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Innovator's Dilemma

How would you beat yourself?

Mantra

Don't let success make you complacent—attack your operating model before someone else does

Perceive: What Is the Innovator's Dilemma?​

The Innovator's Dilemma describes why successful companies fail when disruptive technologies emerge. These technologies often start as inferior products serving niche markets, but improve rapidly until they displace incumbents.

The dilemma: doing what made you successful is exactly what makes you vulnerable.

Two Types of Innovation​

TypeDescriptionWho Wins
SustainingImproves existing products in ways mainstream customers valueIncumbents
DisruptiveInitially inferior but improves rapidly, eventually displacing incumbentsStartups

The Pattern of Disruption​

  1. New technology emerges (inferior, cheap, convenient)
  2. Incumbents ignore it (margins too low, customers don't want it)
  3. Technology improves while incumbents focus on high-end
  4. Eventually good enough for mainstream
  5. Incumbents can't respond (wrong cost structure, wrong culture)

Question: Why Does the Innovator's Dilemma Matter?​

danger

Your best customers and most profitable products are the source of your blindness

The Five Laws of Disruption​

  1. Companies depend on customers and investors for resources — They can't invest in markets customers don't want
  2. Small markets don't solve growth needs of large companies — Disruptive markets start too small to be interesting
  3. Markets that don't exist can't be analyzed — Traditional research fails for new categories
  4. Organization capabilities define disabilities — What you're good at limits what you can become
  5. Technology supply may not equal market demand — Features overshoot what customers actually need

Why Incumbents Fail​

It's not incompetence. It's rational behavior optimized for the wrong game:

  • Listening to best customers (who don't want disruption)
  • Investing in highest-margin products (which get disrupted)
  • Pursuing large markets (while disruption starts small)
  • Following best practices (designed for sustaining innovation)

Act: How to Apply the Innovator's Dilemma​

For Incumbents​

1. Create Independent Organizations

Spin out units to pursue disruptive technologies:

  • Separate P&L and metrics
  • Different cost structure
  • Freedom from core business processes
  • Size matched to the opportunity

2. Use Discovery-Based Planning

For disruptive technologies, traditional planning fails. Instead:

  • Assume your initial strategy is wrong
  • Design plans to test critical assumptions
  • Iterate based on learning, not forecasts

3. Appraise Capabilities vs. Opportunity

Ask honestly:

  • Do our processes fit this opportunity?
  • Do our values allow us to prioritize this?
  • What would we need to change?

4. Acquire or Found Subsidiaries

When internal development fails:

  • Acquire disruptive threats early
  • Found independent subsidiaries
  • Equip them with appropriate resources

For Disruptors​

1. Target Incumbent Blind Spots

Offer a cheaper, more convenient (but inferior) product:

  • Let incumbents "flee" upmarket
  • Find customers incumbents don't value
  • Compete on dimensions incumbents ignore

2. Understand the Job to be Done

Focus on the market, not the technology:

  • What job are customers hiring your product for?
  • What constraints prevent current solutions?
  • Where is adoption friction lowest?

3. Be Patient for Growth, Impatient for Profit

  • Disruptive markets start small but grow exponentially
  • Don't scale before you have a profitable model
  • Let incumbents cede the low end

Self-Assessment​

QuestionScore
Do we actively cannibalize our own products??/5
Do we have autonomous teams exploring disruption??/5
Can we compete profitably at lower price points??/5
Do we track non-customers as carefully as customers??/5

Context​