It may come as a shock to you, but your fabulous business idea is not disruptive unless you are producing a product or service that can sell at a lower cost, competing with products offered by big corporate industry leaders. The reason it’s disruptive is that big companies can’t afford to go after low-priced markets. They have so much overhead, that must be figured into the prices of their products, they have to focus on marketing expensive products to high-end consumers. This is the only way they can generate enough gross margin to pay for their administrative overhead.
In a blog article for Harvard Business Review, Maxwell Wessel argues:
If a start-up launches a better product, at a higher margin, to an incumbent’s best customers — that’s not disruption. That’s just…innovation….High-end disruption is an impossible proposition, because when innovation yields a premium product, firms can rationally respond. They can charge more, cover their costs, and adapt. And disruption itself represents exactly the opposite scenario….Not all successful products will fall into the category of disruptive innovation. Was the iPhone a case of “high-end disruption”? No. It was simply a better expensive smartphone than the BlackBerry; and RIM’s failure to adapt doesn’t mean they were “disrupted.” It just means they lost.
Most startups can be disruptive by offering good basic products that most consumers or businesses can afford to buy. A startup has a mighty advantage over large existing companies because it has less overhead. This is why bootstrapping is a wonderful way to get your business launched. A low-overhead startup can produce and sell a competing product at a lower price, and still make money.
Disruption refers to the ability of a startup to gain a foothold in the consumer marketplace, on the basis of lower price for similar products produced by major firms. This allows the startup to disrupt the status quo and use revenues produced by this strategy to grow the new enterprise into a major producer, itself.