How do you disrupt your industry's incumbent?
You know, those competitors that are so large, so well-known, so well-funded, and so dominant that they seem impossible to beat.
It's not easy, but it IS possible.
How?
1. Recognize that no company is impossible to beat.
Xerox, Kodak, and Yahoo! are just three examples of companies that once held dominant positions in their respective spaces but now serve as cautionary tales.
Not so long ago, we all thought Google (and its dominance in search) was unstoppable. Then companies like OpenAI and Perplexity came along, using AI to give us more robust answers to our questions and changing what we expect from a search engine.
The Fortune 500 list today looks very different than the Fortune 500 list from 50 years ago. There's a very good reason for that: no company stays on top forever.
2. Understand that you won't beat most established, more experienced competitors by trying to beat them in the areas where they excel.
Is it possible to beat chess grandmaster Magnus Carlsen?
Of course!
But your odds are astronomically better if you're not trying to beat him at chess.
If you're trying to beat an established bank, for example, you won't win by trying to outspend them: they have much greater access to capital than you do.
But if you recognize there are some things bank customers care about that banks don't do particularly well - flexibility with terms, customer service, and treating people like they're more than just account numbers are three things that come to mind - then you have the basis for a competitive advantage.
3. Exploit their weaknesses and turn them into your strengths.
People like to remember how Blockbuster was once offered the chance to buy Netflix for just $1 million... and refused.
They'll look at Netflix's current market capitalization, remember that only a single Blockbuster store exists today, and wonder how Blockbuster could make such an OBVIOUSLY bad call.
What they forget is that Blockbuster's business model revolved around their physical stores. They had significant capital tied up in real estate and leases, and spent a lot of money each week paying the workforce staffing their thousands of physical locations. And their business model worked: in its day, Blockbuster was an extremely successful company, growing from a single store in Dallas to a chain of over 9,000 locations in just two decades.
So even if they had a crystal ball that told them DVD rentals would be obsolete in the next twenty years, abandoning their current business model to aggressively pursue Netflix's DVD-by-mail strategy would have been extremely difficult: risky at best, disastrous at worst.*
At the time, Blockbuster's strength was its thousands of locations across the United States.
Netflix's advantage is that it didn't have any of that infrastructure. It didn't try to "out store" Blockbuster, it built its business on a more flexible model that didn't require those 9,000 stores to succeed, turning Blockbuster's greatest strength into its biggest liability.
Which is to say, when your competitor dominates your industry, you don't win by playing the same way they do: you win by changing the rules, leaving the incumbent confused, disoriented, and unable to react.
Virgin founder Richard Branson used this strategy to become a billionaire. He looked at industries known for atrocious customer service - notably, banks and airlines - and made a conscious effort to address the most common consumer pain points.
Branson's strategy is still relevant today, but it takes patience and a strategic commitment to prioritize long-term disruption over short-term gains.
Every successful company was once a disruptor.
Every. Single. One.
But as soon as those companies stop acting like disruptors and start acting like incumbents, it opens the door for faster, leaner, more consumer-focused companies to displace them.
That's great news if you're a company looking to disrupt an established industry player.
And bad news if you're a currently successful company that isn't interested in continually evolving your business.
* Sure, they could have acquired Netflix and operated the company as a separate entity, allowing it to flourish independently with the financial and operational backing of what was, at the time, a company with significant clout in the entertainment industry. But that's not what tends to happen with acquisitions. More often than not, the acquired company gets absorbed into the parent and then immediately suffocated with policies and procedures designed for stability, not disruption. It's very likely that if Blockbuster had acquired Netflix, none of us would have Netflix subscriptions today.
Comments