The innovator’s dilemma — great insights into why companies eventually die.

“…I think almost all of the net jobs and growth come from this type of innovation…” That got my attention. I came across another brilliant presentation by Clayton Christensen — Harvard Business School Professor speaking at StartUp Grind last year.

Before I get into the chat, I want to add some content. In 2010, I started building Morningstar’s first Australian small cap fund — interviewing more than 100 company CEO’s to build a short list of investment worth companies. We launched the fund in early 2011.

During that time, I looked for key qualities in management which would ultimately determine financial success. I realised that the smartest guys in the room didn’t always win. In fact, intelligence, academic background and corporate experience had almost no bearing in the track record of companies I studied.

There was something else. Entrepreneurship — maybe! Wasn’t sure if that was the right word. So I spent the next few years figuring it out.

The innovator’s dilemma — the hustle is real

I’ve seen this happen many times — both through my own investments and elsewhere in the market. The winner ends up dying. Innovate or die, but why?

I’m sharing this with all those interested in:

  1. Innovation — fancy word, but not all the same. Has different meanings, applications and context.
  2. Why disruptive innovation is often written off by large, established businesses (there’s a whole list of anecdotes). Are they dumb, ignorant or just lazy?

Apparently, they’re too focused on what works now and not too concerned with what happens next, because it doesn’t make money or make sense diverting resources in that direction.

3. The difference between disruptive, sustaining and efficiency innovations. This is important, not every type of innovation is disruptive. Treat the word carefully.

Now watch the link below.

Real estate is a prime example of an industry where a few large players control the vast majority of the market, particularly in residential sales and management. Markets tend to be fragmented among brokers and agencies, but its often a handful of players that command the majority of marketshare.

They’re able to do this because they focus on efficiency innovations and scale.

PropTech is real, here to stay and only starting

Where we feel they miss things is at the disruptive innovation level. When we started Esho Ventures, we wanted to intentionally align and work closely with our industry partners because they have the means, resources and distribution channels in place. I had a very good understanding of what Christensen discusses here, but never heard it articulated in this precise way.

The valuation gap between PropTech and traditional real estate businesses is growing. In Australia, Realestate (REA Group) and Domain (Fairfax) dominate the transaction market. They’re able to charge large monthly recurring subscriptions and over time, will continue stripping out the marginal earnings in most real estate businesses.

Today, they control distribution and act as the interdependent interface between property buyer and sellers. The agents in between purely act as the modular interface.