by Asim Jalis
DISRUPTION
Here is the essense of Christensen's theory of disruption: To
succeed in the market target the group of customers that no one
else wants. Take on the jobs that the other players run away
from. Don't compete against established players because either
you will lose or you will win at great cost, possibly more than
you can afford. If you notice that someone else already owns the
market exit gracefully. Instead of going after the attractive
lucrative segment of the market go after the segment that is
pathetic, unattractive, that everyone else runs away from.
Over time your product will improve and you will move up-market.
As you move up-market the down-market will be your beach-head
from which you cannot be displaced. While you have the option to
improve and move up, the players in the up-market cannot move
down. First the margins are too thin to support their cost
structures. Second, this market lives in their cognitive
blind-spot. They will mock you and laugh at you for being
pathetic enough to care about this market, and they will keep
ignoring it even as they watch you mint money from it.
And there is almost no deadline for you to move up. The players
in the up-market can never move down to compete against you. So
you can take your time to gradually inch your way up.
This is hardly theoretical stuff. In fact this happens all around
us, and is one of the most effective strategies to enter a new
market.
EXAMPLES
This is a strategy that companies have used to enter seemingly
sealed markets. For example, Hyundai can never go against Lexus
or BMW. It would be horrendously expensive and possibly fatal if
Hyundai tried. The marketing and product development expenses to
compete effectively would sink the company. So instead they are
forced to target the segment that does not want to pay more than
$7,000 for a car. It's a pathetic and undesirable segment. So
pathetic that no one else wants it. In fact the other companies
are glad to give it away. Over time Hyundai will get better at
the game and gradually inch up-market. Each time they steal a
sliver from the bottom of Toyota's market Toyota will gladly give
it away. It will free up Toyota's resources to target its Lexus
segment more effectively.
WHY IMMIGRANTS PROSPER
This idea applies in a lot of places.
For example it explains why immigrants are frequently prosperous.
I'll ignore all the qualifications I should make (that this might
be a false stereotype, or that there might be a selection bias:
immigrants are self-selected by desire to change themselves;
we'll ignore all these reasonable but distracting alternative
explanations)
The reason they prosper is that they take on jobs that no one
else wants. And then gradually over time they move up-market.
Immigrants are desperate and have no self-respect. And this is
precisely what enables them to disrupt. They work as janitors or
work in dangerous convenience stores that are open 24 hours. Then
over time they build capital and move up-market. The up-market
stores don't have the option of moving down-market.
Wal-Mart is a similar story. While they can challenge K-Mart in
the suburbs, K-Mart cannot take the battle to Bentonville,
Arkansas, or in other tiny towns that they have captured.
Linux is in a similar position today. It sucks as a desktop
system compared to Windows, but it is good-enough for a lot of
other applications. And while it can inch its way up into the
mainstream, Microsoft is incapable of capturing its core market,
the people who are addicted to free software.
HOW TO CREATE A BUSINESS
How can we apply this idea to create a business? The idea is that
you almost have to ignore the size of the market or the cash flow
that you might generate from it. Find a pathetic market that you
can sustainably serve, and then hope serendipity kicks in and you
will be able to grow from there.
