They’re Moving Fast and Breaking Things
Travis Kalanick calls himself a freedom fighter. He roams the world in search of evil and works tirelessly to vanquish his foes. Strong-willed and self-assured, he might as well be a superhero.
For five years he has battled the notoriously insular taxi industry, vowing to bring quicker, more reliable car service to a populace hungry for change. By connecting people in need of a ride with enterprising car owners via his Uber app, he’s built a global transportation network valued at $41 billion. In his spare time, he reportedly plays Wii Tennis well enough to rank No. 2 on the planet.
In person, Kalanick can be prickly and arrogant, but when he cries out for help in challenging the regulations that govern the taxi and limousine business, customers come rushing to his defense, bombarding statehouses and city halls with angry emails and tweets. Given his skill at brinksmanship, it’s easy to see why the Motion Picture Association of America, the Recording Industry Association of America and the National Music Publishers Association once performed a pre-emptive strike on a previous business venture by hitting him with a $250 billion lawsuit. It may also explain why he’s become the spokesman for a generation of brash young entrepreneurs determined to topple the status quo.
The Path of Destruction
Call them the Disruptors, the brains behind companies like Airbnb, Tesla and Snapchat. They subscribe to Steve Jobs’ Think Different manifesto and live by Mark Zuckerberg’s original creed: Move Fast and Break Things. They view commerce as a force for good—a way to help people pay the mortgage, expand their educations, free themselves from the tyranny of dead-end jobs, fiscal woes, ho-hum lives. Elizabeth Holmes, the 31-year-old CEO of innovative health tech company Theranos, told the audience at a recent business conference: “There’s got to be a mission, got to be a reason that you’re doing it; that no matter how hard it is, you want to keep doing it over and over and over again.… I really believe that building a business is a vehicle for making a change in the world.”
And as Kalanick will attest, being a force for change can make you the target of hostility in certain establishment circles. On May 31, 2010, the bristly haired CEO unveiled his car service in San Francisco with co-founder Garrett Camp. Less than five months later, he was hit with his first cease-and-desist letter. That process would repeat itself in city after city and town after town as Uber spread its reach—New Orleans, Portland, Pittsburgh, Green Bay, Boise, Los Angeles, Charleston, Memphis, Washington, D.C…. In Paris, angry cab drivers slashed tires and smashed windshields on Uber vehicles.
Kalanick seemed to revel in his newfound notoriety, responding with a strategy he calls “principled confrontation.” Instead of retreating, he advanced, pressing down hard on the gas pedal while challenging the taxi industry and its allies to explain their hostile reaction to Uber’s expansion, all the while earning converts with his popular service. But when Uber unleashed its strong-arm tactics on its chief rival, Lyft—not to mention on Uber’s own drivers—Kalanick’s revolution lost its populist touch. Before long, venture capitalist Fred Wilson was questioning whether the CEO’s “ruthless” style could last, and libertarian investor Peter Thiel was calling Uber the “most ethically challenged company in Silicon Valley.”
For others, it was yet another sign that the business world’s misguided infatuation with disruption had gotten out of hand, had reduced what had been a fairly nuanced concept to some sort of do-or-die rallying cry for the resident Che Guevara of every Starbucks in New York and California.
“In the picture painted by the media, disruptive innovation decimates established businesses as if they were razed by a nuclear bomb,” says Nathan Furr, co-author of The Innovator’s Method. “That’s not entirely true. It does transform the business landscape, but the old technology or service usually hangs around for years, sometimes decades.”
“Disruption sounds like destruction,” adds Innosight consultant Scott Anthony. “But it almost always results in a market getting bigger, not smaller.” Case in point: the PC revolution, which shifted the balance of computing power from office mainframes to desktops in the everyday home.
Given the widespread confusion regarding the principles of disruption first outlined by Harvard Business School professor Clayton Christensen in 1995 and the mounting backlash to the theory’s heretics, Marc Andreessen, famed founder of Netscape, turned to Twitter not long ago to defend it. “Disruptive innovation shrinks inequality by bringing to lower-income consumers things that only richer consumers had access to before,” he wrote. “To be FOR disruption is to be FOR consumer choice, FOR more people being served, and FOR shrinking inequality.” To be against it, Andreessen continued, is to reject all of those things.
So how does disruption really work? Let’s see.
Beware the Business Model
While the upheaval invariably begins with an advance in technology, the tech itself need not be groundbreaking. Yes, Apple’s first iPhone represented a dazzling paradigm shift. But in the case of Uber, we’re talking about a GPS-powered phone app, not magic. For Airbnb, a simple website for travelers to reserve lodging inside people’s homes opened the door to a $20 billion business.
The key—as Andreessen pointed out—is to take a product or service once reserved for a privileged few and make it easy to afford and simple to use. For Kalanick and Airbnb CEO Brian Chesky, that was relatively easy to pull off. For their peers in the taxi and hotel industries, however, it’s a far more difficult task.
Before outlining his theory of creative disruption in The Innovator’s Dilemma, Christensen studied the disk drive industry up close, searching for clues to why great companies like IBM fall prey to agile upstarts like Commodore and Tandy. What he discovered was surprising: IBM’s leaders didn’t miss out on the PC revolution because they were asleep at the wheel. They missed out because they were practicing wise management: hustling to improve their product lines, dutifully responding to the needs of their best customers, striving to protect their profit margins. If their clients had expressed interest in a cheap desktop computer, they could have whipped one up. But IBM’s patrons didn’t want personal computers. They wanted upgrades on their office mainframes. And there was a very lucrative trade in giving them what they requested. By comparison, the early PC market was paltry.
And therein lies Christensen’s dilemma: It’s not the new technology so much as the new business model that trips up the old guard. Once the tech becomes inexpensive and reliable, it explodes into the mainstream market, and what can you do? Uber owns no cars. Airbnb has no rooms. The two companies simply connect consumers with enterprising citizens who wish to share their goods—thus ducking maintenance costs and many regulatory hurdles. Meanwhile San Francisco cab drivers pay $250,000 just to purchase a medallion that entitles them to do their jobs. In New York City, that licensing fee can easily stretch to $1 million.
Business models are like crack cocaine, Furr says. Companies are hard-pressed to abandon them. That’s because it takes a mighty leap of faith—not to mention a whole new set of skills—to set off down a fresh path. Look what happened when Netflix tried to back-burner its DVD service in favor of video streaming. The company’s loyal customer base was outraged. It wasn’t ready for the change.
To be fair, it’s hard to spot the next big thing in dawn’s early light. “When you first see it, when you don’t have the benefit of the disruptive pattern, it’s really easy to dismiss it as silly,” Anthony says.
That s why Fred Wilson of Union Square Ventures keeps a cereal box in his conference room. Among the initial investors approached by Airbnb, he met with Chesky and co-founder Joe Gebbia back when they were keeping their venture afloat with money raised by selling boxes of Obama O’s and Cap’n McCains to political junkies. Despite the duo’s resourcefulness, Wilson couldn’t make the leap from the three air mattresses on the floor of their San Francisco apartment to a customer base in the millions, as Airbnb now enjoys.
He’s not the only venture capitalist who missed out: Chris Sacca hit on Twitter, Uber, Instagram and Kickstarter, but passed on the duo’s pitch, too. One VC literally left the room mid-talk—just got up and walked out without saying a word. Another asked: “How many hippies are there?”
So how does one identify an opportunity for disruption? For Chesky, it was a matter of need. He and Gebbia had to raise rent money: Leasing out the floor space in their home became an aha moment. Kalanick and Camp were tired of waiting on rides from car service companies.
For Theranos’s Holmes, it was more of a roundabout approach. Her father worked in disaster relief, bringing aid to families in need. As a high school student, she talked her way into Mandarin classes at Stanford, which led to a summer job in a lab at Singapore’s Genome Institute. And that, in turn, led her to novel ideas about how to improve the diagnosis process, which inspired her to drop out of Stanford at age 19 and pour the tuition money her parents had saved into a startup.
As her Stanford mentor, Channing Robertson, points out, Holmes was the one to connect the dots between the various monitoring and communications technologies used in Theranos’s blood test device.
It’s worth noting that the CEO has had a lifelong aversion to needles. So Theranos has created a way to perform a battery of medical tests with a single drop of blood drawn from a painless pinprick. And now it’s working to make those tests—everything from a $2.99 cholesterol screen to a $35.46 Epstein-Barr antibody panel—accessible to the public via retail clinics in Walgreens stores.
Holmes says that in 10 years’ time, her tests could provide hundreds of billions of dollars in savings for the Medicare and Medicaid systems.
That’s the allure of disruptive change. Instead of quietly upgrading the mousetrap, you come up with a bold new design, one that not only makes money but also leaves a true impact on the world.
“You can always see the disruption in hindsight,” Anthony says. “But being the one to create it still requires a lot of artistry.”
In fact, Chesky—the son of two social workers—was actually trained as an artist. He studied industrial design at the Rhode Island School of Design (RISD). Inspired by Walt Disney, Chesky even used storyboards to map out Airbnb’s user experience. At first, his unconventional route to entrepreneurship was a liability with VCs. “They didn’t think a designer could build and run a company,” Chesky told the architecture and design magazine Dezeen in 2014. “They were straight-up about it.”
Although Chesky’s background might seem a bit unconventional for entrepreneurship, it’s actually a vital piece of his disruptive DNA. He shares with SUCCESS this story from his time at RISD: “I had a professor who told me, ’If you can imagine it, you can create it.’ Over the past 15 years, I haven’t been able to quite defy that principle, especially with Airbnb. It’s why I tell everyone at the company to not edit their imaginations. Too often we start with what is possible, but if you start there, you limit yourself and the possibilities of what you can create.”
Today the kid from RISD is the one holding the keys to over 1 million Airbnb accommodation listings—including more than 600 real-life castles. Castles.
Say what you will about hippies—it’s good to be the king. Among other things, that means refusing to bend the knee, to sell out to the very institutions one hopes to disrupt. A hallmark of the most successful disruptors is a rugged determination to see their projects reach full potential. Snapchat and its 25-year-old co-founder Evan Spiegel, for instance, raised more than a few eyebrows in shrugging off a $3 billion proposal from Facebook last year. But it worked out OK.
The photo-sharing app now boasts a market cap of perhaps $20 billion and more than 100 million daily users.
Be a Lover, Not a Fighter
Despite his supersonic flight to success, the $20 billion valuation now attributed to Airbnb, Chesky’s not a big fan of disruption. “When was the last time you were disrupted and that was a good thing?” he asked those assembled at the Aspen Ideas Festival in 2014. “In Silicon Valley, it’s got a positive association. To be disruptive means you’re changing the world. Outside of Silicon Valley, to be disruptive means you’re changing the way I live my life, and I actually kind of like my life.”
In the end, he offers no apologies for the upheaval he wrought, the new sharing economy he helped usher into being, but he also makes it clear that Airbnb isn’t looking to destroy the Hiltons and Marriotts of the world.
“I don’t like the term disruption because it implies that for us to win, hotels have to lose,” he says. “Airbnb is a category creator, offering something entirely different than hotels. The majority of Airbnb guests are staying in neighborhoods that don’t normally see tourists, going to local shops, and staying longer than the average tourist, This isn’t a zero-sum game.”
Chesky’s deliberate attempt to distance himself from cutthroat tactics is one more indication that the idea of disruption as a destructive force is undergoing a long-overdue renovation. “I want to challenge the status quo,” he says. “But in a way that’s constructive.”
Recently Christensen’s Harvard colleague Jill Lepore sparked a heated debate on the merits of this celebrated theory with a New Yorker piece titled, “The Disruption Machine: What the Gospel of Innovation Gets Wrong.” After pointing out the contradictions in Christensen’s handpicked case studies, she concluded that the concept “makes a very poor prophet.”
“Disruptive innovation can reliably be seen only after the fact.” she wrote.
Does this mean the idea itself has been debunked? No, just that people are starting to question its widespread adoption.
“Most companies would be better served to focus on less risky types of innovation,” says Wharton Business School professor David Robertson, an expert on product development. “People talk about how we should fund the rebels and arm the cannibals. A little of that is OK, but let’s also figure out how we can innovate around that core business.”
He points to toymaker Lego and its attempts to go digital. “In the late ’90s, Lego thought its brick was passé, and kids were moving to Xbox, PlayStation and Nintendo,” he says. “Moving away from the brick almost bankrupted the company. They thought that offering a box of bricks was not sufficient to compete in the 2000s and beyond. And they were right. But that doesn’t mean the brick itself wasn’t necessary. Lego is such a strong brand, if it moved away from the brick, it moved away from what people wanted from the company—its purpose in life.”
In truth it’s a bit hard to find an example of a company that was put out of business by technical innovation alone. Blockbuster, Borders and Radio Shack all made some ill-timed business miscalculations. Meanwhile the U.S. Postal Service lives on.
That’s no reason to dismiss the challenge from an Uber or an Airbnb. “If your response as a market leader is, ‘I’m going to wish them away, will them away or hope they get legislated away,’ then you’re in a lot of trouble,” Anthony says. “We’ve always been of the mindset that the best way for an incumbent to respond is to figure out how they’re going to be the driver as opposed to the roadkill.”
One option, Furr adds, is to experiment with a hybrid strategy. Microsoft, for instance, unveiled the Surface—part laptop, part tablet—for the consumer not yet ready to embrace the iPad in full. Toyota’s part-electric-powered Prius is another example.
Regardless, it doesn’t pay to think of disruption as a weapon of mass destruction. Even Kalanick now concedes that. Uber’s meteoric rise led to significant growing pains, he wrote in response to the criticism he fielded in the media last winter. “The events of the recent weeks have shown us that we also need to invest in internal growth and change. Acknowledging mistakes and learning from them are the first steps.”
In the long run, Robertson says, you’re better off heeding the advice of Sherwin-Williams Senior Vice President Bob Wells, who likes to think of business innovation more like love than war. Instead of focusing too much on the competition, think of ways to strengthen your relationship with consumers. “Think about innovation,” Robertson explains, “as dating a customer, making his or her life easier—then you end up with a more productive type of innovation.”
Do that and you might just get lucky.