Most of us have probably heard how many “small businesses” fail in South Africa. What we don’t hear as much, is how startups are in the best position to change entire markets and overthrow their biggest competitors.
[read ‘The Kodak Story’ again]
As much as every entrepreneur should know the rules of their industry, they should also know how quickly and drastically these rules can change.
Disruptive Innovation is a theory about how businesses with smaller market shares can thrive against their biggest competitors. When a disruptive innovation occurs, a (usually new) market player will either create a new “piece” of the market or go for a segment their competitors have neglected. The 2min.-video and 3 points below include the key things we picked up about innovation, growth and how disruption actually changes markets:
[2min. Video on HBR]
1. How Innovation Pushes Growth
First, an easy way to understand what innovation is, is to compare it to invention. An invention is what “comes into being” when something new is created. i.e. When someone/ something creates something that never existed before. Inventions can be new technologies, discoveries or social changes.
An innovation happens when an invention is applied or introduced in a way that’s valuable to people or businesses. And since businesses functionally exist to add value to peoples’ lives, we can say innovations are the things that grow businesses.
Ideas, inventions and innovations all need each other to grow and survive. Here’s a video that explains it really well (except when he makes colonialism sound like great business).
2. When Businesses Get Big
Businesses that understand innovation face an interesting dilemma: should we keep inventing new ways to bring more value to our current customer segment (sustaining innovations)? Or should we invent ideas or technologies to break into new markets altogether (disruptive innovations)?
Although businesses always have a choice – a consistent growth strategy means every established company will inevitably find it harder to keep up with a changing market. This means the bigger a company gets, the easier it is for them to become victims of disruption.
3. When Disruption Occurs
(a short story)
The fall of physical fashion retailers vs. the rise of online shopping is a relatable example of how disruptions actually occur. With less operating costs and physical limitations, the idea of shopping online (the invention) had always promised better prices and added convenience for both customers and retailers.
Even when e-commerce became a thing, big players in the retail market still had 2 crucial points to consider:
- First, the global fashion market would take considerable time to shift from physical to online shopping. Completely switching to online would mean losing the millions of customers that shop in malls and walk-in stores everyday.
- Secondly, What if there was still a way for their existing business model to compete with the rising online stores? Who was to say (physical) retail fashion was actually dead?
Many retailers explored the idea, but weren’t ready to ditch their centuries-old business model.
To put it frankly, many established retailers still treated online shopping like a side hustle. While fast fashion startups, the secondary market and other innovators fully embraced e-commerce and built their business models around it.
In a rapidly-changing world with more accessible industries than ever, successful innovations are one of the only ways startups can really challenge the market. Ironically, this same growth could later leave them vulnerable to major innovations in their own market.
Any business is vulnerable to being disrupted. There’ll always be a new or unsatisfied customer segment. Many organizations are constantly trying to find new innovations that can help them surge forward; or turn the entire industry on its head.
Sustaining businesses employ a variety of methods to keep themselves safe:
- “New Markets” departments are always looking for gaps or inventions in the current customer segment and those around it.
- Big companies are notorious for buying up potential competitors before they can become threats.
- Competitors may create imprints or alternative offerings to challenge the growing underdogs in the new market segment.
- Other competitors may become a premium or exclusive offering, in attempts to salvage their most valuable customers.
Despite these efforts, the threat of a changing world can almost never be escaped, even for consistent inventors like Ford or Apple. From experience, we know the possibility of disruption is always lurking, favouring the underdogs and keeping stagnant industries alive, with the possibility of changing the world.
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Lungelo Hlela is a Digital Copywriter based in Johannesburg, South Africa. When he’s not writing for brands, most of his work includes themes about social issues, history and popular culture. Follow him @lungelosam for more of his existentialist ramblings and romantic ideals.