly a “here's what you should do” even though human nature in an organization doesn't let you. If it were me I've spend my time on other books, but YMMV.

    -Mike

  • http://twitter.com/mikeschinkel Mike Schinkel

    That's true, but it has nothing to do with the thesis of the book. The book talks about companies assembling existing technology for new markets and doing it for lower prices and at lower margins than incumbents. The iPhone took billions in R&D and only a large company with tremendous resources like Apple can pull off such a product. Those type of innovations are known, and are not the dilemma of which Christensen wrote.

  • http://twitter.com/Clarkebar Clarkebar

    Every time I pitch a vendor I tell them, 'we're giving the small guys the tools to compete with the big guys. Use us as a sales channel, a cheap web services replacement, or a discovery mechanism… just sign up!'

  • http://bothsidesofthetable.com msuster

    Hardly “killing it.” There monopoly-like business is still overwhelmingly their cash cow and it much of their profits. There are under threat by the growth of: tablets, macs & google apps. Great company, but not “killing it.” See: MSFT stock ticker – plot past 5 years.