Starting Where Big Players Won't Follow: Reading The Innovator's Dilemma as a Small Business
Published
Why do well-run big companies lose to small newcomers?
In his 1997 book The Innovator's Dilemma, Clayton Christensen argued that large companies that listen closely to customers and manage well can still lose their markets when a new technology arrives. His explanation was not that their management was poor. Good management decisions, he said, are what lead them to pass over the new thing.
The story is usually told as a lesson about big-company failure. Read from the small side, it also says there are places big players do not chase, and you can enter there.
Sustaining versus disruptive innovation
Christensen divided technological progress into two kinds.
Sustaining innovation improves performance along the lines that a company's main customers already value. Large firms keep making these improvements for their most profitable customers.
Disruptive innovation starts with a product that performs worse by the main customers' standards and is ignored by them. It offers something different, such as lower cost, smaller size, or ease of use. As its performance improves over time, it eventually becomes acceptable to mainstream customers.
His main research subject was the disk drive industry. As he described it, smaller drives with less capacity were not wanted by mainstream customers at first, sold into other uses, and then improved enough to displace the incumbents.
Two entry points for a small business
Christensen and his colleagues later described two ways in.
The first is low-end disruption. While large firms chase customers who want top performance, other customers pay for more features than they need. There is room to serve them with a simpler, cheaper offer.
The second is new-market disruption. It reaches people who could not use a product before by offering a simpler version. Taking something only specialists could handle and making it usable by amateurs opens a new group of customers.
For a solo business, a practical starting point is collecting comments like "the big providers are too complicated and too expensive for me." Small jobs and the customers who keep getting turned down can be clues.
Cautions
The theory is debated. It was built by organizing successful cases after the fact, and critics say it has not been shown to predict which newcomer will grow. Others argue the word "disruptive" has been stretched to mean any new company or technology.
A low-priced offer also tends to carry thin margins, and expanding before quality is adequate can damage your reputation. A realistic approach is to focus on a small group, earn their satisfaction, and widen gradually.
What is happening on the large firm's side
In Christensen's account, large firms pass over new things because the decision is rational. Investing in what their most profitable customers do not ask for does not improve short-term numbers and is hard to get approved internally. A small market also falls short of a large company's growth targets.
Knowing this helps you read competitors. When a large firm says "our customers don't need that," the area may leave room for a small business.
Avoiding being the one left behind
A small business will eventually stand in the same position. If you listen only to current customers, you may miss small new movements. Once a year, take time to ask people who are not your customers, such as those who chose not to use your service, why they decided that way.
Also check regularly whether a new tool or method could make your own kind of work cheaper or simpler for others to do.
Do not sell on low price alone
If you aim at the low end, leading with price alone means losing to someone cheaper. Check whether stripping down features has created another benefit, such as speed, simplicity, or less hassle. Customers choosing you because the offer is "just right," not merely cheap, tends to last longer.
What to do next
- List three customer groups that big players in your field ignore: small orders, people who need fewer features, people who could not use the service before.
- Ask at least three people in those groups what they dislike about current options.
- Check whether you hear "fewer features is fine, if it's cheaper, faster, or easier."
- For the group that responds, define one small, stripped-down offer.
- Run it for about three months and see whether anyone keeps using it.
If you set pricing or contract terms, consult a qualified accountant or attorney.