Small Business and the Five Principles of Disruptive Innovation

The introduction to Why Good Companies Fail to Thrive in Fast-Moving Industries Clayton Christensen aims to untangle one of the most stubbornly persistent paradoxes of the business world: why do well-managed companies fail when confronted with disruptive innovation? Christensen posits that well managed companies fail under this condition because many of the things that good managers do - e.g., listening to customers, investing aggressively in new technologies that benefit their customer base, and allocating investment capital to innovations that promise the best returns - make them unable to recognize when an opportunity to disrupt or create a new market arises. Furthermore, Christensen argues, these good managers have a blind spot because they do not realize that “good” management principles vary by situation and context. Christensen then sets out to show how principles of disruptive innovation will help managers develop a framework for understanding disruptive technologies and how these principles can help managers observe nascent trends, strategically shift resources, and, ultimately, “pilot their companies through a disruptive technology storm.”

Christensen introduces the following five principles for harnessing disruptive innovation:

• Companies depend on customers and investors for resources
• Small markets don’t solve the growth needs of large companies
• Markets that don’t exist can’t be analyzed
• An organization’s capabilities define its disabilities
• Technology supply may not equal market demand

Initially, Christensen argues that these principles should be useful to all managers. However, certain principles seem to have been developed with large companies and institutions in mind. This begs the question, are these principles useful to managers of small businesses?

Small businesses tend to be at a disadvantage when it comes to marshaling resources because their operations tend to be limited to markets within smaller geographic areas. As a result, they depend more heavily on customers as resources and have difficulty attracting investors. Furthermore, access to new customers might be achieved by embracing disruptive technologies (e.g., online sales platforms).The second and third principles seem inapplicable to small businesses in the sense that small businesses do not have the resources to engage in activities that would help them capture market segments or engage in efforts to create new markets. The fourth and fifth principles are generalizable to managers of businesses of all sizes. These principles require focusing on strategy formation - possibly starting with the use of SWOT analysis. However, the chief concern is that small businesses are unable to influence their markets and therefore must ride the tailwinds of disruptive innovation.