This article is the first part of a series of fives articles on mistakes to avoid when managing a disruptive project, extracted from my new book ‘”A Manager’s Guide to Disruptive Innovation”.
One of the cardinal errors with disruptive innovation is to seek to scale up too quickly. In most cases, this condemns the project to fail.
There are two reasons why a company pushes for rapid growth: the first is that large companies need big markets to grow, and the second is that there is an underlying belief that the development of a disruptive innovation project is linear.
The larger the company, the larger the targeted market needs to be in order to match the company’s growth objectives. But by definition, there is virtually no emerging market that has such large dimensions. Any new market corresponding to a disruption starts out very small (assuming there is a market, which is never guaranteed).
When a large company considers an investment in one of these emerging markets, it pushes its innovative projects too quickly in order to reach a size sufficiently large to significantly contribute to its growth targets. Thus, from the beginning the company gives its innovative products’ sales teams sales targets that are too ambitious.
This approach relies on an underlying belief that the development of a disruptive innovation project is linear. This is not necessarily so. Not only do all new markets begin by being very small, but they also tend to remain small for rather long periods. There is indeed a fundamental discontinuity in the progression of an innovation: first, an initial incompressible incubation period, and then, if this incubation is successful, an opening up to larger scale growth.
To understand why, we must return to the process of innovation. In order to innovate, one must create a value network linking suppliers, customers and partners who all have an interest in the innovation. This network building is a slow and tedious process, and difficult to accelerate.
Network building is important for Internet businesses as well. Internet is often referred to as virtual, a term that can be misleading when building a business. Some believe that just because they create an Internet site for their project, and then advertise heavily, that presto, their project is launched. However, no Internet project is entirely virtual. The founders of Airbnb, an apartment-sharing platform, canvassed door-to-door and approached the owners of apartments one-by-one. One by one! This direct contact may seem unrewarding for an Internet entrepreneur, but meeting the owners of apartments taught the founders a lot about what would work and what would not work. Similarly, Frederic Mazzella, founder of the French carpooling service BlaBlaCar, began by carpooling himself, and in order to understand what motivated the first members of his nascent network he spent substantial amounts of time with them. In a disruptive project, nothing can replace extensive personal contact with the first customers because they provide information that no market study could ever reveal.
These examples help us to understand why the initial phase of a project is often long, and is generally not a period that generates a high volume of sales. Progression in this period is mainly qualitative. There are very few customers, but the offer can be tweaked and refined according to the experience of these customers. Trying to shorten this period is like building the project on sand.
This is one of the reasons for the failure of innovation projects of large businesses. Needing to generate significant revenues to contribute to their growth, they tend to push innovation by giving their projects very ambitious goals in order to reach cruising speed as soon as possible. The more ambitious the set targets, the more the project managers are tempted to cut corners. Trying to go too fast leads to failure.
In sum, an innovation project should start slowly and, as Clayton Christensen suggests, its promoters should be patient for growth but impatient for profit. In a project’s initial phase, demonstrating its viability, that is showing that people are interested and willing to pay for the product, is far more important than increasing the number of sales. Only when the different components of the business model are determined and the positions of the different stakeholders are known can the project scale up and the project’s focus turn to increasing sales.
Therefore, the initial phase of a disruptive innovation project can last a very long time, basically until its business model is determined. Disruption is not a statistical game, nor the simple result of multiple trials and error, but it is a patient construction of a value network, one stakeholder at a time. Promising projects often take a long time to produce significant revenue, and it would be suicidal to interrupt them prematurely. This would be similar to a company attempting to build a large bridge requiring 17 pillars and stopping the project after building the 16th pillar because still no car has used the bridge.
This article is based on the article by Paul Graham (Y Combinator): “Build things that don’t scale” accessible at the address: http://paulgraham.com/ds.html. Concerning building new markets, one can consult the theory of effectuation: Stuart Read et al., Effectual Entrepreneurship, 2nd ed. (Abingdon, Oxon ; New York, NY: Routledge, 2016).
Read part 2 of the series: Imitating entrepreneurs in failing fast.