It used to be that entrepreneurs entered markets by offering low-function products they could sell cheaper than existing offerings, hoping to build up their customer bases and technology before incumbents took notice.
But our research shows that startups can now begin life with products that are better and cheaper than those of incumbents -- and right from the start. That’s thanks largely to exponential improvements in the price and performance of core technologies -- and not just in computing. And with the rise of social media marketing tools, consumers can let one another know instantly when better and cheaper goods arrive, ushering in a devastating jump from established providers to the newcomers.
We call such innovations “big bang disruptors.” While examples are obvious in hypercompetitive markets like consumer electronics, gaming, entertainment and computing, the phenomenon is now spreading to industries long thought immune to technology disruption, including the hospitality sector (Airbnb), taxicabs and limousines (Uber), health care (23andMe), agriculture (sensors and RFID ) and manufacturing (3-D printing). Indeed, the longer an industry has managed to fend off large-scale transformation, the bigger the bang when entrepreneurs finally crack the code.
How can you take advantage of exponential technology to create some big bang disruptors of your own? Here are five tips gleaned from the Accenture Institute for High Performance’s study of hundreds of disruptive and disrupted companies in more than 30 industries:
1. Build for the “inevitable truth." As industries undergo transformation, they often pass through interim stages that rely on incremental technologies, masking the often-dramatic endgame that may occur a few years further out. If you understand where an industry is really headed -- what we call its “inevitable truth” -- you can focus your efforts on getting the biggest bang for your buck, positioning yourself to jump when the real disruptor becomes possible and cost-effective.
Even when Netflix first launched its DVD-by-mail service, for example, its founders understood the inevitable truth for entertainment on demand would be fully digital, using the cloud and broadband networks to send whatever content consumers wanted, wherever and whenever they wanted it.
But video rental chains, including Blockbuster, couldn’t see beyond the undeniable limits of the mail-order service, grossly underestimating the threat to their core business. Blockbuster responded by launching its own DVD-by-mail offering -- that was met with not too much enthusiasm. By the time networks became fast enough to handle video, Netflix was ready to transition. The video retail chains weren’t.
2. Pinpoint your timing. Big bang disruptors might appear chaotic, but these days even dramatic improvements in the price and performance of technology can be predictable enough for you to know when it’s the right time to launch a breakthrough product.
Amazon’s Jeff Bezos didn’t invent the idea of electronic books, for example. The success of the Kindle was more a function of having perfect timing. From watching a decade or more of complete flameouts by companies large and small, Amazon learned what was still needed in displays, battery, processors and mobile networks before a winning combination could be built.
As soon as everything came together at the right price, Amazon pounced. The earlier market failures had created demand, with consumers waiting for a winner, making Kindle’s success even more dramatic than the failures of its predecessors. At the same time, incumbents in the creaky publishing business misread the failures as proof that e-book readers were nothing to worry about; now publishers are playing a dangerous game of catch-up as Amazon rewrites the industry’s rules.
Related: The Next Big Thing: Embeddable Tech?
3. Conduct seemingly random market experiments. In a world of better and cheaper disruptors, the traditional advantage of proprietary research and development is increasingly a liability. While in-house experimentation gives you total control over the design and ownership of new products, it also saddles you with all the costs and risks.
On the other hand, through a series of market experiments with real consumers, crowdsourced R&D gives away the element of surprise, but the value realized from leveraging existing technology platforms and direct interaction with real users more than offsets the loss of control.
Today, entrepreneurs are using fund-raising services including Kickstarter, Indiegogo and Rockethub to not only find their early users but also to collaborate with them on everything from market research to design and customer service, all before even producing a single item. (In the near future, startups will be able to crowdsource actual investment, too.)
The explosion of market experiments only looks random. In reality, entrepreneurs have discovered that building a company in the open is not only cheaper; it’s also safer.
4. Anticipate catastrophic success. Social networks and mobile devices are revolutionizing marketing. Increasingly, as a recent HTC commercial featuring actor Gary Oldman cheekily acknowledged, consumers really listen only to other consumers. As near perfect market information becomes the norm, new products and services tend to shake out quickly either as complete successes or total flops.
Assuming that you’ve built the former, be ready when your customers arrive all at once and right after (or even before) a launch -- what we call “catastrophic success.” If you believe your own hype, then you’d better be prepared with manufacturing, distribution and customer-service resources that you can rapidly scale up -- and just as quickly scale down when the feeding frenzy ends. Customers won’t wait for you to catch up to demand.
Xiaomi, a fast-growing Chinese smartphone brand, has learned to manage catastrophic success by selling most of its products directly and by limiting supply for each batch of production. Not only does that elevate its brand; this also builds excitement for whatever the company announces next, so the firm can lead rather than follow a growing electronics market that looks more like the fashion industry all the time.
5. Quit while you’re ahead. Dramatic market explosions characteristic of big bang disruptors can put entrepreneurs on the razor’s edge when facing an existential crisis: Is it better to sell a business early on to a more established company or gamble on its lasting until an initial public offering? Now this moment of truth is likely to come sooner. And the consequences of making the wrong choice can be more painful.
How you decide hasn’t really changed. If you think you’ve come up with your best idea or need the resources and user base of a larger company to take your product or service to the next level, then sell. If you have a pipeline of killer disruptors and all support you need to bring them to market, don’t be distracted by what might appear to be a big payout from someone without your vision.
What;s changed is the “when.” If you do sell your company, wait until your growth matches the exponential curve of your technology. Text-messaging service WhatsApp, for example, had 100,000,000 users after two years, but added 300,000,000 more in the next two. The company is now reaching toward the billion mark.
While WhatsApp's early success might have been worth a few billion dollars to an acquirer, selling when growth had become almost vertical translated into a payout that could be as much as $19 billion.
Adapted from Big Bang Disruption: Strategy in an Age of Devastating Innovation by Larry Downes and Paul Nunes, in agreement with Portfolio, an imprint of Penguin Random House. Copyright (c) Larry Downes and Paul Nunes, 2014.
Copyright © 2013 Entrepreneur.com, Inc.