Editor's note: A version of this summary was provided by getAbstract.
Many successful startups have disrupted existing markets and companies. However, opting to work with a legacy company rather than disrupting it also offers substantial opportunity. To assess which strategy will work best for you, University of Toronto strategic management professor Joshua Gans recommends creating two business plans: one for disruption and one for cooperation.
Startups have choices, and many founders realize that working with existing companies is the better strategy. Grocery delivery service Webvan chose a disruptive strategy similar to Amazon’s initial approach, albeit in a different industry. By offering an online grocery option, Webvan sought to do away with grocery stores, but its efforts failed. Another online startup in the same industry took a different path. Peapod chose to work with existing grocers, successfully capitalizing on emerging technologies and marketing to a niche customer base.
Entrepreneurs need two business plans: one outlining a strategy of disruption and one assessing strategy in the context of cooperation. Within those business plans, define four areas:
- Customers. Define your customer segment, and evaluate what model best serves the customers you target.
- Technology. In terms of technology, where does your startup need an edge to be successful?
- Organization. What organizational structure do you envision, and how will it fare in the different scenarios?
- Competition. Will the startup compete for existing customers or provide improved service instead?
Startups need to consider how their answers mesh with one another. The four areas need to be aligned. For example, choosing to compete for existing customers requires an organizational structure that has sound backing and flexibility.
Once a startup decides on one strategy, it needs to test it — for example, by rolling out to a niche market to see if the product or service creates value or by delivering a lower-cost product to see if it generates sufficient revenue. Keep in mind, though, that testing on a small scale may not give you insights about the competitive response, because your activities may garner less attention.
The restrictions that the pandemic response measures place on companies also present opportunities. Today’s economy — in the midst of the coronavirus lockdown and beyond — places many restrictions on marketing and selling products and services. However, those restrictions are also opportunities for innovation. Whether such innovations prevail will depend largely on how long restrictions last. Some startups will try to capitalize on improving customer safety, but measuring success will take time.
People often believe that disruption will naturally come to established companies. However, such companies are more often dominant because they do have distinct advantages. Established law firms, for example, may offer opportunities for improving customer relationships — but could be difficult to disrupt. Legal tech startups need to remember they have a choice — to compete or to cooperate — even in a deeply rooted industry.
Takeaways:
- Not all successful startups take the path of disruption.
- Startups need to consider four critical questions when choosing between disruption and value-chain partnering.
- The restrictions that the pandemic response measures place on companies also present opportunities.
To Disrupt or Not to Disrupt? A Live Session at Disruption 2020
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