Section 1: How to Think about Disruption
This section discusses disruption at the highest level. Like the fable of rice grains on a chess board, disruptive innovation shows exponential growth from small beginnings. When it started up, Airbnb looked like a niche service for a niche customer that was illegal in many municipalities. Today, it is one of the Forum’s 2014 Technology Pioneers and is a movement and force for business-model innovation in the hospitality industry; and, not least, Airbnb is valued at approximately $20 billion.
This reflects the paradox of disruptive ideas; initially, they often look unimportant outside the ambitious mindset of an entrepreneur. They might even seem “crazy.”4But once they take hold, they transform industries and, in so doing, run up against incumbent interests with their own value to society, including often significant sources of employment and tax revenues.
At first glance, a start-up seems like an unlikely source of transformative innovation. Corporates, universities or government laboratories are better resourced, and have more clout and existing customers for new ideas and products. However, as Steve Jurvetson explains in this section, start-ups have an inherent advantage in going up against better-resourced competitors: less structure; fewer ties to pre-existing ideas and processes; greater speed; more flexibility; and greater responsiveness to technological, market-driven or regulatory signals from their environment. In fact, Jurvetson believes the constraints on corporates are so strong that “all meaningful change and progress comes from disruptive innovation led by entrepreneurs and new entrants”.
Two types of innovation are propagated – incremental and transformative. Incremental innovation exploits existing, proven technologies to the fullest; can be project-planned and budgeted; and is, to some extent, predictable. Large organizations with research departments and financial resources are ideally suited to drive this kind of innovation. On the other hand, transformative innovation involves greater risk, is less predictable and often requires a leap of faith, frequently at the cutting-edge of technological feasibility. According to Bill Gurley, streaming services such as Netflix or Spotify exemplify this, as they would be impossible to provide without widely available bandwidth. Absent such technological enablers, disruption would remain a pipe dream; with them, it is inevitable.
Entrepreneurs do not act in a bubble, but are part of an entrepreneurial environment. The recent Forum report Leveraging Entrepreneurial Ambition and Innovation: A Global Perspective on Entrepreneurship, Competitiveness and Development, produced in partnership with Global Entrepreneurship Monitor, showed how much entrepreneurialism differs between countries across often ill-understood dimensions of ambition, innovation and early-stage activity. Getting this mix right can make the difference between hosting entrepreneurial success stories or watching them unfold elsewhere.
The timing for new ideas to emerge has never been better. Several global trends are aligning to accelerate the pace of disruptive cycles:
- The number of potential entrepreneurs grows with every individual gaining internet access – a number estimated to increase by 3 billion in the next decade.
- The cost of starting a technology business continues to drop. Unlike a decade ago, warehouses filled with servers to start a web-enabled enterprise are no longer needed; all it takes now is an Amazon Web Services subscription.
- With more people online, the exchange of ideas will increase exponentially. Never before has everyone participated in pursuing knowledge, a possibility that now seems attainable in the not-so-distant future. The potential is astonishing: the number of disruptive ideas will increase, and they will be increasingly easier to implement. Societies need to be ready for this trend’s potential impact.