The need for enterprises to disrupt from within

It's been 16 years since Clayton Christensen's landmark book, "The Innovator's Dilemma", was first published. Since then, we have witnessed not just once well established firms, but entire industries, disrupted by digital native companies. This has occurred not just in industries where the end product itself is digital (e.g. media and entertainment), but also industries where the end product is physical (e.g. traditional retail). This has occurred primarily due to two factors that the Internet has enabled:

  • lower fixed costs: consider traditional retail and the impact that Amazon has had on big box retailers viz. Best Buy
  • disintermediation: consider the music industry and the impact that Apple's iTunes has had on record labels

However, as disruptive as the recent past has been, we believe that the disruption that almost every industry is set to experience in the next 10 years, will be far greater and more dramatic. Why? Consider the following cycle:

 

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It is easier than it's ever been to take a concept from an idea to a viable company today. Critically, going back to Christensen's book, several of the examples of disruptive companies offered - Digital Equipment Corporation, Seagate etc., required significant capital to get started. Today, whether it's digital products or physical products, we are entering an era where the scarcest resource to get an idea off the ground is no longer capital, but skill. Platforms ranging from Amazon Web Services to Facebook to Kickstarter, have given the ability to people with the right combination of skills, to very cheaply and quickly prototype a product, obtain user feedback, bring in initial revenue, and rapidly iterate and improve the product. In addition, the ability to raise capital, and the ability to contribute capital, are becoming more democratized than ever before. All of this is creating the perfect storm for unprecedented business disruption. 

This leads us to the critical question, how do incumbents operate in this coming era? It's actually very similar to prescription offered by Christensen - by thinking and executing like a startup, and disrupting themselves. Of course, this is much easier said than done, given that it involves canabalizing existing revenue streams to build new ones. However, does it work? If done right, absolutely! Apple Computer was on life support when Christensen's book was first  released. Since then, following the principle of self-disruption, Apple has seen the most remarkable turnaround in the history of business and created, not accounting for inflation, the most value company in history.