Startups Must Be Disruptive
The word “disruption” often evokes a sense of upheaval, and for many startup founders, the idea of creating something that dismantles existing systems can be distasteful. I discovered this distaste most prominently in my relocation from Silicon Valley to Austin, Texas, where the word “disruptive” was treated with disdain; a dirty word that implies founders are ruining things. Rather, founders wanted to be impactful, meaningful, or do something “socially good.” There’s a natural inclination to want to build something positive, something that solves problems without necessarily breaking down what currently exists. However, the reality of innovation dictates otherwise. Disruption is not merely a buzzword but a necessity since all technology eventually becomes commoditized — where it evolves from being revolutionary to freely available, like open-source software. The primary competition that startups face is not from existing businesses or investors who might “steal ideas,” because it’s well known that establish companies can’t (or won’t) take the risks to disrupt their successful models, and investors aren’t entrepreneurs, your primary competition comes from this inevitable progression that continually replaces what exists with automation and innovation.
The Inherent Challenge of Commoditization
Historically, any groundbreaking technology that starts as proprietary, cutting-edge, and valuable becomes commoditized. Consider how operating systems, once tightly controlled by tech giants like Microsoft, are now in competition with freely available Linux distributions. The smartphone once hundreds of dollars is now nearly freely available, unless you’re hooked on a disruptive change such as Motorola’s return to a flip phone in the razr. Cloud services, initially exclusive and expensive, have progressively moved towards being highly accessible and competitively priced by companies such as Amazon Web Services (AWS) and Microsoft Azure. This is the trajectory in technology; what is new and scarce today will be widely available and inexpensive tomorrow.
This relentless march towards commoditization is not limited to software but extends to hardware and intellectual property. The automotive industry, for example, has seen proprietary technologies like anti-lock brakes and fuel injection systems become standard features available across all manufacturers. Hopefully you can appreciate how the assembly line and then robotics, likewise, once revolutionized the production of automobiles but if you were to start a mere car company doing the same thing today, you’re facing a nearly insurmountable battle from what is simply and only the status quo. Your new car company wouldn’t be a startup because it’s a known business model in place within a new company expected to perform as such.
And now we can witness the reality of this thanks to artificial intelligence (AI). What once was an exclusive (and clearly disruptive) domain of a few highly specialized firms, is now accessible through various platforms and open-source frameworks such as TensorFlow, PyTorch, and OpenAI. Increasingly freely available, AI continues to disrupt the status quo of both technology and creative oriented sectors of our economy, and yet if you were merely to launch and do the same, you’re already behind.
Peter Thiel notes in his book Zero to One, “All failed companies are the same: they failed to escape competition,” emphasizing the importance of creating monopolistic-type situations through disruption rather than competing in a commoditized marketplace. Indeed, the fact of an actual monopoly is that one exists thanks to the grace of government, and the support of regulation that prevents competition; all a founder can do to thrive against any of these circumstances is Thiel’s monopolistic-like focus that comes from being disruptive. The lesson here is clear: startups must find ways to break the mold and redefine the playing field, not just play within the existing rules.
The Inevitability of Automation
Industries across the board, from manufacturing to services, are undergoing a seismic shift towards automation powered by AI and machine learning. AI is the ultimate disruptive force; it enables startups to do more with less and challenges established players by providing better, faster, and cheaper solutions.
Hopefully an experienced founder already, reading this, you’re familiar with the design thinking principal also known as the Iron Triangle; seen here, traditionally, of cheaper, better, or faster, as a founder, you have to be conscientious of the fact that you can only accomplish two of the three, if you’re lucky. And yet catch what I just shared about the implication of AI, we’ve cracked the code on being better, faster, and cheaper.
The insurance and finance industries offer compelling case studies. Traditionally human-intensive, these sectors are increasingly reliant on AI-driven underwriting, claims processing, and customer service. Startups leveraging AI are not merely offering alternatives to established processes but are fundamentally changing the way these industries operate. Lemonade, an AI-driven insurance startup, is not competing by providing slightly better insurance policies; it is disrupting the entire value chain with instantaneous underwriting and claim settlement processes. If you do a Google Search for “lemonade insurance,” you’ll see evidence of what we’re exploring here, Lemonade’s competition in the insurance industry is aggressively outbidding this disruptive innovation, desperate to retain customer’s attention away from a startup that could well put them all out of business.
Andrew Ng, a pioneer in AI, has often stated that “ AI is the new electricity.” This phrase captures how AI is permeating every aspect of business and society, much like electricity did over a century ago. For startups, ignoring this evolution and sticking to incremental improvements of what is already available would be akin to ignoring the advent of electricity itself.
The Distaste for Destruction
Despite the compelling argument for disruption, many founders find the idea of destruction unsettling. This is understandable; there is a certain comfort in creating value without destroying existing systems. Yet, startups that merely aim to solve a problem based on today’s available technologies and resources are at risk of becoming irrelevant before they even get off the ground.
Marc Andreessen, co-founder of Netscape and venture capital firm Andreessen Horowitz, has spoken extensively about this. He coined the phrase “software is eating the world” to describe how every industry is being transformed by software and technology. This transformation is not a gentle evolution but a rapid, often ruthless process of old systems being replaced by new, more efficient ones. In an interview with The Wall Street Journal, Andreessen stated: “The companies that will succeed are the ones that will destroy something, replace it, and build something new.”
The implication is stark: playing it safe and improving on what exists today is not a path to success. Startups must look to where technology is heading, not where it is. They must be bold enough to disrupt rather than compete within a set paradigm.
Historical Precedents of Disruptive Innovation
Looking back, every significant technological shift has been characterized by disruption rather than incremental improvement. The invention of the personal computer disrupted mainframe computing. The advent of the internet disrupted everything from retail to communication to publishing. Cloud computing disrupted traditional data centers. Each wave of innovation did not simply solve a problem; it rendered existing models obsolete.
When Steve Jobs introduced the iPhone, it wasn’t just a slightly better phone; it was a disruptive force that redefined the entire category of personal electronics. The same can be said of Netflix’s impact on the film and television industry. Reed Hastings, Netflix’s co-founder, wasn’t interested in merely offering a better Blockbuster; he sought to change how people consumed content altogether. As he put it, “The goal is to become HBO faster than HBO can become us.” Netflix disrupted the entire concept of video rental and, later, cable television, and in doing so, it created a new market that it dominates today.
The Futility of Competing Without Disruption
The fundamental reality is that competing in a space defined by today’s technology is futile. Today’s problems will not necessarily be tomorrow’s problems, and the tools and resources available will certainly change. Startups that focus on disrupting, on fundamentally changing the status quo, are the ones that have the potential to bring about lasting impact and, consequently, achieve significant success.
A study from the Journal of Business Venturing shows that disruptive startups have a higher probability of achieving market dominance compared to those that focus solely on incremental innovation. The study points out that markets do not reward companies that merely do what is already being done slightly better. Instead, they reward those that create new markets or redefine existing ones. Startups must, therefore, look beyond the horizon and aim for disruption.
Change the World by Disrupting It
Startups, be disruptive or be irrelevant. The world doesn’t need another company that does what another company already does, just a little better. It needs companies that are willing to break molds, challenge conventions, and disrupt the status quo. Elon Musk has often reiterated, “Disruption is not about moving fast and breaking things. It’s about doing things that make the current state of affairs obsolete.”
How? To truly harness the power of disruption, founders must embrace creativity and a broad-based education that goes beyond just science, technology, engineering, and mathematics (STEM). Entrepreneurs, founders, innovators, inventors, and creatives must be, well, creative. The contrast to STEM in Education is referred to as STEAM, which includes the arts as a fundamental component, and countless industry leaders, executives, academics, and investors, are pointing out that we made a mistake commoditizing public education to standardized technical skills at the expense of what makes humans distinct from technologies. The study of liberal arts fosters critical thinking, empathy, and creativity-qualities that cannot be easily replicated by machines and that are crucial for true innovation. As Jack Ma, co-founder of Alibaba, pointed out, “We need to learn how to teach our kids to be more creative and constructive; only in this way, we can create jobs that machines can never do.” By encouraging founders and teams to engage with the arts, sports, and other human-centric fields, startups can cultivate a mindset that sees beyond the obvious and builds solutions that are not only technologically advanced but also deeply human, ensuring they are not simply replaced by the next wave of technology but are leading it.
For founders willing to embrace this ethos, disrupting what is today by reinforcing creative solutions over practical (already available) options, they do not merely participate in the world’s economic evolution-they drive it forward. Daniel Johnson of Innovation Federal Credit Union once wrote simply; Disruption is a Good Thing. And in embracing it, startups carve out their path to both impact, social impact, and success.
Originally published at https://seobrien.com on September 4, 2024.
