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Innovation: Disruptive, Sustaining or Rippling?

In case you haven't heard, the startup world is changing forever.  The results of the changes (not the cause) include Lean Startups, the rise of "singles and doubles," and a power shift towards entrepreneurs.  To dive a bit deeper into what is (may be) happening, one should turn to Christensen's Innovator's Dilemma.  As opposed to what was going in Christensen's example, today's startups are successfully building startups based on sustaining innovation.  These are the singles and doubles.  There's also a different class of startup that builds what I'll call "rippling innovation."  These startups also result in singles and doubles, but have the potential to hit big, depending on the market they're in.

The Innovator's Dilemma not only forms the foundation of Lean Startups and Customer Development, but has brilliant analysis on the role of disruptive vs sustaining innovation in large successful businesses.  In a nutshell, big successful companies successfully adopt sustaining technologies that maintain a steady trajectory of performance/cost improvements.  These same companies, however, fail to adopt disruptive technologies that radically change performance/cost trajectories.  The success of the former dictates the level of success of that business as long as the adopted trajectory is dominant in the marketplace.   These businesses tend naturally to move "up market" to maintain or increase margins as the  (IMO) traverse into late majority adoption in the technology adoption curve.  If and when, however, the disruptive trajectories become dominant (for whatever reason) these same businesses fail, because they are unable to respond to the startups eating up their core business.

Christensen illustrates this dynamic with numerous examples, which I have no intention of going into. Read the book.  The key takeaway for this discussion is "disruptive" means new market and "sustaining" means improvements in existing markets.

Examples of recent disruptive innovation include:

  • vaguely, teh Internets
  • Google
  • SaaS (salesforce.com)
  • Facebook
  • iPhone
  • Twitter

In Christensen's examples, existing companies develop their own sustaining innovation and startups tend to fail to unseat or even effectively compete against entrenched players.  (In my days at WildPackets, we developed far superior products than the dominant player (Sniffer) and offered them at a far superior price point, but the market share we won was pretty small compared to their overall dominance.  "You don't get fired for buying IBM" was definitely analogous in our market.)

Disruptive technologies ripple effect

Today, however, I think we're seeing that startups are successfully growing businesses based on launching sustaining innovation.  These businesses help other businesses improve performance technologically with innovations in text message software, sales, customer support, etc.  They provide consumers new entertainment, better shopping experiences, and other quality of life improvements.  I don't think most of these companies are doing anything terribly disruptive, but help other businesses continue their growth or lower costs, improve margins, etc.  I don't think there's anything particularly disruptive and so their market potentially simply doesn't equate to the "big wins" much of the investment community obsesses over.

The other (related) development is the application of disruptive technology into different markets.  This is what I call "rippling innovation."  For example, Facebook represents social networking disruption.  There are now hundreds of startups attempting to bring to niche markets similar capabilities.  There are hundreds more leveraging Facebook's disruption to bring related or derivative products and services to market. Again, most of these will not result in the "big win," but add real value to their customers.  The latter is a more persuasive reason to invest (terms dependent on size of niche) than presuming an arbitrary return.

These startups succeed not because they are doing anything radically new, but rather because they are using newly available technology to solve the specific needs of carefully-carved niche markets.   (Niche doesn't necessarily mean small, but does mean smaller.)

What do big companies looks like?

What does it mean to the  big companies if they are no longer leading the way in developing sustaining or disruptive technology?  Lots of acquisitions, of course.  Singles and doubles.  In the past, big companies often folded their acquisitions into the main company.  Christensen argues that this rarely works for disruptive innovation, since the values of the acquiring company (rationally) are ill-suited to new markets.  I'm guessing we'll see something similar in businesses that acquire sustaining and rippling technology.  Where innovation improves performance to existing customers, the acquired startup will be folded in.  Where innovation adds new market segments, the companies will stay relatively independent.

There used to be (perhaps still is) an ongoing battle in enterprise B2B software between "best of breed" vs "suite."  In other words, is it best to solve problems ably across a spectrum or solve 1 problem really well, albeit barely addressing other problems, if at all.  There's something analogous in company building.  Is it better to have a one size fits all solution (or technology carved up by segment) vs a tailored solution by market segment.  I think the latter will win out.

What's your take?

4 COMMENTS ON THIS POST To “Innovation: Disruptive, Sustaining or Rippling?”

  1. Trevor Owens December 23, 2010 at 10:37 pm

    So the ripple effect is the hundreds/thousands of companies using the twitter API that will never be huge businesses (maybe Hashable is an exception).

    Truly disruptive are new technologies that fundamentally change our daily lives, the internet, the social graph & interest graph, etc.

    Quora is interesting in that it’s not so disruptive but will be a huge business.

    • brantcooper December 24, 2010 at 8:53 am

      Thanks for the comment, Trevor. I don’t know if Quora will be big, but yes, I think “ripple innovators” can be big companies depending on the size of their market.

      Brant

  2. Olin Hyde January 29, 2011 at 1:42 am

    Meetups are the displacement technology for trade shows. The growth of the Lean Startup movement is a good example of how the ripple effect works. Many thanks for all the great ideas and work you have put into this movement.

  3. Jorge April 10, 2011 at 11:04 pm

    I think the success of the disruptive technology/innovation, as
    we all now know must work well hand in hand with the rest of the
    elements of the business model. The business model, as Clayton
    notes in his later writing must change as well.

    Thank you.

    Profjorge.entrep

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