A friend (@john_menezes) wrote and asked me to talk about the important takeaway from last night's lecture to my entrepreneurship class. The lecture was on Clayton Christensen and his theory of disruptive innovation. Christensen is a professor at HBS and his most recent book on disruptive innovation is "The Innovator's Solution: Creating and Sustaining Successful Growth". This video is a presentation by Christensen on his work and an excellent summary for those who like videos.
Christensen's theory of disruptive innovation states that the size of a market is measured not by those who use a product but rather by those who are unserved. One disrupts the existing market leader by lowering the performance standards through a more limited feature set at a lower price. These changes make the product available to new customers who could not previously afford the technology. The computer industry demonstrates this logic, as shown below.
- Mainframe computers
- Mini-computers
- Desktop computers
- Laptop computers
- Smart phones
In each case above the next technology disrupted the dominant technology by offering more limited features, lower performance and a lower price. This change in price-performance enabled a new group of users to adopt the product and this new group is usually larger than the previous user group.
When we observe the five cases above there is an interesting observation, which was the important takeaway from the class. In each case the new technology changed the physical location of the technology. Mainframes were rare, one to an organization. Mini-computers were available in many closer locations in an organization and smart phones are in our pocket. If you do not understand this point and its power as a new business idea, think about hard discs, USB flash sticks and cloud computing. Physical location of memory storage changed in each case and large markets were established. Convenience improved as a result of changing the performance standards and the location.
In my classes and workshops on entrepreneurship one of the goals is to provide a set of tools to build a large business. I am not very interested in self-employment or small businesses. Changing the physical location of a technology is one of those tools that creates the possibility to create a large business.
One of the students made the connection between Christensen's unserved market and Prahalad's concept of serving the "bottom of the pyramid". Very pleased that a student could make the connection between Prahalad and Christensen based on my lectures. This concept is discussed in my upcoming book on social entrepreneurship.
Happy Valentines Day to all the lady readers.
Image credit: claytonchristensen.com
