What Is (Really) Disruption? - The VC Factory

At the core of an often misunderstood concept lies the answer to a daunting question: why do great companies fail?

Fathered by Harvard professor Clayton Christensen in the mid-1990s, the disruption theory is arguably one of the great innovation, and indeed management theories of all time.

Yet, it is still only partially understood in many business circles, including venture capitalists. And often outright misunderstood.

A Complex, Counter-Intuitive Theory

We believe this is because the theory, presented in Christensen’s seminal book The Innovator’s Dilemma, is both richly complex, and counter-intuitive.

First published in 1997, the Innovator’s Dilemma has become one of the most influential business books of the early 21st Century

Complex because it looks at the world both on a macro (whole industries) and micro (middle managers) level.

Counter-intuitive, as Christensen explains that industry leaders don’t fail because of bad management, but precisely the opposite.

Indeed, managers apply rules they learned in MBAs such as HBS’s very own, which results in letting enough space for new entrants to dislodge them in just a few years.

“This is one of the innovator’s dilemmas: Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.”
Clayton Christensen

The Sole Focus On Margins Can Kill You

One particular principle that these managers are taught is to go after margins first. When new entrants start by attacking the least profitable products in the market, incumbents are happy to leave that segment.

All the more since overall margins increase as a result (mix effect).

“First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits.

Second, disruptive technologies typically are first commercialized in emerging or insignificant markets.

And third, leading firms’ most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies.”

Learn More About Disruptive Innovation

Watch Christensen brilliantly explain, in this lecture given at the Saïd Business School, University of Oxford in 2013, one of the predictions his theory allows to make: if a new entrant comes at the bottom of the market, with a product that is “good enough” and cheaper than current alternatives, the leaders are more likely to flee than to fight.

https://www.youtube.com/watch?v=rpkoCZ4vBSI

A Complex, Counter-Intuitive Theory

The Sole Focus On Margins Can Kill You

Learn More About Disruptive Innovation

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