Disruptive Innovation – what is it & how start-ups can adopt it
The theory of disruptive innovation was introduced by Clayton Christensen, more than thirty years ago. This theory refers to innovation that creates a new market while disrupting or displacing an existing market. It is a process wherein a product or service begins at the bottom of the market and steadily moves up market, eventually displacing established market leaders, competitors and products.
The theory of disruptive innovation is a powerful tool for entrepreneurs and start-ups and needs to be incorporated as a part of their business strategies so as to secure competitive advantage and drive sustainable growth.
For a new entrant to successfully challenge an established company’s business, the needs of the market’s lower segment have to be surveyed and analysed. Most established companies concentrate on the higher tiers of the market, which have been profitable segments for them. These companies focus on improving their products and services by continuous innovation attempting to fulfil the demands of their most profitable customers and land up upgrading their products faster than their customer’s needs evolve. These sustaining innovations result in developing products that are too sophisticated, complicated and very expensive and remain accessible only to the elite customers or to the top, yet smaller segment of the market. While serving these demands, the company tends to ignore the needs of the others or the larger segment of the market.
This is the segment where the start-ups need to focus on. By successfully targeting these overlooked segments and delivering quality products that are suitably functional yet inexpensive, the new entrants are able to gain a strong foothold in the market. Once ready to deliver more, they can move upmarket and tend to the more demanding segment, while preserving their initial customers. Although it may take a little longer to become popular in the top segment, once the product clicks, it won’t take long for the start-up to flourish and eventually deliver higher profits. With persuasion, innovation and quality maintenance, success of the start-up is guaranteed. The transition of the mainstream customers from an established company to adopting the new entrant’s product and services is the result of a successful attempt of disruptive innovation.