Hunting Disruption

Disruption patterns anyone can track.

The idea often propagated by startup founders and venture capitalists is that disruption and innovation is the result of magical inspiration. But the truth is it’s more likely that disruptive market entrants simply examined the structure of the industry or market and saw some tell-tale signs that anyone can see, if they know where to look.

When it comes to disruption, we place a lot of focus, culturally speaking, on the act of creation. But that is the second step, the first is spotting the opportunity. In this post, I’m going to outline just a few of the signs any disruption hunter should look for when deciding upon which industry to set his or her sights.

Any one of these characteristics may be reason enough to start building a disruptive solution, but if you see more than one of these signs, there is a greater chance you have found your prey.

Thar be whales.

A classic sign that an industry is ripe for disruption is that it’s dominated by a small number of massive competitors. Usually when markets consolidate, the few main players at the top of the food chain have little incentive to take risks and alter the status quo. And the more settled the industry, the more the incumbents have to lose, effectively slowing their ability to react to disruption without sacrificing revenues, or at least margin.

Most of us watched the entertainment industry lose control of distribution to streaming upstarts because they refused to “give up analog dollars chasing digital dimes.” Most folks also watched the hospitality industry refuse to unbundle the physical plant from the service offering and let Airbnb become the de facto travel behavior of an emerging generation.

But a few seasoned disruption hunters saw the signs, and as a result, the way we listen to music or book travel accommodations is forever changed.

Tin cans and string.

It should be obvious, but if the industry has cruised for decades atop outdated technology, there’s a good chance disrupting that industry is a real possibility. It’s not a given, however, that simply deploying alternative technology wins the day. The critical question is how much customer value can be added or extracted by deploying an alternative technology platform.

Whether it was in the first dot com craze of the late 1990s or the, “there’s an app for that,” hysteria from just a few years back, it’s not new technology platforms that provide a material disruptive advantage, but rather how those platforms can alter the user experience in a meaningful way.

Uber didn’t succeed because of its mobile app, it succeeded because it leveraged emerging technologies to systematically address a number of long-standing user experience issues, for passengers and drivers alike. It ultimately reduced uncertainty of rider/driver availability, route, cost and gratuity, to name a few.

It’s a relationship business.

The moment anyone tells you technology cannot replace a relationship sell, as a disruptive innovator, you should at least entertain the idea of proving them wrong. By nature, industries rely on relationships when there’s a lack of transparency or arcane complexity inherent in the transaction. But those are precisely the kinds of industries we’ve seen disrupted successfully.

Lemonade simplified the process of obtaining renters insurance. Just point your mobile device at the property you want to insure—no agent or broker necessary.

Intuit dis-intermediated mortgage brokers and launched Rocket Mortgage, allowing consumers to get pre-approved for a home loan in hours instead of days.

The lesson here is while an underlying transaction might have inherent complexity, who bears the burden of that complexity makes all the difference from a customer experience standpoint.

Traditionally, intermediaries like agents and brokers, shouldered the burden for the end customer, e.g.: navigating arcane application processes that service providers saw no reason to simplify. But disruptive entrants realized if they shifted the burden of complexity behind internal processes and controls, they could provide consumers a level of simplicity even greater than the handholding provided by a broker or agent.

Trust is outsourced.

Trust management generally falls into a few basic categories: identity, provenance and security.

Identity– meaning you (as a person or piece of data) are who you purport to be in the context of this interaction or transaction.

Provenance– you (as a person or piece of data) are from where you say you are from.

Security– meaning you (as a person or piece of data) are protected from theft, duplication or alteration.

Historically, providing some form of trust management service meant amassing increasingly large databases of historical data of past transactions against which to verify the next transaction. But as we’ve seen through recent high-profile data breaches like that which occurred at Equifax, centralization of this kind of information merely creates a virtual honeypot of opportunity for hackers—small and state-sponsored.

We’ve mentioned before that a hallmark of disruption is turning the incumbents’ greatest strengths into weaknesses. Industries that rely on third-party centralized honeypots of consumer data for trust management are ripe for disruption. New entrants employing recent technological advances like cryptography (e.g.: blockchain, Bitcoin, et al) or machine learning (e.g.: Palantir) will most surely turn that equation inside out.

A necessary evil.

When the majority of consumers of an entrenched industry view their interactions with or within that industry negatively, the barriers preventing entrance of a disruptive competitor are very low. Any new entrant need only focus on minimizing switching costs, both financial and temporal, and a decent contingent of customers will gladly give any new solution a try. And the longer the industry has maintained its unfavorably viewed practices, the lower that barrier becomes.

Happy hunting.

This is by no means a definitive guide, but if you can start viewing individual industries and markets through these lenses, opportunities for innovation or disruption will surely come into focus. Remember, technologies don’t disrupt industries or markets, they enable smart visions to become realities.