Experts and entrepreneurs on building – and looking for – the Next Big Thing.
Uber is perhaps the most-talked about company on the subject of disruption. It has, so the conversation goes, disrupted the licensed cab market and, possibly, the wider job market. It is innovative, took advantage of opportunity where others did not and grew by radically altering operating practices in its sector.
But do innovation and success truly count as disruption? Not according to Harvard Business School professor Clayton M Christensen who in 1985 laid the ground rules for what he termed ‘disruptive innovation’, Uber isn’t really disruptive. It neither improves on the base product of an existing company that has abandoned core customers for more profitable segments, nor does it create a totally new market.
Netflix and Spotify are disruptors. They started small at the periphery of an industry or business sector, with an offering first considered to be niche (online rental of films and streaming music, respectively). They grew to become mainstream players, with a tipping point coming when mass audiences could accept their technologies and services at the right price. (Crucial here was Netflix offering streaming content, rather than on DVD, and Spotify agreeing deals with the major US music labels).
You learn something disruptive if you look outside of your industry
Snapchat is also disruptive. It has become the favourite social media platform of 13-30-year-olds, with more overall daily users than Twitter, by doing the opposite of rival platforms. It values personal curation of content over that suggested by bots and algorithms. User data is deleted, which makes it less available for misuse by advertisers and hackers (and is less likely to embarrass its creator in years to come). Snapchat’s two co-founders rejected an offer of $3bn from Facebook in January 2014. In March 2017, their shares in the company were worth more than $5bn each when the parent company Snap was valued at $28.3bn after its first day of trading on the New York Stock Exchange.
Deliveroo has led to more choice for consumers ordering takeaway food, enabling delivery of restaurant meals not previously available to eat at home, but it hasn’t stopped people ordering out for pizza or Chinese food. (Uber’s and Deliveroo’s treatment of its workforce has come under fire, and the idea that these firms, along with others like them, have ‘disrupted the labour market’ by driving down hourly wage rates and foregoing employee benefits, is another discussion point around what constitutes disruption.)
Disruption happens slowly and any firm with a business plan that includes disruption from day one should be viewed with caution. Airbnb, a true disruptor that created a new market for short-term accommodation rentals, grew from the bright idea of two San Francisco roommates, in 2007. To earn a few extra dollars during a design conference they felt would make finding a hotel difficult and expensive, they put three airbeds in their loft and offered WiFi and breakfast along with these temporary berths, for $80 each. Three people said yes and a bigger idea was hatched. The following year, one of the co-founders contacted seven Silicon Valley investors via email, looking for $150,000 on a $1.5m valuation: he got five no-thank-yous and two didn’t reply.
Airbnb was truly innovative and became a disruptor, but disruptor brands often aren’t the innovators of the core product or service they’re offering. “Google wasn’t first, Facebook wasn’t first,” says Reshma Sohoni, co-founder of early stage investor SeedCamp, which has backed almost 200 companies – 90 per cent of which have gone on to raise more funding – since it was founded in 2007. TransferWise, a London-based disruptive currency swapping start-up valued at over US$1bn was funded by SeedCamp and it, too, was not first in its sector. “We look for start-ups that are very early, rather than the absolute first to get a product to market,” notes Sohoni.
Debbie Wosskow, founder of the world’s largest home-sharing site LoveHomeSwap, says that, “disruption doesn’t happen in a bubble. You need a number of contributing innovations to drive a change in behaviour.” Sohoni says that, as an investor, she also looks for a range of enablers that increase that idea’s chance of long-term success. “Is this timing the right one, are there other things that will enable this sort of a product to get to market? Besides failing to get customer buy-in or getting users to pay and become customers, sometimes it’s just a really great idea and the wrong time for it.”
In 2011, Wosskow raised her first capital for what became LoveHomeSwap; it now has 80,000 properties available in 160 countries. Condé Nast Traveller described it as “Airbnb for grown-ups”. Wosskow chairs the UK’s sharing economy trade body SEUK and in 2016 was awarded the OBE for services to business. She has also learned that disrupting a sector does not mean total disregard for what came before.
“Just because you’re a disruptor and what you’re doing is new, doesn’t mean you can’t borrow from the old,” Wosskow says. “We’ve learned from previous business models, and reinvented them for a different type of consumer. The best businesses continually disrupt themselves because your consumer becomes more sophisticated and expectations shift.” Customers also expect a certain amount of trial and error from a start-up, and can forgive teething troubles, as long as they are ironed out. Says Sohoni: “Tolerance for pain from [an established] brand is just not as high as from a complete unknown that they’re willing to give a shot to.”
Key to understanding and possibly creating disruptive business is to challenge existing critical thinking. “It’s very difficult to think of a disruptive business model because we’re victims of the rules of industry,” says Amitava Chattopadhyay, GSK professor of innovation at INSEAD, the graduate business school voted in 2017 the world’s best by the Financial Times. “When I teach in exec programs, there’s a constant demand for cases that are relevant [to the industries in which the exces work]. Why? If you’re selling soap and you study what another soap company is doing you’re hardly going to learn something that’s disruptive. Maybe studying Apple gives you great ideas about how to do business differently. You learn something disruptive if you look outside of your industry.”
So, what will be the truly disruptive businesses of the future? Venture capital firms and angel investors have told THE STAND that, for 2017 and 2018, they are especially interested in start-ups in the AI, health tech, Internet of Things (IOT) and augmented reality and virtual reality sectors. Forbes suggests fintech, IOT and big data as areas from which the next big disruptive technology will emerge. One thing is certain: those businesses focusing solely on disruption whilst disregarding growth, innovation and the ability to adapt will be the least likely to succeed.