Go to content

The Innovator's Dilemma looks at why established companies sometimes are able to thrive on new technological innovation in their industry and in other cases are incapable of adapting new technologies and are driven from the market by startups. Clayton M. Christensen published The Innovator's Dilemma in 1997 (I read the edition from 2016) and it is one of these books you see referenced all the time if you're interested in innovation, startups, or strategies for technology companies.

The gist of the Christensen's research is that established companies do well if innovation benefits their current customers immediately, but are unable to adapt new technologies if they cannot sell it to their current customers or at least through their current sales channels. A new technology might allow for a simpler and cheaper product, that, on the other hand, offers worse price per performance and is therefore of little interest to the customers of an established company (which are mostly also big companies). However, a small startup selling to other small companies is able to grow with lower margins and lower overall market size. One of the examples Christensen gives is Apple's Newton, which had more sales than the Apple II in its first two years. The difference is that when the Apple II launched Apple was a startup, while it was a computer giant in 1994 when it launched the Apple II. Selling 140,000 Newtons was not considered a success for such a large corporation.

There are these 1.5 pages at the beginning of Part 2 where Christensen lays out the strategies to fight the disruption from startups. Because disruption happens in new markets, which are in the beginning always smaller than already established markets, it is important to create some kind of separate organisation to develop and market disruptive technologies. Smaller organisations need lower margins and are excited about small wins. In addition, disruptive technologies often need different values and processes, because the market is not defined yet and the organisation needs to find or create the market first. Products need to be flexible so they can be easily adapted when new discoveries are made. When a disruptive technology establishes itself in the new market, the company can start moving up market where margins and sales volumes are higher.