Founder's Mentality Blog
As an insurgent, you declared war on your industry on behalf of underserved or new customer segments. You were little, but you were the disrupter, ignoring industry boundaries or the rules of the game as defined by the industry incumbents. You thrived in the turbulence you created or exploited. Much of your growth came from the risks you took. You pushed your team to ignore conventional wisdom, and you argued, sometimes at the risk of strategic discipline, that your horizons were limitless.
But as you grew, you became more professional, more disciplined, more focused on your core business. You became a major player in your industry and were evaluated against industry standards. Your people started judging themselves against other incumbent competitors. (“Are we growing faster or slower than our industry peers?”) You still found ways to innovate, but within the boundaries of your industry. You might win, but largely by playing against industry rules. Gone is that idea that you are the disrupter, the challenger, the company that thrives in turbulence. Gone is the notion of being a future maker, in which you know you are the company of tomorrow that will leave the industry dinosaurs in your wake. Gone also is the growth that comes from fundamental disruption and innovation.
This, as we described in our previous blog post, is the lost engine of disruption-led growth. Fortunately, there’s a solution. You can use five radically different perspectives to identify disruptive growth options. These five lenses provide a way to bring disruptive growth back into the business.
We have found this to be extremely important to companies as they scale. As insurgents, a lot of the disruptive ideas come from founding team members, who bring extraordinary intuition to the question of how to disrupt the market. But this power to intuit is notoriously hard to scale and replicate across a broader management team and multiple products/services. The five-lenses approach offers tools and a structured way to identify more fundamentally disruptive ideas. It doesn’t replace intuition but complements it. Deploying the five lenses requires a set of specific actions:
Commit to being a future maker
The leadership team needs to commit to being a future maker by embracing disruption and turbulence. We’ve written a lot about how the loss of that commitment can erode your long-term thinking and your approach to innovation. What’s clear is that you won’t achieve disruptive growth if your organization is preoccupied with defending against the next wave of insurgents by protecting existing profit pools and current ways of working. That will only force you behind the castle walls, setting you up for a long siege and abdication of any gains in new territories. Ask yourself: How much of our time is spent fighting the future, rather than putting our energy toward creating the future for our customers?
Give your strategy process the time and space to consider fundamental disruption
You cannot consider fundamental disruption through annual budgeting. The endless negotiations around math will overwhelm the time needed to discuss fundamental change. Famously, Vodafone’s Sir Christopher Gent set aside almost a week each year for his board and management team to discuss fundamental disruption during an incredibly turbulent period for the mobile business. His Brocket Hall offsite started with a simple question: “What business are we in?” If you’re not prepared to create space to think freely and challenge the status quo, you will not be the disrupter.
Work the lenses hard to identify new avenues to growth
The next step is to get the right people in the room and really work the lenses. While you can alter them to fit your company’s unique situation, we have found that the following five lenses, each backed by dozens of company examples, tend to generate a huge number of disruptive ideas.
Leading-edge customers: This lens is all about what is happening with your customers and their changing preferences. There are two critical tools that help you here. The first is Net Promoter System® /lifetime economics—that is, the segmentation of your customers and your most important competitors by lifetime value and loyalty. This prevents “average customer” debates and forces you to really understand what is happening with the most valuable segments in the market. The second tool involves “elements of value, a new framework that is an evolution of Maslow’s “hierarchy of needs.” It breaks down very specifically what customers value in what you and your competitors offer.
These two tools help you ask a couple of critical questions: How can we redefine how customers value our products and services in a way that ensures we win with the most profitable customer segments? And how can we win with those customers at the bleeding edge—those that are signaling future behaviors, future needs and wants?
Ecosystem restructuring: This lens involves how you apply winning competitive models from other industries to change the rules of your industry. You step outside the narrow definition of your industry and look at the broader ecosystem. In a recent post on Forbes.com, I wrote about the power of “nanoeconomics”—that is, making sure that you always understand how you make money on every transaction. This lens is the opposite. Rather than think about single products, you think about dominating entire ecosystems. How can we do an Uber in the plumbing industry? How can we create an Airbnb model in the RV industry? What’s the best way to use this thinking to transform global payments? Peter Theil writes brilliantly about this notion in his book Zero to One, in which he calls on business leaders to think about how to fundamentally transform ecosystems so that you and your customers benefit from the resulting natural, positive monopolies. It’s important to be bold here. Many ideas won’t work, so you need the courage to aim high.
Leadership economics: This lens focuses on the notion of thinking beyond scale to dominate an industry profit pool. Bain research shows that, on average, the top two players in any industry capture 80% of that industry’s profits. And yet in 60% of cases, the profit pool leader isn’t the scale leader. Around 40% of the time, in other words, companies have figured out how to disrupt the industry and capture the lion’s share of profits by playing a different game than scale. How can you do the same? This leads to a whole set of disruptive ideas—such as picking off the best customers, finding new profitable channels (including going direct), seizing a control point in the industry (as De Beers did with rough diamond trading) and so forth. It also forces you to think like an insurgent—that is, you’re not benefiting from scale but trying to figure out other ways to compete. This tends to encourage thinking really big. For instance, rather than shoot for an average aspiration and underdeliver, why not shoot for something game changing, in which underdelivery might still redefine an industry? This generates dozens of new ideas.
Repeatable model/hidden assets: This lens starts with your “spiky capabilities” and repeatable model. From this, you ask two sets of questions. First, how can we apply our capabilities/hidden assets to new industries? Think of the myriad ways Disney monetizes each of its animated characters, adding new disruptive ideas each year. Second, what capability could we add that would fundamentally change our growth trajectory? Think about LEGO moving from brick systems to character-based worlds (Star Wars, Harry Potter and the like) and how that has transformed growth.
Transformative trends: This lens is a catchall, in which you look at industry-specific trends that can suggest disruptive models. There are two varieties of this. The first is to extrapolate from locked-in trends—namely, long-term demographic trends that radically change the value of consumer segments, for instance, or the impact of Moore’s Law on the economics of technology segments. The second is to think through provocative scenarios—that is, things that don’t exist yet but that could create alternative futures that you could exploit. What would the world look like with a global carbon tax? What if the average age extends to 150 years old? The power here is the idea of looking deeply at how fundamental long-term trends can create new challenges and opportunities in your industry.
Reserve creativity for building a great idea into a real business
Creating disruptive ideas demands both-brained thinking. You need to utilize both the richly creative and disciplined, analytic forces of your company. A lot of folks believe creativity starts/stops with idea generation: You come up with a brainstorm and hand off Post-it notes to whomever is expected to build it. This is wrong and leads to a lot of trash cans filled with Post-it notes.
In fact, the most creative time for disruptive ideas comes when you start to think about how to scale ideas into working businesses. We talk about this as “thinking left” and “thinking right.” If you have a great disruptive idea, thinking left is about creatively identifying first steps. What could you do tomorrow that starts you on the path? Is there a partner, a recruit, an experiment that gets the ball rolling? How do we make an offer to our people that they can’t refuse? Thinking right is about asking, OK, let’s assume we’re successful at this idea—what can we do to scale it tenfold? What second-, third- and fourth-generation moves are open to us? This is important, too, because you have a much better chance of maintaining momentum on disruptive ideas if they are huge—that is, if the size of the prize overwhelms the costs of those early days.
Sweat the operating model issues and new capabilities required to nurture disruptive ideas
The other lesson we’ve learned about disruptive ideas is that you don’t fail because of lack of ideas, you fail because you haven’t organized to exploit them. The needs of the big, fat core business dwarf the needs of the new venture. The new venture is so tiny that it is seen as a rounding error in strategy discussions and it suffers from neglect. We’ve addressed this in our discussion of Engine 1 and Engine 2. Engine 1 is your current growth engine; Engine 2 is the new growth that comes from disruptive ideas. You’ve got to decide up front how to organize to get the most of Engine 1 and Engine 2, and you’ve got to set aside money and talent to support both. Moreover, Engine 2 almost always demands new capabilities. You can get them through M&A, recruiting or by building them internally. But get them.
Bring lessons back to the core
Finally, you pursue disruptive ideas for two reasons. First, it helps you revive the engine of growth by pushing the boundaries of your business—investing not only in the core but also in the next wave of adjacent businesses. Second, the thinking that goes into disruptive ideas should also force you to challenge fundamentally your core business—and those challenges will make it stronger, nimbler and more robust against the next wave of industry insurgents.
To grow via disruptive ideas, you need to constantly challenge the fundamentals of your business and industry. You need to rediscover the disruptive, chaotic mindset of the founding team, which was willing to break every rule of the industry to serve customers and to expand across limitless horizons. Many founders intuit their way to disruptive ideas. But leaders of larger teams can benefit from a more repeatable model to generate disruptive thinking. Five lenses is such a model.
Net Promoter System® is a registered trademark of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.