The Road Not Taken: Disrupting an Industry
Monika Desai gives you a crash course in how to come into an industry and shake things up.
As an entrepreneur, you hear the word “disrupt” a lot. Virtually every founder of a startup begins their pitch by stating they are going to disrupt X market. Have you ever stopped to think about what it really means and better yet how YOU can be disruptive?
Disruptive innovation (DI), popularized by Clayton Christensen in his book Innovator’s Dilemma, is the idea that an outsider can come into an established industry, shake things up, and eventually threaten or dominate the incumbents. Companies like Uber, Airbnb, Warby Parker, and SpaceX, to name a diverse group, are disruptors who are radically transforming their industries. An entrepreneur heading down the path of disruptive innovation has these 3 main tasks:
1) Find Your Market
As with any business you need to know your customer. In the context of Disruptive Innovation, you need to identify underserved segments or create new markets that have been overlooked. Etsy is a good example of a company that created a new market. They created a one-stop marketplace that connects tens of thousands of artisans with customers. Typically the incumbents are focused on the most profitable customers, ignoring what they view as niche.New or underserved segments may appear less profitable for the incumbent or harder to reach with a high Customer Acquisition Cost (CAC). Also the cost structure of the existing offerings may lock out these new and underserved segments. This presents opportunities for a scrappy start-up. With my previous startup, Open Runway, we identified an untapped market of customers who wanted a say in the shoes and fashion accessories that they wore that just wasn’t possible with traditional retail. To meet that market need we developed a mass customization platform for shoes and handbags.
2) Make “it” 10x Better
The product or service that your disruptive company offers needs to be 10 times “better” to take on the incumbent. Being “better” however, really means making your product a better fit for your segment, typically the low end. Companies that have had success as disruptive innovators have typically distilled out the essence of the mainstream product and made it cheaper, simpler, smaller, and easier to use and launched with a low-end product, but one that is now attainable for the underserved segment. Mainstream customers might look at your offering and dismiss it, but if you have nailed the minimal feature set and the price point, you will have all the customers that you need. A good example is Salesforce, now a behemoth in the CRM space, was once a scrappy start-up that offered their product for as low as $25 per user, a good-enough solution that went up against much more expensive and feature rich competitors that cost millions to install and run. With Open Runway’s on-demand model, we were able to make products that exactly matched the customer’s need and jump on new fashions faster than traditional retail.
3) Find Your Business Model
With a new market segment and a new product, a disruptive company will also need to develop a new business model. Amazon’s launch of the Kindle device and platform was a good example of this, and disrupted not only brick & mortar bookstores, but also Amazon’s own online, physical book sales. Without inventory there was no more guessing future demand, and no more returns by the bookseller to the publisher. With Open Runway’s business model, we also eliminated inventory which allowed us to give customers exactly what they wanted rather than giving them what we hoped they wanted. The book publishing industry, already knocked about by eBooks, is in the midst of another disruption headed by Amazon. Amazon has launched over a dozen book imprints like Kindle Direct, where they take chances on unknown authors. With a dramatically lower cost structure they are able to publish books that the big publishers can’t and launch the careers of authors such as Karen McQuestion and Hugh Howey who have since sold millions of books. Whether this will further disrupt the publishing industry remains to be seen, but Amazon has a good track record. We saw similar potential to disrupt the fashion industry with Open Runway’s use of on-demand manufacturing, by reducing the cost to bring new designs to market. Unknown, aspiring designers could enter the market without such an enormous cash outlay.
There you have it. 3 easy steps to disrupt a market!
Monika Desai is an experienced entrepreneur and marketer with a passion for disruptive innovation of existing market and value networks. She has more than 15 years experience in consumer marketing and startups and founded the e-commerce site Open Runway where customers could design and purchase their own made-to-order shoes and bags. She is a pioneer in the mass customization movement. Open Runway’s on-demand business model eliminated the risk of finished goods inventory and gave customers exactly what they wanted instead of what we hoped they wanted.
