Positioning Disruption (Q&A with Matthew Sommer)Thursday March 15th, 2018
The term “Disruption” has become part of the public consciousness as a way to describe new businesses that are leveraging technology to unseat incumbent market leaders using a new model. We spoke with Brolik partner and Chief Strategy Officer, Matt Sommer about the challenges and advantages of disruptive companies and positioning them for success.
What makes a business Disruptive?
“Disruptive Innovation” is a term initially coined by Clayton Christensen, a respected expert in the areas of innovation and growth, and professor at Harvard Business School. Since then, it has kind of taken on a life of its own and is used to describe a huge array of businesses that don’t necessarily fit into the original definition.
The original idea is that established organizations tend to develop continually more complex products in an effort to increase value and pricing for their ideal consumers. This leaves an opening at the bottom end of the market for simpler, less expensive solutions to establish a foothold before moving up market to replace the incumbent.
A canonical example of this is the introduction of the personal computer in the late 70’s, which offered a lower cost computing solution when compared to the massive IBM mainframes of the time. While less powerful and capable, they offered a huge number of people access to computing who couldn’t afford it otherwise. As technology progressed and the power of these smaller computers increased, they overturned the supercomputer industry altogether to become the largest computer market by far (until the smartphone revolution of course, another disruptive innovation!)
Just about every tech-focused startup has been called “disruptive” at one point.
When you begin working with a disruptive business, what are some things you are mindful of and why?
First of all, is this actually a disruptive business? The idea of disruption has become such a buzz word with entrepreneurs and media, that just about every tech-focused startup has been called “disruptive” at one point or another. If a founder is talking about their disruptive business model and doesn’t understand the idea to begin with, I’m a little concerned.
Second, do they have a least a loose plan for how they will move upmarket? A business model that aims at the lowest cost solution with the thinnest margins will certainly gain customers, but won’t necessarily grow into a sustainable business without a plan to either gain a significant customer base or monetize in other ways.
Third, are the technology and adoption curves going to play into the equation the way they need it to? In the Personal Computer example above, a key part of the disruption was that the PCs quickly became capable enough to compete with mainframe computers for many tasks and markets. Timing is everything, so if the next wave isn’t coming fast enough (or at all), it can be a huge problem for a business looking to capitalize. For reference, look at the eCommerce boom of the 1990’s.
Aside from these, there are a lot of the same questions as any other business:
- Do you have a sustainable model?
- Do you have a clear product/market fit?
- Do you have the team and expertise to make it happen?
- Why isn’t someone else doing this, and if they are, what gives you the advantage?
These are some the key things that any entrepreneur should think about, disruption or not.
Timing is everything, so if the next wave isn’t coming fast enough it can be a huge problem.
What is the biggest hangup or challenge you expect to face in branding and positioning a company with a disruptive business model?
By definition, a disruptive business takes an entirely new approach to its business category, leveraging a particular idea or innovation to offer a simpler, lower cost or more targeted solution to its customers. As human beings, we tend to be resistant to change and are particularly averse to things that we don’t understand.
A good example is a company we work with called Houwzer (Read the Case Study). Houwzer offers support to homeowners as the seller’s agent for $500, instead of the traditional 3%. The audience’s first reaction is suspicion in many cases. Why is it so much less expensive? What am I not getting that I would get with another agent? What are you getting out of the deal besides money?
This becomes an important aspect of brand positioning and messaging, where a key need is to position the brand in a trustworthy way, and to communicate clearly why and how the approach is different. Also, how do we build credibility with the audience so that they are willing to make the jump?
What if you’re not the first to attempt to disrupt a market, what challenges should you consider?
First of all, if someone is already in the market, why haven’t they already won? Certain markets are incredibly fickle and slow moving. It’s important not to get stuck in the same quicksand as those who came before you. What is it that is going to make your approach better? Is it going to be enough to break through, or will be mired with the same issues, or be stuck in a close 2nd or 3rd place?
Even if your product or service is better, how defensible is your advantage? If you hit the market with your slightly different approach, what’s to stop a competitor that is ahead of you from pivoting and eating your lunch?
Snapchat had incredible user growth numbers to report until Instagram added Stories, which was directly copied from Snapchat’s app. Did users care that it was stolen? Nope. Almost immediately Snapchat’s user growth numbers flattened out, not great timing for a company that had recently hit the public markets. Luckily for them, their recent success in building out an ad business has helped to defray the issue of a slow Daily Active User (DAU) growth trajectory with a strong Q4 2017 Earnings Report.
Capital should definitely be a consideration as well. A lot of problems can be buried with enough investment. Even if your mail-order mattress is drastically better than Casper’s, you’re going to have a really difficult time competing with thier marketing budget. If you’re charging headlong into a market with companies that are raising VC money hand over fist, you might want to take a long hard look at whether you have the stomach, and pocketbook, to go head-to-head.
A lot of problems can be buried with enough investment.
Any advice for startups looking to be disruptive?
- Learn about disruption theory before you go around talking about it. Make sure you understand the strategy behind it and how that fits with your idea and business. Is this something that you can pull off? It’s all about execution at the end of the day.
- Make sure your “disruptive innovation” isn’t just a feature that can be easily stolen/replicated by an incumbent or competitor. A lot of hard work and value have been buried this way (see “You’ve been Sherlocked”)
- Understand the market forces and audience sentiment that are required for your idea to take hold and grow. Make sure that you are positioned properly to get your audience over the hump to understanding and accepting your new paradigm. A strong product/market fit is the #1 difference between the winners and losers.
- In entrepreneurship, and especially in tech, timing is everything. It’s important to make sure that you aren’t so early to the party that you run out of momentum (or money) before anyone shows up. For relevant war stories, refer to any of the 90’s era “dot com” businesses, like Pets.com for instance.