Why is this interesting? - The Disruption Edition

On technology, competition, and the real definition of disruption

Jerry Neumann (JN) is an investor, entrepreneur, technologist, and teacher. He’s also one of my favorite thinkers on the intersection of technology, business, economics, and finance. For awhile now “disruption” has been on my list of topics to cover for WITI and last week, spurned by yet another piece that misinterpreted the idea I found myself starting to write an edition. As I worked through it I realized I couldn’t really do a better job than Jerry already had in a 2016 post titled “Disruption is not a strategy” so I asked him if he’d be up for me publishing an excerpt from that post. He agreed and I’m excited to share it with you all. If you enjoy, make sure to read the rest of the post. - Noah (NRB)

Jerry here. I was at a research lab to talk about commercialization. The presenter put up a slide of some exciting new technologies. The slide’s tagline said these technologies would “disrupt the biomedical industry.” My first thought was that disrupting the biomedical industry–“to interrupt by causing a disturbance” or “to drastically alter or destroy the structure of something”–is probably the exact wrong thing to do to an industry that keeps us alive and healthy.

I’m not the first person to note with some pique that the word “disrupt” is overused and misunderstood. Technological disruption has gone from an interesting way to illuminate the workings of the innovation machinery, to an imprecise strategic crutch, to a magician’s misdirection, to, now, the cargo cult of technology commercialization. Cargo cults are fascinating because they mirror our own tendencies to confuse cause and effect, but they have real costs. They misdirect resources to ineffectual ritual from actual problem-solving.

There are better ways than disruption to think about whether you can succeed at building a business with a new technology. In fact, there are few worse ways.

Why is this interesting?

I’m sure what the presenter of the slide was getting at was Clayton Christensen’s definition of disruption from his classic book The Innovator’s Dilemma. In Christensen’s terminology, a disruptive technology is one that costs less than existing technologies and has subpar performance by the dominant standards, but performs well along a dimension that the existing market has little need for. His primary research was done on the disk drive industry, where the dominant metric of performance improvement was storage capacity. New companies repeatedly disrupted the existing market by introducing disk drives with less storage capacity but smaller form factors. Incumbents were so motivated by the needs of their existing customers to increase capacity that they ignored nascent markets where new customers needed something else. New companies could enter this new market without competition from well-resourced incumbents and get enough traction to fund the improvement of their technology along the dominant metric. They then started peeling customers away from the incumbents. The incumbents were chased further and further upstream until they ran out of customers.

This is the definition of disruption that innovators try to associate themselves with, and for good reason. A disruptive innovator has a chance to replace the large, entrenched companies that dominate their sector. Competing with Google or Apple or Amazon is daunting and if you can’t think of a recipe for winning then you might latch onto disruption as your savior.

But even disruption as defined by Christensen does not really apply in the life sciences business. New biomedical technologies very rarely completely replace existing ones or chase incumbent life sciences companies out of the business. From Gary Pisano’s Science Business:

[T]he history of the drug sciences revolution is very much one of successive “waves” of new technology that rise up and later become adapted into the flow. Recombinant DNA and MAbs represented the first waves of biotechnology that came on the scene in the late 1970s. Many predicted that new methods of making drugs based on genetic engineering would replace traditional “old” medicinal chemistry. This has not happened; moreover, it now turns out that medicinal chemistry and genetic engineering are complementary. This pattern has repeated itself over the subsequent thirty years, with the emergence of rational drug design, combinatorial chemistry, and high throughput screening; then genomics, proteomics, and more recently, systems biology and RNA interference. Each new approach emerges from science and initial expectations (and hype) are that this one is “the real deal” and will dominate. But there has been little replacement of old with new. Instead, the new technologies, as well as the even newer ones, coexist with the old. Furthermore, it appears that they do not operate independently; rather, they are highly complementary.

Even outside the life sciences field, new technologies rarely completely change the structure of existing markets, although they often alter them, evolve them, or even create new markets. And at successful companies that did drastically alter a market, the original intent was not usually to “disrupt”, it was to create something new. Google, despite the radical changes it brought to so many markets, set out to create something, not destroy anything. Disruption isn’t everything. (JN)

Recommendation of the Day:

I love the fragrant wood Palo Santo, which originated in the Andes and is often used as a remedy for purifying and cleansing a space. But the sticks themselves can be a bit annoying and finicky to keep lit. Friend, bon vivant, and WITI reader Raihan sells these palo santo cones that burn slowly and evenly to create a nice mood. In his words: “The wood that can't be sold as sticks are put through a slow chipper (that still preserves those lovely essential oils) and turned into these cones, with the addition of some bamboo-based binder. They are about the size of your thumb and one cone is good for multiple burn sessions.” (CJN

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Thanks for reading,

Noah (NRB) & Colin (CJN) & Jerry (JN)