How Do You Know Your Idea Is Disruptive?
It was the third pitch that I heard, while serving as pretend venture capitalist at this accelerator in San Francisco. But my reaction to this pitch was different. A quarter of the time in, I stopped listening to what the startup-founder said. Not, because his startup ideas was uninteresting, but because he just had said one sentence that could have given the idea a totally different and disruptive spin.
I was not a real VC, and the the startup founder not a real startup founder. We had a German delegation of visitors from the furniture business in Silicon Valley. They had come and toured startups and companies, and the week ended at the Runway Accelerator in the Twitter HQ building on Market Street in San Francisco. A few of the visitors had prepared and reworked some startup ideas and wanted to get feedback on it.
While the ideas where not that bad and with some iteration and polishing would be probably showing some success, none of them stroke me as disruptive. Until this one sentence and I realized what the problem was. Axel (the pretend startup founder) had presented a new business where transparency was king. Transparency for how sustainable the furniture was made and how the pricing worked. In an incidental remark he mentioned that “often the same product is sold through six different channels in six different brands and six different prices.” And that remark just set it off for me!
Axel and the other presenters where all from the furniture business, serving in different roles. All their ideas – while pretending to serve the end-customer – in fact benefited the businesses the most. The biggest problem was to get the retailers and makers on board of their platforms and marketplaces with yet-another-startup and make sure that the businesses make enough money. Those ideas were all good, but traditional and playing within the rules and framework.
Creating a transparency platform that shows where customers can get the same product but under a different brand and channel to a fraction of the cost – now that is really disruptive. This would really benefit the end-consumer, and you can be sure that the retailers and makers would not like that at all. They would try to sue the startup, try to choke their partners with legal contracts to keep the sources secret, and they would lobby for more data protection. But this is a model that the fashion industry is facing already today. One and the same piece of clothing is often sold under different brands, and some websites have taken on the task to make it transparent, which brands sell the same clothing with different labels and different prices. Given that this is not just a practice for furniture or fashion, but also for food or drugs, what other industries do that? This would take such a transparency platform out of its initial industry and could be used for others as well. This as a VC is what you want to hear. The business potential suddenly explodes.
Why did they not disrupt?
Why had this group not come up with such a disruptive idea? Because they all where from the furniture business, and while they all knew about the secrets of the trade and those business practices, they had to be careful not to step on anyone’s toes and endanger relationships with partners in the industry.
That is why disruption is often coming from outside the industry. They founders of a startup that disrupts an industry have no ties but see the dysfunctional element and tackle it. The music industry was disrupted by people from outside the music industry. The Napster founders had built their platform as peer-to-peer-service, and no relations to the music industry. The same with the founders of the leading music streaming platform Spotify. They came from video-games and peer-to-peer technology, but had no ties to the music industry.
The Uber founders had no ties to transport or taxi-industry and that’s why they could tackle the most pressing problem in the taxi-industry. Without the industry’s participation. The same plays out right now in the car industry. The founders of the companies disrupting car makers come from outside the car industry. Google, Tesla, Apple, Betterplace all had their roots in the software and electronics industries. They see the dysfunction as much as insiders do, but they have the advantage of not knowing how much resistance they will face when they disrupt it. Insiders do know that and don’t even start trying.
The same effect plays out inside companies. Imagine you work for a car company and have the idea to create an electric vehicle. You would face stiff opposition from the (often powerful) internal departments that make the engine, the exhaust system, the fuselage, the transmission, and the frame. The first four departments would become superfluous, the knowledge and expertise built up there would end up on the trash pile of history. And that explains why disruptive industry-internal innovation often fails or is not even tried, until somebody from outside comes, doesn’t know about the sensitivities and unspoken rules, and just does.
Those disruptive ideas play with the rules and bend them. Mytaxi, the German taxi-hailing app just played within the frameworks, and the biggest issue was to get the taxi-services on board. Uber didn’t care about taxis, the they play with them rules.
The simplest way to understand if your idea is disruptive, list the groups that will be upset so much that they try to sue you. The more lawsuits and threats you face, the more disruptive is your idea.