When you look at traditional industries in the U.S., it’s clear that many are outdated and boring. However, customers continue to do business with the companies within these industries, because there are no practical alternatives. But when a new company that’s sleek, modern and clean comes along, something changes.
The word “disruption” is largely misused in entrepreneurial circles. Over the years, entrepreneurs have confused innovation with disruption. And, while disruption certainly involves a lot of innovation, they are not one and the same.
Whereas disruption turns an industry on its head by offering customers something that previously didn’t exist, innovation merely makes an existing value offering better, cheaper or faster. Do you see the difference?
According to Clay Christensen, an author and professor at the Harvard Business School, there are two major types of disruption: new-market disruption and low-end disruption.
Entrepreneur Andy Rachleff sums up Christensen’s view by saying, “In a new-market disruption, the unserved customers are unserved precisely because serving them would be unprofitable given the incumbent’s business model. In a low-end disruption, the customers typically lost are unprofitable for the incumbents, so the big companies are happy to lose them.” Either way, a disruption ends up benefiting both customers and the new businesses.
Disruptors enter the marketplace all of the time. Some are louder than others, but they all wind up making an impact. Thanks to the pervasiveness of the Internet economy and the proliferation of new technologies, we’re currently experiencing even more disruption than normal. Let’s take a quick look at three case studies and some of the takeaways that can be gleaned from their success.
When you look at the mattress industry, it’s an industry that’s played it stale and safe. Customers generally go to a store, lie on a few mattresses, pick the one that feels the best, and make the purchase. And, aside from the rise of Tempur-Pedic in the early 2000s, there hasn’t been very much change…until Purple.
Tony and Terry Pearce, the brothers behind Purple, are taking this stale industry and turning it upside down. They've designed a new mattress with high-tech cushioning that supposedly combines the best of both worlds -- soft enough for comfort and firm enough for proper spinal alignment -- at an affordable price. And, while the mattress itself is drawing rave reviews, it’s the business model they’re using that’s really creating industry shockwaves.
Instead of licensing out their mattress technology to manufactures or selling to retail stores, Purple has chosen a direct-to-consumer ecommerce model. This removes costs associated with royalties, manufacturer profits, distributor markups, wholesaler markups, retailer markups and sales commissions. The model also adds convenience. Customers are able to purchase the mattress and try it for 100 nights. If they don’t like the mattress after a few months, a refund is issued, and the mattress is picked up.
The thought of buying a mattress online is something that other industry players never thought would work. However, thanks to low prices and a generous money-back guarantee, Purple has been able to overcome this stigma and to flourish. It’s still too early to tell what the long-term ramifications will be for the industry, but this appears to be a major shifting point.
In major cities across the U.S., taxicabs have long been a staple. When you need to get somewhere quickly but don’t have a car, these friendly yellow cabs have always been your best friend. However, the scene is quickly changing -- thanks to Uber.
As you likely already know, Uber is a service that allows people to push a button and have a ride sent to them. The drivers are regular people who use their own vehicles and get paid a percentage of the fare.
Uber has disrupted the industry by offering something that’s cheaper, easier and modernized. As opposed to hailing a taxi from the sidewalk, fumbling through your pockets for a few dollar bills, and then debating over how much to tip, you simply press a button on an app. All of the payment takes place through the application, so you simply get in and get out.
As Uber has shown, people like simplicity and personalization. If you can take a process that’s dated and put a modern, tech-savvy spin on it, you can make a big difference. And, if you can do this while simultaneously making it cheaper for the consumer, your chances of being successful are dramatically increased.
Finally, let’s look at Airbnb -- the service that allows owners to rent out their homes and apartments to short-term renters at low prices. This online platform is putting a big dent in the hotel industry and is just one example of how the Internet is able to fuel major shifts in the balance of power.
Depending on who you ask, Airbnb is valued at anywhere from $10 billion to $25.5 billion -- which indicates that co-founders Joe Gebbia, Brian Chesky and Nathan Blecharczyk are doing something right.
When you look at Airbnb -- and also Uber, for that matter -- it’s clear that many of today’s disruptors are focusing on the social aspect of consumerism. There’s something more attractive to today’s customer about purchasing a product or service from a person as opposed to a large corporate brand. Airbnb accomplishes this by connecting people to people. This peer-sharing aspect is what’s allowed the company to grow so quickly.
There are plenty of times when innovation will work. Improving a product’s quality, lowering the price or streamlining production will always provide viable opportunities for entering an existing market and having success. However, if you truly want to build a massive brand, then disruption needs to be your main goal.