People are now starting to understand how innovation works, and how and why new companies or products succeed. In his previous book, "The Innovator's Dilemma", Clayton M. Christensen analyzed companies' and products' successes in terms of disruptive and sustainable innovations. His just published article takes off from that point and provides guidance for how to use disruption and plan a disruptive strategy for attacking a market. Very interesting and well worth reading.

Previously I've attempted a description of the success of an Open Source product, Ant, in terms of the Innovator's Dilemma. I think the fit is very good, provided you recognize how the rewards and costs should be measured in that environment. If you are interested it can be found at Ant as an Example of the Innovator's Dilemma. Now I'll have to go back and see how Ant matches against the guidelines in the article.

Reading "The Innovator's Dilemma" before the article is not necessary but does provide some interesting illumination and background for some of the points made. The second paragraph of the section titled Take Root in Disruption in the article provides a quick summary of the basic findings of "The Innovator's Dilemma".

My brief summary, but read the article.

A new firm should use a disruptive strategy when entering a market, these succeed in 33% of cases. Using a sustaining strategy only succeeds in 6% of cases. Four basic groupings of factors affect the probability of success, (1) taking root in disruption, (2) the necessary scope to succeed, (3) leveraging the right capabilities and (4) disrupting competitors, not customers.

Take root in disruption

When newcomers attack customers and markets attractive to the leaders, the leaders overwhelm them. I think an example from the software space would be to try and attack Microsoft with a desktop OS, or less extremely to try and take over the J2EE app server market from BEA or IBM.

The article provides two two tests for whether a market can be disrupted. This is not mentioned in "The Innovator's Dilemma", which presents explanations of historical situations and doesn't spend much time trying to present rules for harnessing disruption, and is very interesting.

One. Does the innovation enable less-skilled or less-wealthy customers to do for themselves things that only the wealthy or skilled intermediaries could previously do?

Two. Does the innovation target customers at the low end of a market who don't need all the functionality of current products? And does the business model enable the disruptive innovator to earn attractive returns at discount prices unattractive to the incumbents?

Both of these seem to indicate that the standard VC mandated strategy of "go for the Fortune 500" may not always be the best approach.

Pick the scope needed to succeed

Clayton divides markets into two segments based on whether the functionality of existing products in the market is currently good enough for customers' needs. In markets where product functionality is not yet good enough, companies must compete by making better products. When the functionality of products has overshot what mainstream customers can use, however, companies must compete through improvements in speed to market, simplicity and convenience, and the ability to customize products to the needs of customers in ever smaller market niches.

Leverage the Right Capabilities

• Resources to succeed
• Processes to facilitate success
• Align organizational values to prioritize the innovation

Avoid two common misconceptions in managing money. Firstly, deep pockets are not an advantage, too much cash allows you to follow a flawed strategy for too long. Perhaps we saw some of this during the "Great Internet Boom". Secondly, you should be patient about the new venture's size but impatient for profits. He believes that the discipline of having to quickly turn a profit helps the company discover the successful strategy. Again this is unlikely to lead to the explosive growth that the VC community requires. One of the problems the Clayton mentions at the start of the article is that VC's seem to regard investing in startups as more of a gamble that he believes it is. Because of this they demand very high growth rates, which force companies to bet on a strategy too early, before they understand the opportunities. It also pushes them into the existing markets owned by larger companies, who then crush the upstarts.

Failure is often the result of using existing but inappropriate processes for market research, strategic planning and budgeting. I would imagine this applies more to existing large companies trying to implement a disruptive strategy than to startup companies. However, even in startups the implementation of processes learnt by the managers when working at larger companies is probably a problem. Sony is presented as an example of this, initial disruptive innovation being replaced by sustaining innovation when the founder's personal instincts were replaced by standard market research.

Values are the most rigid of the three items. Everyone has to internalize and act on the values that make the company successful. If these values are directed towards sustaining success within the existing cost structure then they will not support disruptive innovations. This is discussed more in "The Innovators Dilemma" where he makes the point that the most successful companies in existing markets are those with their values most closely aligned with their existing customers. Unfortunately this alignment, responsible for the companies success, prevents them from being successful with disruptive strategies that have a different value structure.

Disrupt Competitors, Not Customers

If an innovation helps customers do things they are already trying to do more simply and conveniently, it has a higher probability of success. Attempting to make it easier for customers to do something they aren't trying to do will fail. I think the important word here is trying, just because no market currently exists doesn't meant there isn't a need, it's probably being satisfied, though poorly, some other way.