What is the cost of disruptive innovation?
Lately it seems I’ve become immersed in all things start-up, and can even spout buzzwords like funding rounds, exit strategies and venture capitalisation, at the least provocation. However, I’m puzzled as to why most early stage start-ups, and their investors, appear rather too obsessed with money (i.e. raising / spending / making it) instead of focusing on creating and establishing a great service or product first.
In these extraordinary times, an online product or service must be clearly innovative (and preferably disruptive) at some level, before it can be considered great; which brings me back to the key question above: what does it really cost to innovate and disrupt? At the risk of sounding simplistic, I seriously think that it should cost no more than time multiplied by the cost of connectivity. The reasoning behind this is as follows:
- Innovation is mostly incremental and evolutionary, and only rarely radical and revolutionary, (even though the impact may be both radical and revolutionary -e.g. Apple’s iSuite-of-products). This means that the key ingredients for many innovative and disruptive offerings are usually already available, (and sometimes freely so), thus the innovator is mainly tasked with combining them into a compelling new product or service (occasionally with some inventive glue to hold it all together). In the online world this would be something like a “mash-up” of pre-existing services.
- In an evolutionary system, there are usually many imitators for each successful individual, product or service. Some of these imitators might even employ various differentiating strategies in order to conquer a niche, or perhaps overthrow the incumbent where possible, but the fact remains that they are building on the success of others. Therefore the efforts (and cost) should be less than that incurred by the originators. Re-inventing the wheel is expensive, but this is exactly what I’ve seen many start-ups attempting to do today!
- Finally, flexibility and sustainability are key success factors, in my opinion, because you’ll need to adapt rapidly to the relentless change of an ever-shifting online environment (and what better way than by not having to write custom code each time). Also, if you haven’t failed fast enough to become self sustaining in a relatively short space of time, then there is something seriously wrong with your business model which your investors’ money cannot easily fix. Two examples that embody these qualities respectively are: SliceThePie (a fan-funded music service that has evolved into a music industry “Swiss Army Knife” of flexibility and value); and Betfair (a major industry -disrupting online betting exchange and service provider which just turned 10 years old today!)
In conclusion, if a start-up is not innovative enough to effectively build on the success of others, (and in so doing, reduce its cost significantly), then it has a serious problem which might indicate an inability (i.e. it is not flexible or sustainable enough) to survive and succeed in the current and emerging economic landscape.
(Disclaimer: The above post represents this author’s personal opinion, and does not constitute professional assessment or investment advise in any way, shape or form; also it is not an endorsement of any of the companies or services mentioned above as examples, which are solely based on publicly available information)