How to find disruptive opportunities

Apr 24, 2013

Table of contents:

1. The misunderstanding of disruption
2. What are the types of disruption?
3. How to find disruptive opportunities
4. Conclusion

The term disruption is often misused be people talking about new technology products or market opportunities. For many, disruption means any significant new product feature or innovation. There are actually some specific nuances to what disruption really means and how it applies to technology and business.

In this post I’m going to explain exactly what disruption is, what are the different types of disruption and how to find disruptive opportunities.

The misunderstanding of disruption

Clayton Christensen first coined the term disruption in his seminal book, The Innovators Dilemma. Since then, the term has been consistently misused or misunderstood by countless media organisations, entrepreneurs, journalists and people interested in the intersection of business and technology.

What is disruptive innovation?

There are basically two type of innovation. Clay’s definition of disruption innovation is not where you simply improve something, but instead you create a new market. Sustaining innovation is where you improve an existing technology within an existing market, and so the two terms often get confused.

Sustaining innovation is either evolutionary or revolutionary. Evolutionary innovation is where a product is improved in ways that the customer expects it to. For example, with every new smartphone, the camera is expected to improve. Revolutionary innovation, also known as discontinuous innovation, is where the innovation is not expected, but it does not effect the current market. For example, adding a new unthought of feature to a smartphone is sustaining revolutionary innovation because it is usually introduced by the market leaders.

Disruptive innovation is where you create a new market by focusing on a different set of values than that are currently applied in the existing market. This new market then ultimately takes over the existing market. For example, when you offer a product that is significantly cheaper than the existing products on the market because you focus on different characteristics. This is a disruptive innovation because you are creating a new market based upon a new set of values.

It is now commonly accepted that technology is not the defining characteristic of disruption. Clay replaced disruption technology with disruption innovation after he recognised that new technology often had nothing to do with disruption.

Disruption usually occurs where existing off-the-shelf technology is combined in an innovative new way to produce a new market. This is the key to understanding disruption.

The automobile was not disruptive

A good real life example of misunderstood disruption is the automobile. When cars were first created they were expensive, hard to repair and were only adopted by the very rich. Cars where a much better technology than horse drawn carriage, but they were not a disruptive innovation.

Henry Ford recognised the opportunity to mass produce cars on a production line to make them more affordable to the mass market. Henry Ford did not invent cars or even the production line, but he did take two existing technologies to create a powerful new market opportunity. By standardising cars, he made them faster to produce, cheaper to repair and more affordable for the average American household. That was a real market disruption.

What are the types of disruption?

There are basically two types of disruption, Low end and New market.

Low end

Low end disruption is where a disruptor introduces a new product that targets the least profitable customers in a market. This product usually only meets the very basic needs of the market, but because of it’s low price, it is adopted by people who are price sensitive and currently over served by the current offering.

Once the disrupter has achieved a foothold in the market, it begins to search for higher margins by moving up market. At first, the product is no where near adequate to compete against the current market leaders. But over time, the product improves rapidly up until the point where it meets the needs of the mass of consumers.

The disrupter has usually rewritten the rules of value in the market at the low end and so it is able to create a product that meets the requirements of the market at a totally different value proposition. The incumbent companies can’t fight in unprofitable markets within their current value proposition, and so they are forced to move up market.

As the disrupter continues to innovate, the incumbent company is eventually pushed out of the market all together.

New market

New market disruption is where the disrupter focuses on a niche segment of the market who are currently under served by the existing incumbents.

New market disruption is usually an opportunity when there is a significant group of customers who can’t be served by the existing market. For example, if a product is inaccessible to a certain type of person because it’s too expensive, the financial commitment is too big or it is just not available in a certain location or to a certain demographic of people, there is an opportunity for new market disruption.

New market disruption is significant because it is competing against non-consumption. For whatever reason, there is a group of potential consumers who can’t use the existing incumbent’s products because it is not available to them.

How to find disruptive opportunities

In order to find opportunities for true disruption, you have to analyse existing markets and products. Once you know about the two types of disruptive innovation, you begin to frame markets around low end or new market opportunities.

How to find low end disruptive opportunities?

Low end disruptive opportunities are easy to find because all you have to do is find companies that are comfortable serving a market segment. These types of companies have usually moved to a high margin market segment, and so they have left the low profitable part of the market unoccupied.

As companies move upwards in the search of bigger margins, they will often tie themselves to legacy models that they can’t get out of. For example, serving a smaller number of customers at a very high price point will have a higher margin, but it will also handcuff the company to meeting those customer’s needs. When you attack the market from the bottom, those types of companies won’t want to defend the low end of the market because it is not profitable, but also because their current legacy situation won’t allow them.

Look for opportunities where the current incumbents are neglecting the low end of the market and where they have handcuffed themselves to their legacy value proposition. Find a way to offer the smallest possible version of their product that will meet the needs of the low end of the market so that you can move away from their expensive value proposition.

How can you reconfigure existing technology or strip away the incumbent’s product features to offer a minimal viable product?

How to find new market disruptive opportunities?

In order to find new market disruptive opportunities, you need to find a group of people who would be willing to use the product, but it is current not accessible to them.

For example, smartphone payment technology like Square is great if you live in America and you own a high end smartphone, but what if you live in Africa and you only have a standard feature phone? How can you support your business and take payments if you don’t live in the right geographical area and you don’t have the expensive device?

New market disruptive opportunities are attractive because you are applying an existing idea and focusing it on an under-served segment of the market. By recognising a market segment that is ready to use the product if it was available to them, you can discover a profitable beachhead to disrupt the market.

Conclusion

In order to find disruptive opportunities, you need to understand what disruption really is. However, once you do have an understanding of how the disruption of markets and incumbents actually occurs, it becomes easier to see opportunities.

I think a big problem when people come up with new product ideas is, they can see the use case for the product, but they don’t understand what makes it disruptive. Once you can frame your product idea within the confines of disruption, a clear to market and growth strategy begins to emerge.

Hopefully this was a good introduction to disruption, what it really means and how you can spot disruptive opportunities in existing markets.