Editor’s Note: This article was adapted from Jim McKelvey’s new book, The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time (Portfolio, 2020).
Copying is the strongest force in the universe. We are so predisposed to copy that it infiltrates our most innovative institutions, even within that self-proclaimed hub of innovative thinking, Silicon Valley. Of course, we don’t call ourselves copycats in the Valley, we call ourselves disrupters.
How could I make the accusation that people committed to disruption, to the very destruction of a system, are really copying? It is a matter of focus. If your goal is to disrupt something, you must at least know what you are disrupting. But simply looking at the industry you want to disrupt will cause you to emulate it in countless ways. Ironically, to focus on disruption is to invite copying to dominate your thoughts. The ball goes where you look.
Disruption has become nearly as threadbare a concept as entrepreneurship. The two words could be roommates at rehab. When Clayton Christensen first popularized the disruption concept back in 1997, the idea was novel and interesting. But what Christensen originally called disruptive innovation has now been shortened to just disruption and the oversimplification is profound.
Two decades later, disruption has become the high-fructose corn syrup of business, an overused ingredient sprayed on pitches and injected into keynotes in the hope of disguising the familiar taste of conformity. Silicon Valley now has an annual conference called simply “Disrupt.” I hear pitches every month from start-ups wishing to destroy the economics of some existing industry. Hidden — frequently well hidden — inside these pitches is the implication that the invisible hand of the economy will reallocate resources so that we will all be better off and enjoy a more efficient world after the carnage. It doesn’t always happen that way.
Craigslist certainly disrupted classified advertising, one of the main revenue sources for newspapers. The papers responded by reducing their news-gathering operations — firing reporters who collectively watched all our backs. How many more scandals would have been exposed if those now-unemployed reporters were still on the beat? We can never know. Disruption is not always positive.
But a more dangerous aspect of disruption is its retrograde focus. Just as having the lowest price means focusing on competitors instead of customers, venerating disruption means focusing on old systems that somehow need to be dismantled or destroyed. Indeed, some existing systems deserve the wrecking ball, but making destruction of the incumbents the focus of entrepreneurship distracts attention from the creative potential of innovation. There is another path.
As I studied the great entrepreneurs of history, I expected to find a large swath of disruption and destruction. I found instead something far more positive. The vast majority of entrepreneurial ventures did not steal their customers from any established business, but rather brought new people into a market. Optimism, innovation, and inclusion are the buzzwords of those who expand markets. Disruption deserves to be disrupted.
When Southwest was beginning, the prevailing “wisdom” was that only the rich wanted to fly places. Of course, at the time, only the rich could fly places, but that doesn’t mean that regular people wanted to stay on the ground. The bigger question for T-shirt-clad disrupters is this: Did Southwest’s success in welcoming new people into the skies disrupt the other carriers?
With the possible exception of the former Communist bloc, no market has seen as much disruption as the airlines. There have been roughly 200 airline bankruptcies in the United States since Southwest began, but did Southwest cause this disruption? Interestingly, it may be the opposite. The success of Southwest may have saved some of the other airlines.
In my visit with Herb Kelleher, he proudly noted that Southwest didn’t drive other airlines out of business; instead, it increased the total number of travelers. “When we went into the Dallas–Houston market in ’71 it was the 34-largest market in the United States. We were there one year, and it grew to be the fifth largest. So in other words, we were just taking all of these people that had never flown and putting them on airplanes for the first time. But the remarkable thing is that all the other carriers increased their traffic on that route as well. We weren’t taking business from anyone, we were growing the market.” And the effect was not just in the Dallas–Houston market. Herb told me, “We come into new cities, and traffic increases by 272 percent in the first year.”
But if Southwest was so good for air travel, why did TWA, Pan Am, Braniff, United, Continental, Northwest, US Airways, and 200 other U.S. carriers plummet into bankruptcy? The best explanation is not Southwest, but deregulation. When the government deregulated air travel in 1978, the highfliers stopped faster than a tailgating motorcyclist.
In other words, it was not Southwest’s entry into the market that destroyed the other airlines, it was the chaos of removing 40 years’ worth of government protection from the market. This explains why international carriers like Pan Am that never directly competed with Southwest were permanently grounded.
Did IKEA disrupt the furniture market? Again the data say otherwise. Fortunately, in 2015 IKEA opened its first store in South Korea, which provides an excellent test case. When IKEA opened its first store there, the two local South Korean furniture makers Hanssem and Iloom both saw increases in their sales, some as high as 10 percent. In fact, the entire South Korean furniture market, which had been flat for two decades, saw an unprecedented 7 percent growth the year IKEA arrived.
Was there disruption? Certainly a lot of Korean furniture companies have disappeared; nearly half ceased operations between 2011 and 2016. But this downfall began four years before IKEA entered the market, so it’s hard to attribute all change to the Swedish giant.
One of history’s unquestionable disrupters is the Bank of Italy. What we think of today as banking was largely invented by Bank of Italy founder A. P. Giannini and his team. Their model so dominated the world of banking that eventually all the other banks copied it. This transformation took decades, and it is fair to assert that the old banking model of serving only a select elite indeed has mostly ended. But the individual banks themselves are still there. The Bank of New York, Chase, Citibank, Citizens, Fifth Third, Goldman Sachs, Hancock, Lazard, M& T, Mellon, Northern Trust, Oppenheimer, PNC, Regions, and Wells Fargo have all existed for over a century.
Is disruption bad? Not by itself. But disruption has also never been the focus of good entrepreneurs. The entrepreneurs profiled in my book, The Innovation Stack, set out to build and not to destroy. To focus on disruption is to look over one’s shoulder into the past. But if you are trying to solve a perfect problem or expand a market, shouldn’t you study that industry? No, you look at your customers, or I should say your potential customers, for they do not even know your product or service is possible.
William Gibson famously observed, “The future is already here — it’s just not evenly distributed.” Unfair as this situation sounds, Gibson’s words contain a hopeful promise: While only a few of us enjoy the latest cool thing, eventually the future will deliver it to us all. But who will make that delivery?
Entrepreneurs distribute that future. The companies they build are not disrupters, they are market expanders for those people waiting for their slice of the future.
If disruption occurs, it is merely a side effect. The focus of the entrepreneur is the people who cannot get a loan, or travel, or furnish their home, or get paid. The focus of the entrepreneur is on the horizon beyond the wall. If we glance at the system, it is neither to copy it nor to destroy it, but simply to see how much more can be done.