Disruptive Innovations: Making Competition Irrelevant

line graphic featuring "DISRUPTIVE INNOVATION" | Photo featured in Harvard Business Review

In a recent TechConnect webchat, the Global Innovation through Science and Technology (GIST) Network reviews how to create a new market space for your concept and gives ways to differentiate your business from established organizations. Shintaro Kaido, Duygu Oktem, Hemai Parthasarathy, and Eli Velasquez discuss the traits of disruptive innovation and how to push disruptive ideas to succeed.

(Mira en español.)

Disruptive innovation is “a process whereby a smaller company with fewer resources is able to successfully challenge incumbent businesses,” as described by Harvard Business Review. The resulting products or services typically appeal first to unserved consumers and eventually shift to the mainstream market, significantly affecting an industry.

Usually businesses that compete with one another are protective of their information. They are not interested in sharing what they know about customers and the market because they fear they will give away their advantage to a competitor. But in instances of disruptive innovation, collaboration between competitors can be more beneficial than harmful to a business.

What are the advantages and risks of partnering with competitors when they have similar ideas about disruptive innovation?

Forming a partnership with competitors can give you insight into new markets that you have little data on. The opportunity to collaborate with the competition and create a critical mass awareness of the customer community also allows businesses to communicate more easily with potential customers. (This may not apply in new markets, where an entirely new product or service has no direct competition yet.)

Examples of collaborations between competitors:

  • All major beer producers in Japan worked together to campaign and create an improved awareness of beer when national consumption levels dropped.
  • PayPal worked with its competitor as both companies were developing. The two companies eventually merged at a point when both were concerned about the investment environment more than the value of their individual businesses. They collaborated to make a product that was incredibly appealing to investors.

“What often encourages someone to succeed is creating something new; don’t define yourself by the competition.”
–Hemai Parthasarathy, Scientific Director of the Thiel Foundation, on its program to support early-stage, radical science-based companies

Is there a link between disruptive innovation and crowdfunding?

Crowdfunding offers real-time customer development at an accelerated pace and allows the entrepreneur to see if the idea is fundable. Venture capitalists increasingly require evidence of crowdfunding in certain sectors — in the technology industry, in particular. By demonstrating existing interest in a new product or service through a crowdfunding campaign, a company can show an individual investor that a market exists for their product or service and that an investment can have a positive return. So sometimes a crowdfunding campaign is more of a marketing exercise than a tool for funding a company. If you are considering a crowdfunding campaign, be cautious about promises you make to the crowdfunding community!

Are there ways for entrepreneurs to interest investors in disruptive innovation that won’t have an immediate return for them? For example, in a nonprofit organization.

While investors often search for returns on their investments, the set of investors in for-profit companies is different from those interested in nonprofit organizations. There are also models where a nonprofit and a for-profit exist alongside each other and help each other succeed. Learn about six nonprofits that work with for-profit companies to create positive change.

How do innovators in developing countries bolster young entrepreneurial ecosystems to attract investors from developed countries?

Investors often look to see how entrepreneurs have developed and pursued their passions. The question is often whether the investor can invest in the entrepreneur as a person rather than just the opportunity they bring with the innovation.

Learn more about how to form a “Big Idea” for an innovation with the YLAI Network’s Design-Driven Entrepreneurship lesson.

Already have your idea and ready to begin planning for your business? The YLAI Network’s online course Fundamentals of Starting and Running a Business (también en español) explains critical aspects of entrepreneurship. Learn about the process of developing a business, how to identify and expand in the marketplace, and how to pitch to new investors.