To Disrupt or Not to Disrupt?
Disruption isn’t always the right strategy for startups. It’s a choice.
The term disrupt has become synonymous with being an ambitious startup of any type. There’s an almost cult-like devotion to the idea that becoming a disrupter is the best path to success — witness, for example, the annual TechCrunch Disrupt conference. But most studies of disruption have focused on the disrupted — why businesses that are seemingly at the top of their game suddenly find themselves in distress. In short, industry leaders are vulnerable to disruption when they are stuck in their profitable business model, finding themselves unable to see or respond to the mismatch between what they are offering and what current or future customers actually want. In almost every instance, disruption is precipitated by a new technological opportunity.
But even if market leaders in an industry are hamstrung in exploiting those new opportunities, can we take for granted that others — notably, new entrepreneurial entrants — will be able to do so? And even if they are able to seize those opportunities, should they? Disruption is a choice. But it’s only one of many viable options for startups. Rather than single-mindedly heading down the path of would-be disrupter, new entrepreneurial companies can and should evaluate the trade-offs between disruption and other strategies. Doing so allows them to choose a strategy that is right for that startup, in that market, at that time, and to learn as the company commercializes its idea. To disrupt, or not to disrupt? That is a very important question. Here’s how to think it through.
A Tale of Two Startups
Even the early days of disruption saw glaring examples of alternative paths that could be chosen. In the late 1990s and early 2000s, the internet had just gone commercial, and there were numerous attempts to exploit it as a technological opportunity. One domain that garnered initial attention was the prospect for online grocery shopping. One company, in particular, stood out as a potential disrupter of grocery retailing. As we will see, things didn’t really work out. What’s more, as will be explained later, those lessons have not (yet) been learned.
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Webvan was perhaps the quintessential dotcom company, enjoying a massive IPO of over $4 billion before going bankrupt just three years later, in 2001. During its years of operation, Webvan offered a unique and, in many ways, beloved service.
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4. M. Marx, J.S. Gans, and D.H. Hsu, “Dynamic Commercialization Strategies for Disruptive Technologies: Evidence from the Speech Recognition Industry,” Management Science 60, no. 12 (2014): 3103-3123.