The Rules For Disruptive Startups

Disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and its value network, displacing the established market leaders and alliances.

Within the startup world, “disruptive” is one most popular buzz words these days. If a start-up wants to make a splash and connect with lots of users, it needs to be disruptive.

There are tons of startups, but few are real industry changers or go on to become unicorns. Some entrepreneurs are working to change the way we travel, pay for things, listen to music, and share news.

The rise of the cloud has made artificial intelligence accessible to all. Digital payment means mobile apps are commercially viable.

The internet of things is generating huge amounts of data, which needs powerful data analytics to provide useful insights. Best of all, these technologies are cheap to use.

The tech and fin-tech space has seen a lot of growth and disruptive tech startups owe a huge amount to the plunging cost of tools

You don’t need $10 million to get started. It’s more like $10,000. In fact, many cloud providers offer their services free at first. Transaction costs are close to free. You can found a company and run it for next to nothing, then scale it up.

This low cost of entry, plus the lure of a big payday, means the number of so called disruptive startups has increased.

An under-appreciated ingredient in the rise of disruptive startups is the supportive environment for entrepreneurs, accelerators, startup hubs and incubators, however there has been a slow down in investment capital in recent months.

Is the trend of “disruptive” startups sustainable? The key metrics point to the affirmative. For example, the internet of things is forecast by McKinsey to have a total economic impact of $11 trillion by 2025. Mobile data traffic is rising by around 60 per cent annually. Some of the most exciting digital technologies, such as virtual reality, have barely got started.

If anything, this is just the dawn of the disruptive startup.

A fantastic article posted on the website by Dharmesh Shah, who is the Co-founder and CTO of HubSpot.

Working on a startup?  Have a 800 pound gorilla you’re trying to disrupt?  That’s awesome. But here’s a tip:  Don’t talk about disrupting them.

Why is this so important?  Why shouldn’t you declare to the world (and the tech press) that you’re going after the big kahuna?  Doesn’t the media love a great David and Goliath story?

Here are my reasons.  I’m going to keep this simple:

1. In just about all cases, to successfully disrupt a large incumbent, your best casescenario is that they completely ignore you and what you’re doing.  This allows you to (quietly) build the thing you need to build without too much intervention.

Here’s the script:  “Don’t mind us, we’re just over here working on something tiny.  We’re not worth your time. You’re much better off focusing on your best customers and driving your profit margins up.”  (This is pretty much the story that plays out in Clayton Christensen’s “Innovator’s Dilemma“, which if you haven’t read, stop what you’re doing and do that right now).

2. You want the incumbent to act “rationally”, because an emotionally fired-up incumbent will come try to crush you simply out of spite and ego.  They may not succeed  in crushing you — but in the process, they can certainly cause a lot of pain.  And, responding to their actions will distract you from that whole disrupting thing you’re trying to do.

3. One of the keys to disruption — which usually happens from below is that your product/offering has to be inferior in some critical way.  The fact that what you have doesn’t meet the needs of the existing customer-base is what makes it easier for the incumbent to ignore you.

If you start talking about how you’re going to disrupt — you’re probably going to wind up trying to convince the world why your product is not really inferior but even better for customers than the existing, leading alternative.  That sounds like a good thing — but it’s not, because you shouldn’t, in the beginning, be trying to create something that’s “better” than what exists.  Chances are, if you do that, you’ll do something incremental and you take the incumbent on, on their home turf.  Turns out, they’re really good at playing that game (there’s a good chance they invented the game).  You should be working on something dramatically simpler, cheaper or lighter.

Don’t start out trying to build something better for the entrenched company’s existing customers.  That’s not your goal — your goal is to create something “good enough” for customers the incumbent doesn’t care that much about.  If their best customers wouldn’t laugh at the ludicrous lack of capability in what you’re building — you’re probably doing disruption wrong.  Go back and read Innovator’s Dilemma (again).

OK, so when should you talk about this awesome disrupting you’re doing?

Ideally, in the past tense:  Think:  “We’ve disrupted…”, not “we are disrupting”.  Next best choice?  When the path is clear and the outcome is more or less inevitable.

Until then, be heads-down and quietly just do the work.


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