This post is based on an interview I conducted with Steve Wood, the Co-founder & CTO at Nudge in 2016. Prior to starting Nudge, Steve was the co-founder and CTO of Eloqua for 13 years. He helped grow the startup from scratch to $100M, including three venture financing rounds, a successful IPO on the Nasdaq, and ultimately a $955 million acquisition by Oracle in 2012. Steve is a frequent speaker at various forums involving B2B marketers and authored a book 'Digital Body Language' about deciphering customer intentions online. His experience has given him great perspectives on what it takes to successfully manage disruptive innovation in both startups and large organizations.
1. Ask the Right Questions
I believe that the core difference between a high performing team and a medium performing team is a clear view on what you are reinventing or disrupting. To be successful at disruptive innovation, there has to be something that you’re reinventing. If there is not, you are improving an existing option, which is excellent and valuable but is quite a different form of value creation. Disruptive innovation requires that you throw out all preconceived notions and assumptions, and approach a challenge in a novel way:
'Obviously, to innovate successfully, you need to deliver something that provides value to your customers. To do this, you have to pay attention to what customers need, but that is often quite different from what they say they want.'
People are immersed in the current world, not in the future world you’re about to create. So when you ask users if they want a certain product feature, for example, there’s a high likelihood that their bias on the current world will result in them wanting a new feature only if it acts in the same way that the current one acts. It’s difficult for them to see beyond the now.
The more you listen to users, the more you will be pulled into the orbit of the old, comfortable world. Based on their feedback, you might feel compelled to improve the current model incrementally as opposed to rethinking the model completely. But this is not how you uncover disruptive innovation.
Your shiny new approach, whether it be a product or service, may seem uncomfortable at first, but if it can truly provide significant value, your customers will normalize it with time. My advice here is to ask users the right questions to determine what their current world is like and what they are motivated to accomplish, rather than what tasks they hope their current solutions perform. Uncover the core of what motivates them. Often a truly new solution will fit into their world in a very different way than their current solution.
2. Keep Your Focus
Once you have a clear vision of what you’ll reinvent, you need to get focused and put your energy and resources into making that one thing really stand out and be amazing. That means you need to be very disciplined about what you are not going to reinvent.
Companies that are successful in reinventing one area can be tempted to reinvent everything instead of focusing on that one area. This is a dangerous path. You’ve got to have the humility to say 'in this area, we are not reinventing, we are just going to do it very well.' It means that you’ll leverage the current leading technology in that area without trying to create a new way of doing that task. I spend a lot of time ensuring that the entire team has a shared sense of where our focus is for innovation, and where our focus is not.
We are not going to reinvent security models. We are not going to reinvent databases. We are not going to reinvent payroll management. We are not going to reinvent marketing or sales. We are only going to focus on the one area we believe is ripe for disruption.
You’ll see teams making mistakes in both areas — either thinking that incremental improvements will create a disruptive innovation, or lose focus by trying to reinvent areas of the business that would be perfectly fine being best in class. With no focus, innovation almost always results in a chaotic mess.
To prevent this from happening at Nudge, we have weekly deep dives where we investigate the latest developments related to certain areas of our business, whether it’s the technology stack, go to market strategies, or internal strategies. This approach ensures we are all up to date on the latest and greatest technologies and practices, so we are not tempted to reinvent everything.
The key here is to uncover the latest, cutting edge advancements. If your only benchmark is from many years ago, you might be tempted to say 'we can do this better', but if your team is up to date with the latest, it’s easier to say 'this is good enough for us' and keep your focus on the disruptive innovation that you are focused on.
3. Prioritize 'Do' Over 'Analyze'
One quality that differentiates successful startups from established organizations is humility of assumptions. With any disruptive innovation, you truly cannot know if it’s going to succeed until it does, so you are forced to focus on building towards success rather than analyzing whether you think something will succeed. When startups have a hunch about something, they create it, put it in front of real users, listen to what they say, and watch what they do. They then take those insights and iterate on the product.
One trap some established organizations will fall into is to spend a ton of time analyzing products and services that they believe users will value. This can be useful in assessing incremental improvements as there is broad familiarity with the current state and the proposed improvements can be understood in context. In my experience with disruptive innovation, there’s a real risk in spending too much time on analysis as you cannot be confident that user opinions, feedback on paper prototypes, or design review sessions will actually reflect what a group of users will do once a product is being used in reality. You risk becoming more focused on creating aesthetically pleasing guesses, instead of admitting that a guess is just a guess and might not work in real life.
'It’s a very difficult task to guess what a user is going to want, use, and get value out of without testing. In fact, the only way to really know if a customer will value a product is when you put a real product with real data into their hands in a real scenario. Everything else is just guesswork.'
Big companies are good at analysis because of the resources available to them and the need to continuously, incrementally, improve an existing solution. There is also a significant risk of damaging a large, stable user base if a change is too significant.
For a large organization with an established product, it’s critical to focus on analysis before action. However, if the organization is embarking on a disruptive innovation effort, this attitude is counter-productive. It creates hesitation to put a real product in front of real users. To succeed at disruptive innovation, large companies need to recognize inherent biases towards analysis and work to remove them.
4. Disruptive Innovation = Taking Risks
Whenever you do anything that affects the user world and customers, there is a potential downside risk. Stuff can go wrong. Large organizations naturally begin their thinking about the possible downside risk scenarios as they have a large, stable user base to consider.
But this approach causes you to bias towards describable downside scenarios. For example, how the risk can impact revenue streams. What it doesn’t do is allow you to see the downside risks that are less obvious, like the passage of time. Considering how fast the tech world innovates, hesitation is the biggest risk of all. Hesitation means you’re being out innovated by someone who’s faster.
If you’re a startup, you don’t have a huge revenue stream that you can potentially disrupt. You start off with zero revenue and are expected to break something in order to generate a revenue stream. Startups also feel a very real pressure of venture funding and a cash burn rate that makes the passage of time very apparent. This combination makes startups err towards action over inaction, even when risky, due to their inherent small size.
Individuals need to consider if they’re the person who took the risk and broke something, then their name is very clearly highlighted in large red letters. On the flip side, since launching something new and innovative necessarily takes a much bigger team at a large organization, when it’s successful, the thanks go to a large number of people.
At a small organization, generally, teams are very small, and the 'recognition' accrues to the company (if successful) more so than the individual, while the downside risks of breaking something existing is much lower.
How Can Established Organizations Better Manage Risks Of Disruptive Innovation?
In order for a large company to succeed at disruptive innovation, I believe it needs to create another arm of its organization dedicated specifically to the experimental/disruptive project under consideration. The 'disruptive' business must employ different people, operate different budgets, and potentially work in a different building or use different technology stacks. This gives the freedom to try new things and avoid crossover between a proven concept and a new, highly risky, unproven concept. Without strict separation, the oxygen sucking engine can make the successful business to starve the attention and risk tolerance out of the small innovative nugget that is being formed.
It also makes sense to keep them separate, because in most cases, the disruptive business will be completely different than the established one. Beginning with the assumption that you’re going to combine them one day is odd as you wouldn’t expect them to come to the same end point. If you realized success with your disruptive unit, you’re probably tackling a different market in a different way. If you’re successful with disruption, you’re probably eating a certain amount of your own lunch of the established business, as much as you’re eating from your competitor’s lunch.
To summarize, for radical innovation to work:
- Do your research and make sure you’re truly reinventing something that creates significantly better value
- Focus on the thing you’re reinventing and resist the temptation to reinvent everything
- Test your assumptions by shipping product quickly, over-analysis is a trap
- If you’re going for disruptive innovation at an established company, fully incubate your radical ideas or inertia will likely set you up to fail.