Innovation has many sources – prominently among them are research funded by governments and universities, as well as research and development (R&D) initiatives by large corporations. However, innovation that changes the way people live – through a major breakthrough in products, services or business models – often requires disruptive, transformative entrepreneurs.1
I would challenge anyone to name a more universal law in business than the statement that big business never radically disrupts or innovates in their core business.
Disruptive, transformative innovation is by definition unchartered. Entrepreneurs who propagate revolutionary ideas have the power to reshape markets. This can unseat incumbents and have a short-term, negative impact on jobs. It is no surprise that policy-makers and regulators in many cases have an uneasy relationship with this kind of innovation.
As representatives of broad-based societies, governments frequently find themselves in the middle of the natural conflict between the disruptor and the disrupted. Both parties may appeal to a government representative’s arbitration for a self-serving market outcome. A few recent examples of disruptors on governments’ radar screens include Airbnb, Uber, Aereo and Tesla Motors. Government representatives are finding that neutral positions are rarely an option. Choices must be made, and elected officials often lack a coherent framework for mediation between disruptors and the disrupted.
This report is part of a larger effort by the World Economic Forum to understand entrepreneurship and how policy-makers can best support it. The report focuses on disruptive entrepreneurs, due to their outsized impact on industry transformation and the current scarcity of an effective policy discourse regarding disruptive innovation.2
The interviews in this report present the entrepreneurs’ side of the story, providing context for their activity and potential value creation. Entrepreneurs and their investors were interviewed to gain insights about the environment for disruptive entrepreneurs, the problems they are solving, their interactions with better-resourced market incumbents and the regulatory challenges they face. While the report provides the entrepreneur’s perspective, many governments recognize the issues covered and are acting accordingly.
There are two ways to predict the future. One is to extrapolate the past, the other is to invent the future that you want. The future that you want is usually non-linear, different and full of possibilities – not an extrapolation of the past.
The entrepreneurs interviewed were chosen for their breadth of activity, from early-stage to more established enterprises, across industry sectors and across a spectrum of the ambition to disrupt. Interviews with investors give a higher-level perspective of patterns that exist across the range of disruptive entrepreneurs.
Section 1 of the report analyses disruptive entrepreneurship at the highest level, on why and how transformative start-ups matter to society and how they can be supported, with perspectives provided by:
- Steve Jurvetson, DFJ
- Bill Gurley, Benchmark
- Andras Forgacs, Modern Meadow
In Section 2, 14 leaders from 10 potentially disruptive entrepreneurs across several sectors give a bottom-up view on how they are transforming (or creating) an industry, and the impact they expect to make on society:
- James Beshara and Khaled Hussein, Tilt
- Daphne Koller, Coursera
- Jonathan Downey and Buddy Michini, Airware
- Ijad Madisch, ResearchGate
- Peter Weijmarshausen, Shapeways
- Zac Bookman and Cameron Galbraith, OpenGov
- Shannon Spanhake, Planet Labs
- Olaf Carlson-Wee, Coinbase
- Linden Tibbets and Alexander Tibbets, IFTTT
- Brett Worthington, Wink
The focus of Section 3 is on the perspective for policy-makers. Four investors and a philanthropist provide views on disruptive innovation that might be particularly useful to regulators and governments:
- Vinod Khosla, Khosla Ventures
- Simon Rothman, Greylock Partners
- Brad Burnham, Union Square Ventures
- Lindy Fishburne, Breakout Labs
- Giuseppe Zocco, Index Ventures
Combined, the interviews paint a rich and varied picture of the transformative force that disruptive entrepreneurs exert in society. While many individuals in this report come from the United States (where the most outspoken thinkers on disruption are located), others come from elsewhere, showing that Silicon Valley does not have a monopoly on disruption. Nevertheless, the themes discussed apply globally, regardless of the individuals’ origin. The insights mark the starting point for further work that the Forum will undertake to advance the discourse on how societies can best harness the power and benefits of disruptive innovation.
Key Themes from the Interviews
While the individual perspectives expressed are rich and varied, some common themes emerge:
- Disruptive innovation is accelerating, driven by technology and network effects. The combination of increasingly powerful technology and increasingly connected minds stimulates innovation. While some industries are still shielded from this by high levels of inertia or regulation, the trend is inevitable.
- Generally, industries are democratized as barriers to entry come down. The “sharing economy” is a widely published example, but the trend extends far beyond the usually cited sectors.
- The relationship between business and consumers also changes. Consumers’ relative power to demand tailored products increases as scale in manufacturing (or services) becomes less important.
- A similar trend exists in the labour market. Jobs can become more “atomized” to provide the exact missing component of a highly fragmented supply chain (e.g. running chores on TaskRabbit during the day, renting out a spare room on Airbnb at night). This has both positive and negative implications, depending on the segment of the labour market.
- Disruptive innovation is often linked to an enabling platform, whether technological, a new business model or a reconfigured value chain. Today’s innovators are building the platforms that tomorrow’s innovators will elaborate on, in a constantly evolving and accelerating process.
- Ubiquitous data will lead to business models that cannot be imagined today, and to debates about which levels of privacy are acceptable to societies that go far beyond today’s frameworks.
- The relationship between regulators and disruptors is nuanced, as is the one between disruptors and incumbents. Synergistic models often offer the best promise; this is not a fight between good and evil. In education, online courses can complement the models of established universities. Innovative technology can increase the effectiveness and value of elected governments, rather than disintermediate them. Regulators can legitimize disruptive business models and create the necessary trust, but they can also stifle them.
Government policy-makers and regulators, therefore, should care deeply about disruption. Most of today’s largest technology-driven companies were founded less than 20 years ago. The largest companies 20 years from now have probably not yet been conceived, and their founders could well be among today’s teenagers. To navigate this uncertain future, policy-makers will need to do more than extrapolate from the past.
Considerations for Policy-Makers
The interviews point to important conclusions for crafting policy and regulation. First, while policy-makers and regulators understand that innovation is an important factor in economic growth and prosperity, the distinction between disruptive and incremental innovation3 is not frequently discussed. Because of their background and frameworks, regulators are usually comfortable with incremental innovation. However, revolutionary market changes often come from innovation that is disruptive. For an economy to thrive, both types of innovation are needed, so regulatory decisions should try to minimize conflict between different types of innovators and maximize potential synergies. For example, a regulator could frame the interaction between established hotel operators and Airbnb as a binary “either-or” (by either allowing or banning the innovator) or a gradual scale (by considering the demand for accommodation that both incumbents and the innovator can fulfil).
Second, while disruptive innovations often leverage new technologies, much more is required to develop a product of value and commercialize it to customers. Successful entrepreneurs develop business models that can compete with (or complement) incumbent products, and they also identify strategies that can gain market footholds and achieve scale from there. The innovation narrative, by policy-makers and others, is often too narrowly concerned with technology and misses this broader and ultimately more important aspect of disruptive innovation. It thereby ignores important design principles for a system that facilitates disruptive entrepreneurs.
Start-ups do a good job of looking at the building blocks and assimilating them into the tools we have today, and assembling them without the legacy of needing to incorporate existing inefficient tools just because there are arbitrary reasons to include them. A start-up is able to look at the tools at hand and assemble them with a really fresh perspective.
Policy-makers and regulators must be aware of this background to make the correct decisions in the trade-off between disruptors and the disrupted. Three principles might help them find a balance between fostering disruption and mitigating the risks.
1. Keep with the times
New technologies allow for “tech-enabled” approaches to policy-making and regulation. By using big data, for example, policy-makers can stop regulating market entrance through certification, and can instead regulate behaviour directly and immediately. This approach would be more transparent for new players and would lead to better outcomes for consumers. Brad Burnham of Union Square Ventures, one of Twitter’s early investors, calls this “Regulation 2.0”.
2. Keep revisiting regulation
Existing regulation is often a product of the status quo and can unintentionally create barriers to entry for new technologies and business models. To keep a level playing field for both start-ups and incumbents, regulation must be continuously revisited, examined and updated. Sunset clauses for new regulation might help achieve this.
3. Focus on the big picture
When dealing with trade-offs, such as long-term versus short-term effects of new technologies and their net impact on jobs, regulators must take a full range of metrics into account. They must look beyond immediate employment statistics and evaluate how start-ups and emerging technologies affect industries, markets and society as a whole. The long-term effects on economic growth and societal progress should be an explicit part of all regulatory deliberations.
The Role of Multistakeholder Platforms
Disruption exists at the intersection of business, government and society. No single actor has the tools or knowledge to balance the trade-offs inherent in disruption. More than in the past, a constructive dialogue between the actors will be crucial to making effective choices that further societal prosperity and well-being. Industries are being transformed at an ever-accelerating pace, and today’s disruptors are tomorrow’s incumbents in increasingly shorter time frames. Platforms for monitoring and reflecting on such progress, and having the correct debates to prevent “runaway mutation” of destabilizing business models and systems (as seen in the recent financial crisis), are more important than ever.
The World Economic Forum aims to provide such a platform and play a critical role in bringing together key actors to develop an agenda that leverages the power of disruption to improve the state of the world. In this spirit, the Forum invites feedback on this report and its ideas to help further the most effective research agenda in disruptive and transformative entrepreneurship.