The Perils of Disruption
Disruption is the most annoying business meme right now. Everyone is disrupting something. Disrupt or be disrupted. Disruption-as-a-service. Disruption talk is why I can’t live in Silicon Valley, despite it having superior weather and the best burritos.
Don’t get me wrong. Disruptive innovation is a sight to behold. It’s among the most beautiful, and violent expressions of human ingenuity and capitalism that we experience in the workplace, and it is a force for good in society. However, it is a ridiculously overused word in tech right now. Most of us are not disrupting anything, but either we’ve lost contact with the definition, or maybe we feel like we have to say that we’re disrupting something in order to attract investors. In any case, we need to talk about this, because abuse of the word disruption, along with public use of Segways, and phonetic use of the .ly domain (adverb companies), is causing customers to hate all of us.
Clayton M. Christensen co-authored an excellent article in December’s 2015 Harvard Business Review that revisits his original 1995 thesis on disruptive technology by contrasting the business model of two amazingly successful companies — Netflix and Uber (I highly recommend reading the article, his analysis of these two companies really exemplify his theories.)
Christensen defined disruptive innovation as a process by which a small company beats industry giants by first offering an effective, low-cost, but technically inferior solution that targets smaller or less sophisticated customers whose needs are being ignored by the large incumbents. Over time, the entrant works its way upmarket and builds a solution that is not only as good as the incumbent’s, but also less expensive. Soon they become a formidable competitor, and the incumbent fails or is acquired by Dell.
This is what I think a lot of tech people miss: First, if you claim to be disrupting an industry, by definition you are doing so with an inferior product. If your product is not inferior, you are by definition not disrupting that market. You cannot disrupt a market with a product that’s superior to the incumbent’s.
So how does disruption happen? It’s usually a small subset of an incumbent’s client base that strongly influences product direction and investments (customer advisory boards for instance; the big and most ‘strategic’ customers). Because of this, the incumbent invests in adding incremental capabilities to their existing product lines which drive up the value of their products as perceived by their existing core customer base. As a result, companies don’t have attention or resources left to invest in new, innovative products and features that may take a long time to develop, and market and sell into their existing bases or untapped new ones. It’s thought to be unprofitable and would take investment away from the features and enhancements for which existing customers are clamoring. But while you are ignoring the low-margin fringes of your market, new entrants are innovating in that space, iterating, and starting to make money. Eventually, they move upmarket and the incumbent is in trouble. And herein lies Christensen’s paradox: In order for a company to be successful, you must listen carefully to your customers and anticipate their future needs. However, when successful companies fail, it’s often for the same exact reason! Hence the warning, “blindly following the maxim that good managers should keep close to their customers is sometimes a fatal mistake.”
Christensen goes on to talk about the fact that as the challenger acquires more dollars from their early customers, they inevitably try to push further up the value stack where the ‘big boys’ play to gain greater revenues at higher margin. However, if you are a new player in the space and have had some success with your disruption, moving up the stack too quickly and not knowing your client base, product or company capabilities well enough, can significantly blow up in your face. One such occurrence has happened in Christensen’s model space, the disk drive / array business. One company’s CEO is quoted as saying:
“We have been executing a strategy of augmenting our customer base of mid-sized enterprises by focusing on expanding our presence in the large enterprise segment…” “…our enterprise investments are taking longer to become fully productive…[and] we believe the shift in investment from commercial to enterprise business impacted our commercial revenue growth more than we anticipated.”
This statement reflects what turned out to be a significant impact to the company’s stock price, prompted an array of shareholder lawsuits, and reflects a fundamental underlying truth: Disruptive trajectories are hard to execute and the path of the disruptor is wrought with peril. For every Netflix or Amazon that succeeds, the road is littered with the corpses of a thousand of dead companies that charted a disruptor’s trajectory but miscalculated something and ran out of money trying to get there.
Second, not all revolutionary technologies are disruptive. There is another way for David to beat Goliath, and that is to enter the market on day one with a product that is superior to the incumbent’s technology. It’s exceedingly difficult to pull off, because incumbents have strong products, mature operational expertise, and tons of capital. But once in awhile it works. This is EXACTLY what we did at INFINIDAT. About 52% of our current global workload was migrated off of market leader EMC’s high end systems. These customers chose InfiniBox over VMAX and XtremIO renewal because our platform is 100x more reliable and is half the cost.
The characteristics of InfiniBox lend themselves perfectly to clients who need the most advanced storage solutions available. Our clients need the highest availability and highest performance at massive scale. Our first clients were the ‘who’s who’ in the Fortune 1000 and we have had continued success there, enabling our customers to gain advantages they couldn’t realize until our product arrived.
And we’ve managed do this while adopting a disruptive pricing model, that makes the TCO for our solution damned attractive. Clients who buy from INFINIDAT receive a step function in reduced costs and increased reliability without the need to re-engineer the storage infrastructure. For many tech companies, temporary aggressive pricing is a marketing tactic to gain or preserve market share, but at INFINIDAT, it’s a function of the technology. Incumbents in the market may try some outlandish pricing for a brief period of time, but it is not sustainable. Our solution was built to be revolutionary rather than disruptive. In addition, we started at the highest end of the market with a revolutionary product, knowing that moving upstream is much, much harder than moving downstream.