by • November 14, 2010 • UncategorizedComments Off109

Disruptive startups are special

Existing industries improve their products along predictable feature-sets. Monitors get more pixels, computers get faster, and toasters get more knobs. These types of improvements are called sustaining innovations, and they’re what most startups do, because it’s what the market currently wants.

A business is disruptive when it completely changes the terms of the battle. This usually means it’s worse in all the ways people currently care about while the world comes around to your way of thinking (which takes several years).

It loosely goes like this:

  • Founder imagines/concocts some future trend (e.g. hyperconnected businesspeople, crippling urban congestion)
  • Without any evidence or support, founder bets big by making a worse X (Blackberry was an expensive pager, Segway was a slow motorcycle)
  • Everyone says founder is crazy, nobody wants product
  • A few low-value early adopters start buying it
  • Trend hits critical mass and becomes the new measure of competition (Blackberry’s immediacy)
  • Alternately, trend never peaks and everyone writes case studies critiquing the founder’s hubris (ahem, Segway)

At some point in this process we, as bystanders, can begin to point at companies that have the characteristics of being disruptive.

RethinkDB is a disruptive database. They’ve built a DB on solid-state drives so they get instant random access. This means their insert speed is incredible but that storage is going to be much more expensive than traditional options for quite a few years. They’re basically betting that SSD prices will approach those of traditional hard-drives, at which point customers will value their features over minor savings and they’ll be the experts in the new tech.

Onlive is a disruptive thin client for video games. The games run on remote servers and video of the gameplay is streamed to your computer. They’ve completely sidestepped the industry’s expensive race to build better consoles and grow a game-buying audience. Through Onlive, anyone with broadband already has the machinery to play even the most cutting-edge games.

Currently, Onlive is a worse distribution platform (due to limited game selection) and a worse play environment (due to lag). Knowing what we now know, it’s pretty easy to see how broadband could get a little faster, servers could get a little cheaper, and game publishers could want to get a few extra bucks from an additional distribution channel. But they’ve been working on this for more than 8 years. Even as recently as 2009, their first public demo was regarded as somewhere between showmanship and deception. Now it’s in beta with a free trial and it’s finally easy to buy in to the founder’s vision.

(As an aside: It’s more marketing than disruption, but one of the reasons phone companies have so much trouble competing with Apple is that Apple keeps changing the terms of the battle. Nokia (or whoever) used to add more pixels and processor to each phone, and now they’re suddenly competing on form-factor, and then number of apps, and then back to pixels but now it’s been re-branded! The best response yet is from Motorola, who basically threw up their arms in disgust and said “Screw it, we’re waterproof!”)

Investors say they “like to fund disruptive companies.” That’s true, but it’s followed by the implicit clause: “after the trends begin to become apparent.” Shoving “disruptive” into your pitch isn’t going to help anything, unless you actually are disruptive, in which case everyone is liable to think you’re crazy. But if your prognostication is correct and you can find some believers to journey with you through the dark years, you have a shot at building something truly large.

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