We often hear the message that future success will be built on disruption. Amazon, Apple, Airbnb, Facebook & Google have proved this and traditional industries are in decline we are told. Netflix was a disrupter in the video rental market and put Blockbuster out of business. Blockbuster could not see what a game changer Netflix would be until it was too late.
The term ‘disruption’ really became mainstream through Clayton Christensen’s book, The Innovator’s Dilemma in 1997 in which Clayton coined the phrase ‘disruptive innovation.’ He used this as a way to think about successful businesses not just meeting customers’ needs at the moment, but anticipating their unspecified or future needs. His theory worked to explain how small businesses with limited resources were able to enter a market and displace the established players. However, as with many buzzwords, the phrase quickly had a life of its own. Suddenly everyone had to be disruptive and innovative!
A lot of money is being invested today in new high tech businesses that are touted as disruptive and innovative but how many of these will be built into highly profitable businesses in the long term? The gig economy, much of which is based on the internet, is changing the face of business but how many of these new businesses will actually be disruptive game changers? Especially when so many new businesses are in competition with each other.
Is disruption the silver bullet to which we should aspire? Does success necessarily require disruption? Some of those credited with being disruptive eg Uber are not really being disruptive anyway!
A focus on innovation
The second word in Clayton’s phrase ‘disruptive innovation’ is innovation. In contrast, innovation, I would argue, is easier to achieve than disruption. Innovation can come about quietly and in unexpected ways. It can be incremental but over time can be transformational.
One helpful way of differentiating between disruption and innovation can be to think of disruption as irrational and innovation as rational. Rational innovation is the well-thought-out process of sound business planning and forecasts. Reverse brainstorming for instance is very innovative but exceedingly rational! Irrational disruption is more like thinking not just outside the box but whether we need a box at all! The middle ground of so called ‘Disruptive innovation’ works with the irrational to make something rational.
Bring something new to what you know
At this point some readers might have wandered off but for those still with me, we are approaching an exciting moment! Successful businesses don’t all have to be ‘game changers’ but as Malcolm Durham says in his excellent book ‘WealthBeing’, entrepreneurs need to bring something new to what they know. It does not have to be earth shattering just something new; something that will be a differentiator.
The UK needs solid businesses that deliver products and services that customers want at a price they will pay. To do that we need to ‘build’ great quality businesses which requires a range of skills, talents and resources. A recent paper by the Harvard Business Review makes clear that we need ‘builders’ as well as ‘disrupters’. Why? Because they usually last longer. Our economy could probably do with a bit more focus on building and a bit less on disruption.
Beware the bias to sexy terminology!
Some of us will remember from school days the South Sea Bubble of 1720 when investors plied into the South Sea company by following the herd as the share price rose increasing it still further with financially disastrous results. Such herd mentality was seen in the dot com boom and is seen on the AIM market and maybe in Bitcoin today. Recent research has shown that investors give 17 times investment to start-up companies that claim to be disruptors than those start-ups which are traditional builder companies. The proof of this bias comes when pairs of identical start-up profiles have either ‘disrupter’ wording or ‘building’ wording. The ‘disrupter’ wording gains investment at twice the rate of the ‘builder!’* This shows that there is a bias to a bandwagon of terminology into which many people are piling. (There are thankfully exceptions such as Forward Partners https://forwardpartners.com/portfolio/ who are able to rise above the bias and help build the very best new tech businesses.)
Let’s focus on building great businesses
The best companies will combine the qualities of disrupter and builder yet over the long-term (say ten years plus) the entrepreneurs who patiently build a business are very likely to survive and flourish. Such companies deserve more attention from investors than they are currently getting.
There is a very real danger that the bandwagon of disruptive bias is going to come off the road with painful consequences for investors, budding entrepreneurs and their staff. It will happen when ‘sexy’ businesses that use the right lingo which are never likely to make a profit are funded. I have lost track of how often I have heard “if only I can get my app for XYZ funded I will be mega rich!” In contrast, many sustainable companies with a real competitive edge are being overlooked as boring. In fact these are the very companies which, with fantastic leadership, great management, strong systems, effective processes and sheer hard work, are likely to grow into prosperous businesses for years to come.
David