Prescribing Success with Disruptive Innovation
February 3, 2014 10 Comments
This is a guest post by Michael Mayers, an experienced innovation & new product development leader who has launched successful products in financial services, marketing services and health & wellness. He tweets about innovation, entrepreneurship, and the joy of being a Brit in NYC at @mikemayers25.
At the time of writing Amazon lists 932 books released in the past 90 days under “innovation.” Many of these will espouse a theory of one sort or another that seeks to systematize the process of successfully bringing new products to market. And while most will deliver a superficially cogent model for the limited historic cases provided, nearly all of them will fail to deliver a prescription for future success that works in practice. (That’s right Stage Gate, I’m looking at you!)
But some time-tested theories do have prescriptive value. In this blog post I take one such canonical model – Professor Clayton Christensen’stheory of Disruptive Innovation – and use three of its defining characteristics to help identify entrepreneurial opportunities and kick-start successful innovation strategy.
Look for 5 blade razors.
As markets mature industry leaders seek to capture increasing value from their best customers in an effort to drive profitable growth. M&A aside this is typically achieved through the development of incremental, sustaining innovations – a process which most businesses become adept at executing. The inevitable challenge comes when the pace of these innovations oversupply product performance for even the best and most demanding customers. This oversupply, easily measured, is a key indicator that a sector is ripe for disruption.
This tendency is surely no more obvious than Gillette’s flagship razor; the Fusion ProGlide with its parody-inducing 5 blades. Arguably the maximal desired performance from the humble safety razor was surpassed decades ago with the twin-blade Trac II and the addition of a lubricating strip.
Enter Dollar Shave Club who, in 2011, recognized this performance oversupply and launched an innovative business model to attack the razor blade industry’s most over-served customers. It’s first offering was a twin-blade razor – 70s “technology” in blade terms – sold online via a monthly subscription model at a fraction of the price of its big brand competitors. And the attack plan is working: The company raised $12MM in a Series B financing in October last year.
Ignore the best customers.
Take an industry’s best customers – those premium, big ticket whales with the eye-watering margins – and forget about them. Successful disruptive innovations typically target current category low-end or non-consumers, and for two very good reasons:
Firstly, when a new entrant targets non-consumption the competitive response from industry incumbents is often muted to the extent that they may be ignored altogether; just as the personal computer industry was by mainframe manufacturers in the 1980s. And if the interloper seeks to serve and incumbent’s low-end, low-margin customers they may even be happy to give up that pesky, profit-dilutive segment in the pursuit of better financial ratios; just as US car manufacturers gave way to Toyota in the 1980s in the compact economy segment. And let’s face it, who wanted to sell low-margin compacts like the Corolla when you’ve earned the right to sell the S-Class?
Secondly, the initial performance of new technologies usually fall short of the demands of an industry’s best and most sophisticated customers: PC performance was a joke for mainframe computer buyers. Either way a new entrant attack on an industry’s best customers is ill-advised. Either a crippling competitive response or sophisticated customer demands will bring the upstart to its knees. Much better to compete for low-end markets or outright non-consumption where your product can be the best alternative to nothing at all.
Classic examples of this approach include Sony who offered a generation of new consumers access to personal, portable transistor radios while RCA doggedly stuck to heavy vacuum tube technology which afforded significantly better sound quality for the most discerning customer. Or Nucor’s electric arc furnace, suitable only for the production of rebar at its outset, versus Armco’s integrated steel mills which produced much higher grade sheet steel. Or Netflix’s streaming DVDs, utterly at the mercy of fickle bandwidth issues in those early days, versus Blockbuster’s DVD rental business with its significantly higher fidelity picture quality.
When each of these technologies first launched they did not satisfy the current needs of their industry’s best customers. Crucially – and fatally for the businesses who ignored them – each quickly shed their growing pains and enjoyed a higher performance gradient over time than existing ones. The consequence? Having established a beachhead amongst non- or low-end consumers those nascent technologies intercepted and then surpassed the performance of prior technologies. Each successively picked off “low-value” customer segments from the bottom up until they adequately addressed the performance requirements of the entire market. And it’s worth noting that Dollar Shave Club now offer 4- and 6-blade razor lines on their subscription model: The move upmarket has begun.
Understand why the product is hired.
Why did you hire that non-fat latte you had this morning? It’s an odd turn of phrase but you did, in a sense, hire it to do some jobs. Maybe it was to give you a boost of energy. Or to stave off hunger pangs until lunch. Perhaps it was just a useful distraction or a focal point around which to socialize with colleagues. Maybe it was all of those things. Once you accept that we hire products and services to perform “jobs-to-be-done” (JTBD) on functional, emotional and social dimensions a whole world of insight will open up about consumer motivations and the building blocks of competition and product performance from the consumer perspective.
The story of Febreze illustrates this well. Now a $1B product Febreze was very nearly a total failure for P&G. Functionally, it performs an obvious JTBD: It neutralizes odors in household fabrics. Early marketing efforts focussed heavily on this performance dimension but sales were muted. Both the R&D and marketing teams were bewildered as to why such an obviously useful product was failing to gain traction.
Post-launch research highlighted an interesting but troubling phenomenon: Customers were often desensitized and oblivious to even the most pungent odors in their own homes. Functionally, Febreze solved an issue for a home’s visitors rather than its owners.
But the P&G team had a stroke of luck: They observed a few customers who, having worked hard to clean their homes, were then liberally applying Febreze with a final flourish. Diving deeper into this behavior the researchers found that some customers were hiring the product to provide a visceral emotional reward at the end of a period of cleaning – a means to enhance the satisfaction of having a cleaned a room. The penny dropped and Febreze was quickly repositioned for its emotive, rather than functional, qualities and sales soared.
This story is often positioned as a flash of marketing positioning brilliance; a Eureka! moment that’s difficult to replicate. But when viewed through the lens of JTBD it becomes clear that a more systematic understanding of the emotional dimensions to cleaning a home may have saved P&G from considerable heartache. And while Febreze is now a roaring success one has to wonder how many potential category killers have been pulled from the market for want of a better understanding of what the customer was actually trying to achieve?
Flip the coin.
I’ve been looking at this in terms of using the Disruptive Innovation framework to find innovation opportunities. However, if you are an enterprise manager working in an established industry then you can easily turn this around to find corresponding threats. Ask yourself whether you are oversupplying your customers and delivering your own version of the 5 blade razor. For a moment, put your best customers out of your mind and think about how traditional non-consumers and low-end markets might be better served by competing technologies. And put the product marketing brochures to one side and ask what jobs to be done you satisfying amongst your customer base. And finally, if and when you identify a threat or technology that is picking off your least profitable customers, don’t flee upmarket: Stand, fight and innovate right back.
 This story is recounted from “The Power of Habit: Why We Do What We Do in Life and Business” by Charles Duhigg.