Why Start With Christensen
If you want to beat a market leader, you first need to know which kind of fight you are in. Clayton Christensen (1952–2020) built a vocabulary for this. It started with a January 1995 Harvard Business Review article written with Joseph Bower, "Disruptive Technologies: Catching the Wave", and grew into The Innovator's Dilemma (1997). In The Innovator's Solution (2003, with Michael Raynor), the theory was split into the two kinds of disruption used today.
The core claim is simple. Incumbents rarely lose because they are lazy or slow. They lose because they make sensible choices for their best customers. A challenger wins when it goes where those choices leave a gap.
The Three Innovation Types
1. Sustaining innovation
- What it is: a better product for the incumbent's existing, demanding customers, judged on the measures they already care about (faster, more capacity, more features).
- Main test: Does this help the leader's best customers with the job they already pay for, at the same or higher price? If yes, it is sustaining.
2. Low-end disruption
- What it is: a cheaper, "good enough" product aimed at the least demanding customers. Those customers are over-served, meaning they pay for more performance than they need.
- Main test: Are there low-end customers who would happily buy a product that does less, if it were cheaper? And can you build a business model that makes attractive profits at those discount prices?
3. New-market disruption
- What it is: a simpler, cheaper or more convenient product for people who were not buying at all. They lacked the money, skill or access. Its real rival is non-consumption.
- Main test: Is there a large group who have gone without this, or had to pay an expert to do it for them, because it was too costly or too complex?
One idea links both kinds of disruption. A disruptor starts out worse on the measures mainstream customers use, then improves until it is good enough for them. Disruption is a process that takes time, not a single moment.
Why Incumbents Usually Win Sustaining Battles
In a sustaining contest the incumbent has every advantage:
- Motivation. Its most profitable customers are asking for the improvement, so funding it is an easy decision.
- Resources. It already has the engineers, suppliers, sales channels and cash.
- Fit with the business model. Better products sold at higher margins are exactly what its processes are built to deliver.
Disruption reverses all three. The low end and the non-consumers bring thin margins and small early markets, so a well-run incumbent chooses to ignore them.
Case: disk drives (supports the idea). In Christensen's study of the disk-drive industry, established firms led in developing and adopting sustaining technologies such as thin-film heads and disks. The established firms lost at the architecture shifts instead. In 1980 Seagate's 5.25-inch drive held only about a sixth of the capacity of 8-inch drives. Minicomputer makers did not want it, so Seagate sold it into the new desktop PC market.
Task 1: Sort Three Public Cases
Read each case and decide its type before you read the verdict.
Case A: Steel minimills (from the 1970s). Integrated mills made most steel. Minimills melted scrap in electric furnaces, made steel more cheaply, and started with low-grade rebar. The integrated mills gladly gave up that low-margin segment. Minimills then moved up into higher grades, and several integrated producers went bankrupt.
- Verdict: low-end disruption. The customers already existed, were over-served, and were happy with cheaper, good-enough steel. Supports the theory.
Case B: Sony TR-55 (Japan, August 1955). Vacuum-tube radios were large and expensive. Early transistor radios sounded worse, so established makers such as RCA judged them not good enough. Sony sold to teenagers who could not afford tube radios, often through discount retailers rather than appliance stores.
- Verdict: new-market disruption. The rival was non-consumption. A teenager's alternative was no radio of their own. Supports the theory.
Case C: Uber (assessed by Christensen, Raynor and McDonald, HBR, December 2015). Uber targeted people who already used taxis, and it was not a cheaper, lower-quality offering.
- Verdict: mainly sustaining compared with taxis, according to the authors. This case pushes against the simple rule that "incumbents win sustaining battles". Uber still grew very large. Taxi operators were fragmented, though, and none had the scale or resources of a classic incumbent. So the rule depends on there being a strong incumbent.
Bonus contrast: the same 2015 article calls Netflix's 1997 DVD-by-mail service a new-market foothold. It did not appeal to Blockbuster's mainstream customers at first, but it improved over time. Blockbuster filed for Chapter 11 on 23 September 2010.
Task 2: Run the Test on Your Market
Pick one market where you want to challenge a leader. Then:
- Name the incumbent and its best customers. Write down the performance measures those customers pay for.
- Write down your offer. List where it is better and where it is worse on those measures.
- Apply the sustaining test. If you are simply better for the incumbent's best customers, expect the incumbent to respond quickly and win.
- Apply the low-end test. Find the over-served customers, and check that your cost structure makes a profit at a lower price.
- Apply the new-market test. Estimate how many people go without today, or pay an expert, because of cost or complexity.
- Pick one label and write one sentence on why it fits. Then write one sentence on what would prove you wrong.
Key Takeaways
- Sustaining innovation improves products for existing best customers. Incumbents usually win these fights.
- Low-end disruption wins over-served customers with a good-enough, cheaper product backed by a business model that is profitable at low prices.
- New-market disruption competes with non-consumption by serving people who previously could not buy.
- Disruptors start out worse on mainstream measures and improve over time. Disruption is a process.
- Being successful is not the same as being disruptive. Uber grew large, but Christensen judged it mainly sustaining.
- Always test the idea against a named, dated case, and note when the case goes against the idea.