A mini case study on disruption theory

Back in my college years when I was just another Silicon-Valley-obsessed kid dreaming of startup success, I read Clayton Christensen’s, The Innovator’s Dilemma.

“Disruption” is a term that gets tossed around technology constantly and it was coined by Christensen many years ago. I wanted to go back to the source to understand what the hype around “disruption” was really about.

It turns out, disruption isn’t just the term to describe a new company stealing market share from an existing company. That’s part of it. But that’s not step one. Disruption is a process in which small companies exploit market opportunities that are too small for big companies to care about them.

If you’re a large organization doing billions in revenue, pursuing a new market worth $2o million is not worth your time. It’s not worth the strategic energy to hire, and target such a tiny opportunity. It’s a perfectly rational decision for any big company to keep plugging along, business as usual. The problem is that over time that $20 million market grows to $100 million, then to $1 billion, then to $10 billion. Then, suddenly that new innovation renders your product obsolete.

Christensen shows this time and time again for disk drives in the 1970’s and 1980’s. A company would seize a large market with their disk drive. Then, a startup would invent a smaller drive. When the smaller drive was invented, the total potential market was so insignificant that the incumbent wouldn’t bother competing with it. But, over time, people would find new uses for the smaller, cheaper disk drive. Then, the total market would grow to be 10x bigger than the market the incumbent was addressing.

Interestingly, I was listening to a podcast yesterday with the founders of Stripe, a payments technology company, and they made a comment that reminded me of this phenomena. Guy Raz, the host of How I Built This, asked the founders if other companies tried to copy their idea. They said “the opportunity didn’t look big enough to matter.” And it continued not to look big enough until suddenly it was too big and all the incumbents had missed the boat.

Disruptive innovation doesn’t start with a burning certainty that the world will change. It starts with a great product, addressing a small market that happens to grow over time.

Sometimes you have to take your chance before the world is ready.