This article is part of work for Harvard Business School Online: Disruptive Strategy by Clayton Christenson. It is the best business course I have ever taken, so I encourage you to take this course online.
In this article, I may use some terms in this course, but I will explain in sentences. Still, I encourage you to take this course to explore these brilliant ideas.
Here are a few books from Professor Christensen which also deliver the idea “disruptive innovation strategy” :
- The Innovator’s Dilemma
- The Innovator’s Solution (this book closely aligns with Disruptive Strategy)
- How Will You Measure Your Life?
- Seeing What’s Next
Here we can start. I chose Stripe as an example to analyze its disruptive strategy from my personal perspective.
Company Description
Stripe is an online payment company founded by John Collison and Patrick Collison in 2020, headquartered in San Francisco, California, USA. Its mission is to build the economic infrastructure of the internet and provide financial services for internet companies. It had payment platforms called “payment” for companies and “connect” for online platforms. Upon the payment infrastructure, it had several applications such as “Radar” for fraud detection, “Sigma” for customer reports, “Billing” for recurring invoices, and “Atlas” for startup incorporation. It is a fast-growing company, and it still scales its business. In 2020, Stripe announced a $600M fundraise led by Sequoia Capital, and its valuation reached $36B.
The Characterization of the situation
Although markets already validate its online payment business, Stripe is trying to expand its business by providing financial solutions for online business entities. Its ambition is to beat traditional banks who could not provide fast and cost-effective financial solutions for online business companies. And I mainly talked about this specific ambition in this paper. Based on this ambition, we can analyze its disruption strategy by these following theories:
Aligning with Innovation and Disruption
Its service is a disruptive innovation, and its targeted incumbents are traditional banks. By definition of our disruptive strategy, it is using two kinds of disruptions: low-end disruption and new-market disruption.
The first disruption is low-end disruption: it is providing cheaper financial solutions for small-sized enterprises, who used to collaborate with traditional banks to receive financial services such as fraud detection, legal paperwork, and financial management. Stripe costs less for those financial solutions by virtue of its pure internet infrastructure. These small-sized enterprises are low-end customers for incumbents, so traditional banks are expected to “flee” instead of competing with Stripe.
The second disruption is new-market disruption: In light of its easy use and quick response, it can attract small entities, even individuals, to start their business on the internet. Those people may not be able to create business before due to complicated and confusing financial processes. But right now, they can easily handle those financial processes without financial, legal, and advanced technological knowledge.
Discovering Customer Job to be Done
We can consider Stripe’s job to be done is “help me handle the financial service of my online business efficiently”. It provides a better experience for online business owners compared to the experience provided by traditional banks. It enables online business owners to start and boost their business purely online, and they can focus on products by not worrying about clutters related to financial issues.
As Stripe grows, it is important to stick to the original job to be done based on our theory. The temptation is to touch the brick-and-mortar business and replace all traditional banks’ financial activities. It would be better to serve the life-cycle of online business entities, ranging from business registration to fundraising.
Organizing for Innovation
Stripe’s success in this field depends on its resources, processes, and profit formula. It had around 250 million payment transactions per day in terms of resources, and it can efficiently utilize these payments to scale its financial service business. It had an agile development method in terms of processes to deliver its product iteratively. In terms of profit formula, profits generated by financial service are different from those for payment transactions.
The essence of this business is Stripe has to integrate resources, processes, and profit formula to achieve its job to be done.
Maintaining a Disruptive Scope
In disruptive strategy language, the interface between financial service options and business owners’ needs are very interdependent. Payments, credit scores, card issue, and legal services interact with each other. Each bank has its process and information flow to deal with these issues but in a traditional way. Right now, Stripe has to integrate forward to determine a customer’s needs and provide a specific need for this customer.
According to the interdependence and modularity theory, the FinTech industry will have more flexible interfaces and more modular. For example, Zhima Credit in China provided a mature solution to access everyone’s credit score, which created a modular interface to connect lots of financial needs.
Managing the Strategy Development Process
Stripe is providing integrated financial services for small online businesses. In this initial stage, it has to maintain a deliberate strategy and the emergent strategy together. While it has its vision and roadmap, many emergent opportunities may happen, especially in this brand new online financial industry.
At the same time, it has to differentiate the “good money” and “bad money” and be patient to provide small online businesses the “right” financial service. Doing so can find the right way to make profits and develop an appropriate process. Then it can maintain the deliberate strategy to scale fast by using the right profit formula.
Recommendations
We can treat Stripe’s products as the low-end disruption and the new-market disruption. As the theory suggests, Stripe will start at the low margin customers and then move up the market by providing higher-margin services. The asymmetric motivation will be easily created, and traditional bank and financial service agents will “flee” towards high margin customers.
According to disruptive strategy theory, in the process, Stripe has to pay attention to 3 areas to maintain a disruptive innovation status: avoiding competing for high margin customers, sticking to the job to be done, and diagnosing the right place during the disruptive innovation trajectory.
The first thing they should concern about is to avoid competing with incumbents for high-margin customers at the beginning. Even though it has a large volume for payments, large internet companies still need mature financial services from incumbents like investment banks. From this perspective, Stripe is hard to compete with them and maybe lost in this competition.
The second thing Stripe should concern about is sticking to the job to be done and avoid using too much energy to scale. Stripe should stick to its original job to be done: “help me handle the financial service of my online business efficiently”, and integrate resources, processes, and profit formula around this job to be done.
The third one is how Stripe diagnoses its position in the disruptive innovation trajectory. The online financial service industry will develop from interdependence to modularity. Strip now has to integrate forward to provide terminal products as solutions. It is essential that when to disintegrate backward and to find its performance-defining component. Everything may become modular after Stripe makes efforts to build an ecosystem for online financial service. Then emerging companies take advantage of it and take the industry over.
After diagnosing their stage in the disruption, it has to go through the process to determine the strategy. Even though it should mix deliberate strategy and emergent strategy, it should keep eyes on emergent opportunities until they find a potent profit formula then take care of growth. It already received massive investment, so they should be patient to make profits instead of growing fast to meet investors’ expectations.
Conclusion
Stripe is a disruptive innovation not merely as an online payment platform but also as an online financial service provider. It has the potential to replace incumbents like traditional banks, but it should carefully maintain a disruptive scope on low-end disruption and new-market disruption. It should also integrate its resources, processes, and profit formula around its job to be done.
