What is innovation?
It’s a word that gets bandied about a lot, especially in the world of venture capital, but what does it actually mean?
The dictionary defines “Innovation” as a new method, idea, product, etc. (snarky side comment: What the heck does “etc.” mean in this context. I am dying to know)
Here’s the way I see it.
There are two broad categories of innovations.
You can improve on something else that exists (Sustaining Innovations)
You can create something new (Disruptive Innovations)
That’s it.
Every new method, idea, product or etc. fits into one of those two buckets. Is one better than the other? What are the differences?
Better Mousetraps
Innovations on something that already exists are sometimes derided by tech thought leaders. They are thought of as inferior to disruptive innovations. Somehow less pure.
In the words of Peter Theil, “We wanted flying cars, instead, we got 140 characters.” (You could argue in some ways Twitter is more of a new innovation than flying cars, but the message is pretty clear here).
I definitely appreciate Theil’s perspective, but the reality is, that the vast majority of companies are building better mousetraps. There is a LOT of value to be unlocked by simply making things work better.
Less friction.
Quicker.
Slicker interface.
People pay big money for these things. And why not? At the end of the day, an increase in efficiency is really an increase in available time, the one resource we can’t get any more of.
Innovations improving on something else should not be derided. They create massive value in both venture capital and within the economy at large.
Superhuman. Zoom. Evernote. The list goes on.
There are plenty of fantastic companies that have been built by making people’s life easier. The downside is that when user experience is your selling point, you are setting the bar you need to meet extremely high.
You can’t just be a bit better than incumbents, you need to blow them out of the water.
My favorite opportunities for improvement innovations are in large, slow-moving incumbent industries that have been slow to adopt new technologies. It is absolutely unreal the amount of our economy that still runs on faxes/paper/on-site databases/etc. If you can get people to change their ways (not a trivial task), these types of markets provide the opportunity to unlock tremendous value since the status quo is so poor.
New and Shiny
Disruptive innovations are the creation of something out of nothing. These are the Zero to One type of products or services that provide you with a new experience that you have never had before. These are the products that make Mr. Theil happy as a clam (where the heck does that phrase come from? A quick Google search for those of you curious).
They are the truly great innovations that create massive step-function improvements over the ways things used to be done.
At their core, disruptive innovations provide someone with an experience they weren’t able to have before. The name of the game is access. Increasing access to a good or service that a user has never had before.
One of my favorite examples is Venmo.
Venmo isn’t a simple improvement on a cash-based society, it is an enabling force function on people’s ability to forgo cash on a daily basis. It provided access to something (P2P payments) that people hadn’t had before.
Disruptive innovations are often the platforms that sustaining innovations are built on top of.
Ok, disruptive innovations sound great right? Easier said than done, unfortunately.
Disruptive innovations by definition are harder to build. There is no frame of reference by which they can be compared. No well-worn path that they can walk. They need to be generated a priori.
And then somehow transformed from an idea into a tangible product.
This is no easy feat. Even for the biggest and most well-resourced companies in the world.
Recent innovations in the smartphone market are largely predicated on increased camera capabilities. Amazon hasn’t developed anything truly game-changing since AWS.
Disruptive innovations are, in a sense, purer. They are the creation of something from nothing. Order from chaos.
But boy, are they tough acts to follow. It is nearly impossible to successfully build and deploy one disruptive innovation, much less a string of them.
One Innovation, Two Innovation. Red Innovation, Blue Innovation.
Ok so sustaining innovations improve an existing experience and disruptive innovations provide access to something totally new.
The reason this framework is important to understand is that it defines how you look at every company or opportunity.
Sustaining innovations are, at their core, user experience plays. When evaluating a sustaining innovation business, you will want to really dig in to understand exactly how the product or service works to understand if it is a meaningful enough improvement in performance to motivate a buying decision or investment of time from a customer.
Disruptive innovations are centered around access. What access to a good or experience do they provide that people never would have been able to experience previously? I like thinking of questions of access through the Jobs to be done framework. What job does the product or service provide users? How did they achieve that job before? If the innovation isn’t an improvement on an existing good or service, what product (or products) is it replacing? Understanding the system within which the innovative product is connected will help you to determine whether it is worthwhile or not.
Ok.
I have a confession to make. This post is somewhat of a false dichotomy. I made it sound like you either had to be one innovation or the other. Sustaining or disruptive. Improving on something new or creating something from nothing.
The truth is not nearly so black or white.
The truth is that the best innovations, the most impressive, most valuable, most world-changing technologies…
They have a little bit of both pillars of innovation within them.