By: Brian McKay
Clayton Christensen defined disruptive innovation in his seminal work, The Innovator’s Dilemma. While reading this amazing book is strongly recommended, a quick description of disruption generally looks like this:
Companies will always seek to move upmarket in order to reach ever more profitable customers. Why build an economy car with very little profit margin when you can build an entry luxury car with far greater profit margin? It used to be that you couldn’t give a Kia away, but if you needed the cheapest car possible, you were in luck. This is employed across industries. Even McDonald’s has introduced more expensive burgers to try and tap a more profitable segment at several points. McDonalds! Isn’t that the epitome of the most calories per dollar?
So now the disruptor comes along (queue the Jaws soundtrack). This little, nimble business is probing and testing and looking around (one more time, duunnn dunnn... duuuunnnn duun... duuunnnnnnnn dun) and suddenly they find the customers the big guys left behind. The neglected and forgotten, the beaten and the damned (ok I stole that last part from My Chemical Romance). They find out what these lost customers need and create a product around it. Slowly they work their way up the market with their new innovation, taking small nibbles out of the big whale as they are patient but hungry sharks until they have consumed massive parts of the whale’s market.
Netflix found people that didn’t, or couldn’t, pay the high cost of cable and just gave them the options they wanted. A cheap subscription for shows on demand. The shows weren’t the latest episode of The Bachelor (yuck) but who cared? All their customers wanted was entertainment, not the latest entertainment. Slowly Netflix has worked its way upmarket with awesome original content and has shown other cable subscribers that they might not need cable either. Notice how the cable companies now advertise that you might not see something on Netflix for years? The sharks are nibbling away in ever bigger chunks and they are scared.
So disruption just got changed though. It went top down.
Elon Musk has changed a lot of things and he just made disruption into your dad’s old disruption. Prior to Tesla the only all electric cars offered were at the lower end of the market and, quite frankly, they sucked. You could buy one for about 30k and go 40 miles on a charge. Who wants to get stuck at the mall with a power cord and no place to plug it in? Who wants to be at mall in the first place?
Tesla offered a premium, all electric car at the high end of the market. High end consumers didn’t have an electric option before and loved it. Of course, the Tesla was amazing and broke new ground. How cool would it be to have a Model S P90D? It became a status symbol and set the bar for the rest of the industry.
Now Tesla is using adoption at the high end in order to work its way down the consumer ladder. There is no doubt that the coming Model 3 will be amazing at a 35k price point. Tesla’s Innovation at the top has given them access to resources and investment that help to reduce the cost of making an electric car in order to offer a better alternative at the bottom. Customers that have seen how cool the Model S is, but can’t afford it, are eagerly awaiting the Model 3 just to say they have Tesla.
Disruption has been turned on its head and opened totally new avenues of approach by Elon Musk and Tesla. Now ask yourself, who is forgotten? How can I give those potential customers what they want?
zenruption is committed to being a resource for small businesses and startups to tackle disruption and make an impact in their respective market. Watch out for new articles and feel free to email us with any questions.
Brian McKay is a co-founder of zenruption. He has his MBA from Boise State University. In 2001 he was the first to introduce DSL without a land line, for Qwest Communications but a stupid VP took credit for it (he hopes that bastard lost his job when Qwest failed). He is currently trying to figure out how to disrupt everything. Yes, everything.