1. The Fallacy of Disruptive Innovation
I teach a course on Technology Strategy in Wharton’s Semester in San Francisco program. (If you want to see the course materials, here is the site.) Next week I teach a session on disruption, which has caused me to think about what we really mean by that term. As a manager or owner of a successful incumbent firm, disruption is a serious topic. How do you know which technological innovations present serious threats to your company’s future existence, and which can be ignored? This is so hard because in most industries there are literally hundreds of potential threats every year. You can’t chase them all. I honestly don’t have a great answer to this challenge, and the track record of incumbents surviving major technological transitions is terrible (R.I.P. Borders Group, Sears Roebuck, Digital Equipment Corporation).
Having said that, I do think the term is overused by new entrants. I wrote this little rant for the Wall Street Journal this month under the headline The Fallacy of Disruptive Innovation.
Successful new companies can indeed disrupt an industry. Amazon disrupted book retailing. Its ascent caused the failure of the incumbent Borders.
Two conditions are required for disruption.
First, a substantial fraction of the market must prefer the product or service of the new company.
Second, the incumbents must be unable to respond and replicate. When those conditions are met, a new entrant can gain sufficient market share that existing firms fade into irrelevance.
But disruption is rare, and it’s not required for entrepreneurial success.
Take Tesla Motors. Tesla continues to exceed expectations. Customers love its products. Other auto companies clamor to join forces. It’s hard to imagine a more successful auto industry startup. People routinely speak of Tesla disrupting the auto industry, but Tesla will not do so, in the sense of garnering enough market share that the currently dominant players fade away. Ten years from now, I bet the dominant auto companies will still be Volkswagen, Toyota, Daimler, General Motors and Ford. Building a successful company that makes money for its shareholders does not require disrupting an industry.
Although I do not believe Tesla will disrupt the auto industry, its impact is significant and I can overlook the use of the term disrupt.
But, listen to the elevator pitch of essentially any startup in a business plan competition and the template is mind-numbingly standard: [ new company ] will disrupt the [ established industry ] by [ new company technology or business model ].
Yet, most of them will not.
If they are successful, they will find an underserved market segment, deliver a great product, garner some share, and achieve positive cash flow.
That’s a great outcome that will result in the creation of value. It is not disruption.
2. Notes on Food Delivery, Business Models, and the Power of Little Things Done Right
The food delivery service Caviar entered Philadelphia last month. I’ve been using it quite a bit, and generally think they get things right. In a total coincidence, I had the co-founder and CEO, Jason Wang, on my radio show this week. He was so interesting.
Here is Jason’s interview (click on the first audio link near the top of the page).
I was struck by two things in particular.
First, doing food delivery right is a massive technological challenge. It’s so much harder than, say, selling a product and shipping it (something I’ve done a lot of in my own businesses). Caviar has to provide an accurate estimate of delivery time, coordinate the pickup by its couriers with the completion of the food preparation at the restaurant, all while providing real-time information to the customer about the status of the delivery.
Second, seemingly tiny things can make the difference between the hundreds of companies that try to solve a customer pain point and those that actually succeed. Put aside the food itself for a moment (which at Caviar is from high-quality established restaurants) and consider two features that have proven to be huge differentiators for Caviar: (a) Caviar provides real-time GPS tracking of the delivery, so you know exactly where your food is, and (b) Caviar stores your payment info and processes the transaction with just one action, including all fees and tips. Both of these you’ll recognize as key features for the car service Uber. What is striking is that they are little things, and don’t really have anything to do with the core service (which is putting food on your table). Yet they are “delighters” — attributes of the service that cause customers to come back again and again (and to write blog posts).
3. China and Chinese Update
I’ve been public about my attempts to learn Chinese. It turns out that a lot of the readers of the blog are also students of Chinese. The language is increasingly popular outside of China, apparently. I had the good fortune to spend a week in China in October and practice lots of Chinese. In my job, I get to stand in front of Chinese audiences perhaps once per month, even in Philadelphia. This is a great opportunity to speak Chinese. What’s so nice about the setting is that you can completely control the discourse — it’s one way. (Understanding full-speed native Chinese is really hard.) The risk is that if you try to say anything in Chinese, the audience may not understand you — and that’s not fun. I’ve been trying increasingly complex introductions. A couple of weeks into my studies I said just two or three sentences starting with the simple phrase 大家好（Dà jiā hǎo)， which just means “hello everyone” (literally “big family good”). Even that is appreciated. I’m now 10 weeks into my studies, and I tried a much longer introduction and even a sort of joke this week, for a Wharton Executive Education class I taught. For your amusement, I’ve provided the video below. (The wild gesturing is embarrassing, but it’s how I try to remember tones, the biggest obstacle to being understood, and still really hard for me.) The Chinese in general are so polite and appreciative of efforts to learn a little language that you can’t always tell if you are being understood, but this audience definitely laughed at the right moments, so I think they got it.
Many of you saw Mark Zuckerberg do a 30-minute interview at Tsinghua University in Chinese two weeks ago. I was inspired, not discouraged. I’ll never be better than Mark Zuckerberg as an entrepreneur, but I think his Chinese ability is within reach.