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.
Personally I like the term destruction or destroy. Describes a mindset needed to win in a competitive game.
Randall Baker, Joseph A. Schumpeter, who established Creative Destruction, “The function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on.”
re: This isn’t just about technology—it’s about creativity.
TBH I never liked the disruption paradigm because it is focused on a false god. In short, the better goal is: “How can we make someone’s life 5x or ideally 10x better?” 2x? Nah, not enough. Same for 3x and 4x. Even 5x is to the low side. And it’s not about who or what you can disrupt but instead to focus on customers and bringing them 10x more joy.
But to your point, there is more risk in not risking enough, than in risking too much. Someone might say, “But at 2x we can get in the air…” Yeah, you can. And before you know it, at 2x you’ll be shot down. At 5x to 10x+ that’s far less likely.
Go big. Or go home.
I agree that disruption potential is what usually clinches VC funding. But on a macro level, startups that do disrupt make the most impact towards innovation which begets more innovation and so on.
Mark Simchock good points and perspective on the disruption paradigm. It strikes me as similar to the criticism of VC that they only invest in things that can be big… People complain when they can’t get VC for their profitable business.
That, yeah, because in startups, overwhelmingly most things fail – by design. Innovation requires failures along the way… If we all knew the right answers and solutions, there would be no place for startups. And given that, VC must overcome their losses, by supporting the things that can be big (or disruptive). That’s its role.
If VC can’t make a return on the Fund, it can’t support anyone.
Annecdotally, unless I’m mistaken, the average rate of return in VC is only about 7%. People see only the big wins and thank VC is getting wealthy taking advantage of founders – the reality is that big win covered all the money lost on other investments.
If people want startups to be businesses… They should be looking to customers and banks for support. VC is meant for the experiments that change the world, and I’m doing that, they’re disrupting things.
Pedro Gonzalez
Joseph Schumpeter, who coined Creative Destruction, “The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process”
It does beget more innovation. Innovation is what creates wealth. Efficiencies that contribute to the economy and more effective way of doing things, enabling people to do more with their limited resource of time, resulting in wealth that would not otherwise exist.
The late Clayton Christensen popularized the term “disruptive innovation” nearly 30 years ago, and meant something specific by it. I like your article, but I’m concerned that readers may misunderstand the key useful idea.
As Christensen said in 2015 on its 20th anniversary:
“Unfortunately, disruption theory is in danger of becoming a victim of its own success. Despite broad dissemination, the theory’s core concepts have been widely misunderstood and its basic tenets frequently misapplied. […]. Many researchers, writers, and consultants use “disruptive innovation” to describe any situation in which an industry is shaken up and previously successful incumbents stumble. But that’s much too broad a usage.”
https://hbr.org/2015/12/what-is-disruptive-innovation
Matt Cohen great addition, and this is what drew me to Zero to One and the monopolistic notion. That, no, you aren’t likely to disrupt an entire sector, but you have to disrupt something, a piece of how your solution works or is delivered, in order to establish that (though temporary), competitive advantage.
And hey, I always welcome the critical take on everything I say or write. Hell, I never claim to be right, only that it’s worth consideration… If no one was willing to say some things that aren’t ideal, or might even be wrong, we’d never help anyone
Wise words from Paul O’Brien.
So grateful for your and MediaTech Ventures ‘ mentorship and inspiration.
Paul O’Brien this is just so on the money. It’s a real challenge to find the founders willing to be bold and courageous, and the investors to back them. Great article.
Phil McSweeney cheers. In fairness to it being a challenge to find them, that’s why I added my experience in Austin vs. Silicon Valley… You’re not going to find them when it’s discouraged by the community or, worse, investors who don’t take the risks involved and advise founders to be pragmatic.
The better part of how well a startup ecosystem works, isn’t a result of capital, tech, co-working spaces, or local programs, it’s the culture of the region overall. When disruption is a dirty word, founders shy away from trying to be.
I think this is a double-edged sword.
On the one hand, a truly disruptive company that is advancing the state of the art and changing customer expectations certainly has a better chance at market “domination”. On the other hand, opportunities for incremental innovation are far easier to stumble into. B2B SaaS continues to demonstrate this.
Many disruptive ideas prove not to be feasible or commercially viable. As they say, the hardest part about building a perpetual motion machine is figuring out where to hide the batteries.
To your point, I do completely agree that the biggest winners in startup history are companies that stretched our mental models. You’ve named several great examples of this.
In “The Infinite Game”, Simon Sinek describes how he gave a talk at a corporate summit for Microsoft during which every presenter was focused on how to beat Apple. As a thank you, he received a Zune HD prior to its public release. Some months later, he spoke at an Apple summit. He shared a cab with an Apple executive and told him his honest opinion that the new Zune was far superior to the iPod Touch. The executive calmly replied “I have no doubt”.
It’s always better to be the one being chased rather than doing the chasing.
I’m on the sidelines, more involved with PE than VC. That said, I’m a huge believer in great creative and think there will always be a market for those who can imagine fresh and compelling futures. It takes skills and courage to suss out and underwrite those opportunities. That’s why it’s an inefficient market.
Paul Gautier, Sr have you perceived that some markets are more or less efficient in this regard? I find that cultures (communities) that are competitive, artistic, and open minded to history, drive greater efficiency; evident in the opposite being true too, that places that are more academic, technical, or professional, while they certainly invent, aren’t as efficient as doing so – much is wasted in what’s lacking as efforts are more directed toward what is perceived to be right/ideal.
Charles Martin good points and to point to a bit of the back and forth with Mark Simchock as I think it pertains herein, yes, many disruptive ideas prove not to be feasible… and opportunities for incremental innovation are there.
That, this though is what distinguishes what Venture Capital is meant for and why so many entrepreneurs get frustrated with VC when they can’t get funded though they have a viable venture.
Overcoming the cost (and effort in) those majority of disruptive ideas that prove not to work, requires funding that can absorb the losses, by achieving exceptional returns from the few remaining investments that work. An incremental gain or mere new business, is meant for banks, revenues covering costs, etc. Startups must be exceptionally disruptive because it requires that “biggest winner” return to make venture capital a possibility.
Or rather, that founders need to know that if they aren’t going for that massive disruption, VC is barking up the wrong tree.
You can’t disrupt the outdated and majorly faulted systems that control your own access to execution without securing your story-experiences with radical transparency, aka whistleblowing the problem’s deep foundational origin.
I get what you’re saying and creative destruction has always been part of capitalism. We have to allow the free market to destroy bad companies and bad products.
Business has preached that the world will beat a path to your door to get their hands on a “better mousetrap.”
There are also, simultaneously, other considerations for startups one of which is simply being better than the competition. I would argue that Lemonade is “better” at the insurance racket and, theoretically, this should force out the worst insurance companies as a result. Is being better disruptive?
There is an entire category of companies that are not disruptive as there was nothing of their nature to disrupt. Much of this is pure technology and is classic first mover advantage.
Duck Duck Go can find its niche without the pretext of disrupting Google. When the name of your company becomes a verb, you are fairly well entrenched.
I think it’s important in the startup world to preach the gospel that not every company has to lust to become a category killer, bleeding edge, world changing idea.
There has to be encouragement for startups that will not disrupt anybody or anything, but will provide an essential service that is currently missing.
Ciao!
[…] ecosystem recognize that gaps remain. Last week, I pushed founders and economists to recognize the distinction between innovation and technology (between startups and businesses), and from that, I was asked for advice too frequently asked, […]
In some places hierarchy is fading … I call that Disruptive Theology. I don’t see it as a religious or political concept as much as it is networking for the benefit of all businesses that can be involved.
I like the addition of emojis and I think your input has a good edge to it!