Disruptive innovation is not about the next new product as much as it is about transforming an existing market from being expensive and complex to affordable and accessible. A disruptive innovation is more about targeting a high profit/low margin business and creating a high volume/low margin alternative.
For example, it is very expensive to take raw materials and create steel. Moreover, to create a primary steel manufacturing production plant, like the ones developed by Andrew Carnegie, is very expensive. Mini-mills, by contrast, use steel scraps and recycled steel along with a much the simpler technology of an arc furnace to melt the old steel into new products. Originally, mini-mills produced only re-bar used to reinforce concrete, but once they were established, they moved up in the market to create pipes, wire, rolled steel, etc. They then began to challenge primary steel producers.
Amazon was a disruptive innovation. It started out as an online books store to compete with brick and mortar stores like Barnes & Noble. Once it dominated the book market, it added CD’s, movies, and finally everything else.
Your best strategy is to build a company around a disruptive innovation in a small niche market with little competition and then dominate it. With your monopoly power, you can capture a premium value and use the margin to expand into other areas.
How can you use the concept of disruptive innovation to dominate your market?
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