Javier Rojas, Silicon Valley MD at venture capital firm Kennet Partners, discusses The Innovator’s Dilemma by Clayton Christiansen.
This is a ground-breaking business strategy book for entrepreneurs. It provides counter-intuitive insights into how and where massive markets are created by new entrants.
Disruptive innovations are ideal for entrepreneurs because they are typically developed with off-the-shelf technologies by small, capital-efficient businesses and, best of all, have a lower failure rate than those that compete directly with incumbents.
Clayton Christiansen offers three key lessons on disruptive innovations: why market leaders typically don’t/won’t pursue the disruptive innovations which create new market leaders; where to look for those opportunities; and how to pursue them effectively.
It is an entertaining read: told through interesting case studies that describe challenges faced by market leaders in multiple industries. This is masterful storytelling, with example after example of bright, well intentioned CEOs losing their company’s market leadership position to entrepreneurial companies because they followed sound business practices.
That’s right – following good business practices and making sound management decisions will eventually lead to your demise as a market leader when a competitive and disruptive technologies emerges. In this situation, if you listen to your customers, investors and employees you are doomed. Now that’s counter-intuitive.
For example, disruptive technologies usually involve new product designs that can’t compete for the ”best”, high margin customers. Look at TK Maxx and Primark. Their low margin and high inventory turns represented a disruptive innovation in retailing; once dominated by department stores with high margins, low turns and expensive sales professionals.
Not all disruptive innovations succeed on the timetable we are looking for, but that’s the nature of the beast. The data in Clay Christiansen’s book shows that disruptive innovations, pursued correctly, are actually less risky than many people think.