Friday, February 4, 2011

The Way "Disrupters" Think

I recently had an instructive conversation with a colleague I hadn't actually seen for more than a year, that amply illustrates how would-be "market disrupters" think. Keep in mind that "disruptors" have different business objectives than traditional executives might. A conventional approach might have companies N+1 and N+2 entering a market lead by company N because N+1 and N+2 believe they can take significant market share away from N.

Venture capitalists might fund company N+1 because the firm has technology that is 10 times better than that of company N that leads the market.

But here's another way of looking at the matter. There is an existing market worth 100x revenue and 300y usage. Disruptor firm N+1 has a business plan aimed at boosting usage to 400y but shrinking revenue to 10x. N+1 will do well because it will get a share of the 10x where N+1 now has no revenue.

N+1 knows it does not have to take share in the traditional way to disrupt the market, any more than Skype had to take away much existing international long distance to affect pricing across the entire market.  N+1 simply has to gain enough recognition as a viable supplier, with dramatically-lower retail pricing, in the customer base.

The difference is in the notion of "growing" a market compared to "destroying" a market.

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