What makes a business disruptive?

In the television show Billions, hedge fund manager Bobby Axelrod tells his wife Lara why her business won’t succeed:

Lara: It was a bullshit meeting. Treated me like my business wasn’t ready.

…

Axelrod: You weren’t ready … What is that you do that you are the best in the world at?

You offer a service – you didn’t invent.

A formula – you didn’t invent.

A delivery method – you didn’t invent.

Nothing about what you do is patentable or a unique user experience.

You haven’t identified an isolated market segment.

You haven’t truly branded your concept …

So why would an investment bank put serious money into it? …

You weren’t ready. 

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So what makes a business attractive to investors? A disruptive business.

In The Innovator’s Solution, Harvard Business School Professor Clayton Christensen explains what makes a business disruptive. He states that a business is disruptive when it gives people access to something that was traditionally out of reach.

Christensen identifies three criteria to a disruptive business:

1. There is a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves or have gone without it altogether or have needed to pay someone with more expertise to do it for them. AND, to use the product or service, customers have needed to go to an inconvenient, centralized location.
2. There are customers at the low end of the market who would be happy to purchase a product with less (but good enough) performance if they could get it at a lower price. AND we can create a business model that enables us to earn attractive profits at the discount prices required to win the business of these over served customers.
3. The innovation is disruptive to all of the significant incumbent firms in the industry.

When it comes to the legal world, an example of a disruptive business that meets all criteria is LegalZoom. LegalZoom allows a new population to access a “good enough” service that was traditionally out of reach. And allows them to access it from anywhere in the world.

So how should traditional law firms react? According to Christensen, law firms should focus on building their core competencies of the future. The core competencies of the future will be specialized legal advice that computers cannot easily replicate.

Christensen warns against “outsourcing your future”. Rather businesses should focus on building tomorrow’s services. “It’s like planting saplings when you decide you need more shade. It’s just not possible for trees to grow large enough to create shade overnight. It takes years of patient nurturing to have any chance of the trees growing tall enough.”

 

(Views are my own and do not represent the views of any organization.)