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Who Is Going To Turn Your Business Upside Down?

Tomorrow’s competition may not be who you think

Surprises are hard to predict. This may seem obvious, but what children understand, adults often refuse to believe. Disruptive innovations show a pattern of surprising us when they should not. This is silly, but silly or not, established firms miss the pattern over and over.

The competitors we fear usually do what we do. They look the way we expect them to look and are therefore easy to recognize. They may do what we do better or slightly differently from us. They may do it for different customers. Generally, however, they do more or less what we do – and this is why the threat that will turn our industry upside down is usually one we miss.

IBM’s mainframe division saw the other mainframe makers as their competition, not the mini-computer. Harley Davidson did not see Honda’s little scooters as a threat. GM shrugged at the Toyota Corolla. These were all costly mistakes and ones we are just as likely to commit.

Who is the disruptive threat?

Your direct competitors are unlikely to upset your business model because like you, they are focused on doing what they do as efficiently as possible. The disruptive threat will likely come from below. To quote Clayton Christensen, usually it will be something simpler, cheaper, and more reliable. More likely than not, you will overlook it.

The reason why we overlook these threats is because they are different. Established firms tend to move upmarket over time, looking for bigger margins. We add “value” to our products to justify higher prices. We sell more add-ons, layer on more luxury. Like GM, we forget that sometimes people just want to get from A to B without consuming a supertanker full of gas and they may not need electric windows.

How do you counter the disruptive threat?

Fending off the disruptive threat is tougher than you would think. IBM fired tens of thousands of employees and tore their corporate culture apart to survive the upheavals in their industry. Scarier still, they were one of the fortunate ones that survived. The shipbuilding industry in the west was not so lucky, nor were the steel makers. It is a difficult task.

The first step is to be on the lookout – and to take a good look in the mirror. How much more complexity can you add to your product before it is merely icing on the cake? Can your customers do what they need to do with less than you are giving them?

The disruptive threat is probably underneath you

Who is selling the discount version of what you do? Why does it not do enough to capture your market? What will it take for them to make up the difference? What will the warning signs look like if they start stealing your customers? Will you recognize them? Will it be your small customers first? Will it be your customers with less complicated needs or tighter budgets? Do you know who they are?

Will you see the threat coming?

Christensen, Clayton M., The Innovator’s Dilemma, HarperCollins, New York, 2000, p.220

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