Breaking Down Disruptive Innovation in Businesses

Updated on November 13, 2019
Amanda Bliss profile image

Amanda is a graduate student focusing on global economic trends.

How Do Companies Disrupt?

Disruptive innovation is a process by which a smaller company successfully challenges incumbent companies.

We have seen lots of new companies take over a specific market after offering new ways to do business within that particular area. Just look at Netflix, a streaming giant that took over people’s nightly binge-watching habits.

Or look at Uber or Airbnb.

What do these businesses have in common apart from the vague idea of business model disruption?

They Address Repressed Customer Demands

Netflix gave cinephiles and binge-watchers what they wanted, video-on-demand, affordable access to a library of movies and original content, and more. Gone are the days of Blockbuster Videos and cable TV.

Uber disrupted the markets by providing ride hailers an easy way to call a cabbie with just a few taps on the phone. Gone are days of hand-waving and waiting for minutes or hours on the sidewalks.

Airbnb knew that not everyone who travels has the budget for holiday hotels. At the same time, they knew some people didn’t know what to do with their property or spaces. So, they came up with the idea of connecting those travelers and those homeowners.

See what they did there? Each of these companies addressed what we call repressed customer needs or demands.

These are demands or needs that established incumbent companies fail to address or can’t serve at present.

They Create a New Niche

Addressing the customers’ repressed demands and needs inevitably create a new niche or sub-niche.

For instance, the streaming video service space didn’t exist, or at least had a very different image, before Netflix existed. But as of writing, the market is seeing an upsurge of competition in the video streaming space, with big names like Disney and Apple joining the game. The same is true with Uber and Airbnb, and many other businesses.

But disrupting the market and creating a new niche isn’t easy. It takes a lot of studies and sometimes even trials and errors.

They Come Up with a Practical Business Idea

Finding opportunities for disruptive innovation takes more than just a stroke of genius. To pull off such a feat, a lot of thinking goes into the planning.

If you have a potentially disruptive business idea, there are a few questions that you need to answer:

  • Can the business idea make product use better?
  • Is it cheaper for the business or the customer?
  • Does it need an intermediary?
  • Is the business in line with evolving consumer behavior?

You can consider your business idea as disruptive if it makes the lives of consumers easier through the use of new tech.

At the same time, costs are much lower, meaning more business is possible. If the idea requires a bigger budget for little result, it’s not a good business idea.

They Reframe a Structure

Of course, most new “disruptive” business ideas are likely to be silly. Thousands of startups pop up every day, but 90% of these businesses fail.

What you can do then is to attack the idea tangentially. Reframe the structure. See a different angle from which you can attack the incumbent model.

A good example of reframing idea comes from Instagram, a social networking app owned by Facebook Inc., which is another disruptive business model too.

Instagram could have easily been just another social networking app that lets users share posts, write stuff, and upload media.

However, it reframed the social networking business by focusing on the visual aspects of social media.

It let users share their experiences and ideas with the use of visuals and images. To put it another way, Instagram didn’t focus on words, unlike Facebook and Twitter. It focused on pictures and videos.

At first, it might sound that this would only appeal to photographers and art enthusiasts. And they can always use Facebook, Twitter, WordPress, and YouTube to promote their images.

But look at Instagram now.

Top Disruptive Business Models

Presently, businesses run on various disrupted business models, which can fall into categories. These categories often mix and match with each other.

Here are the top disruptive models that succeed in helping companies address repressed customer needs, create new niches, and reframe an existing business structure.

  • Freemium – customers either receive only the bulk, basic features/services, or the customer pays a premium for other premium functions. Examples are Spotify, Canva, and MailChimp.
  • Subscription – the customer gets products or services through subscriptions, which the user can typically choose to stop anytime. Examples include Netflix and Amazon.
  • Free Offers – a particularly confusing model for businesses, but it typically runs on collecting customer data, advertisements, and customized offers. Just look at Facebook and Google.
  • Access Over Ownership – also called the sharing economy, the customer can use goods and services for a limited time. Examples include Airbnb, Lyft, and Sharoo.
  • Ecosystem – this model binds customers to an ecosystem. This model exists in Android and Apple users, where customers buy and use software that is only compatible in the same system.
  • On-demand – provides immediate access to services and goods to people who need them in a quick period. Examples are Uber, Upwork, and Amazon Prime.

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