Resistance to Disruption

An Interpretation of the Hype Cycle

I have been thinking a lot lately about the differences in the process of innovation in established companies and in the world of startups. In particular, why do incumbents fail to innovate and resist disruption? I have several well-known examples in mind: the music industry, the hotel industry, and more recently, the taxi industry.

There are several factors I can think of:

1. Lateness to realize the seriousness of the threat (systematic mistake)
2. Fear of cannibalizing established products (this is true of the music industry)
3. Inability to cooperate with the other incumbents on a common standard or platform to resist disruption (this is especially true of “atomized” industries like hospitality and transportation)

Here I would like to provide an alternative explanation of this phenomenon based on the popular Hype Cycle framework developed by Gartner Research. I think it is a simple but powerful tool to illustrate the pattern of progressive disruption:

Here is the story

Incumbents are aware of the seriousness of the threat on the long term, and they do experiment with technological innovation. However, these experiments often fail to live up to the high Return on Investment (ROI) expectations. As a consequence, the incumbents decide to focus on the existing core business. Meanwhile, the technology matures and the ecosystem of startups grows. Most fail, but a few succeed and turn into profitable businesses, either through resegmentation or disintermediation. On the consumer side, a critical mass of early adopters emerges and starts reaching out to an early majority.

By the time the incumbents realize the immediate threat, it is too late. We reach a no-return tipping point with two possible paths: “Grow fast or die slow”. Disruption has happened.

What is the bottom line?

• Innovation does not bring direct ROI but it is a long term investment
• Risk and failure are part of the innovation process
• The timing and the scale of projects matter: don’t start too small too early
• Although disruption starts slow, tipping happens very fast

This post was inspired by an article by Fred Wilson on Bitcoin.