Aiming for Disruption

Innovation is defined in different ways depending on the context and the author. At its most basic level, innovation refers to newness in form or approach (Van de Ven 1986). There have been countless studies of innovation, viewing the concept both from a product perspective (the innovative outcome or result) and from a process perspective (how one innovates) (Bundy 2002). Here, I want to unpack the two more closely.

From a product, or result, perspective, there are many types of innovation, discussed along a variety of spectra. But the most discussed and frequently debated conceptualization of innovation in the current technology sphere is disruptive innovation — those innovations that disrupt an existing market or displace an earlier technology. Though the phrase disruptive innovation was coined by Clayton Christensen in the mid-1990’s (Christensen 2013), the concept of innovation through ‘creative destruction’ was first popularized through economist Joseph Schumpeter’s theories from the 1940s (Schumpeter 2013). Schumpeter described this ‘revolution from within’ as an inherent part of innovation. In today’s startup sphere, this focus on disruption is very much considered the ideal. I will note here that much research has noted the dangers and downfalls of a focus on disruption, and, more broadly, that innovation does not mean the changes it creates are necessary or positive (Abrahamson 1991). I will take up these issues again later. What is important here is that disruptive innovation is currently a main goal for startup founders and the venture capitalists who fund them alike. According to Paul Graham, founder of Y Combinator, startup ideas should be risky and actually even repel you (Graham 2012). There is a pervasive attitude that startups should be disruptive, contrarian. This focus foregrounds all that follows.

This focus on disruption, then, creates a central challenge for the startup community writ large. The startup sphere has a tendency to aim for innovations that will have a revolutionary impact to the market — disruptive innovations — but at the same time, many of the innovation processes emphasize iterative, small feedback loops to refine ideas and products, based on feedback from those who would use the product– early adopters. This creates a sort of dichotomy of focus on revolution and evolution from the outset. I frame this dichotomy in terms of Norman and Verganti’s (2012) discussion of radical versus incremental innovation. By their definition, radical innovation is “a change of frame (‘doing what we did not do before’),” while incremental innovation is “improvements within a given frame of solutions (‘doing better what we already do’).” Norman and Verganti argue that radical innovation is “surprisingly rare” and requires agents of meaning or technology change (2012, p. 6). In their point of view, most innovation is incremental. And this is indeed what I have witnessed in the startup community.

A Focus on Diffusion

Over the past few years, I conducted an in-depth research of technology startups and startup accelerators situated in different locations globally. Much of this research was conducted in situ through ethnographic fieldwork within Silicon Valley and over the several-month courses of accelerator programs in Singapore and Buenos Aires. This provided a rich view into the day-to-day workings of these accelerators and those affiliated with them– founders, funders, mentors, and more. Additionally, I have conducted interviews in Silicon Valley and abroad with a variety of people playing various roles in the startup community. Through this, I have learned the processes and practices of Silicon Valley and global startups—how they innovate. And what I have witnessed is a counterintuitive focus on disruption and diffusion simultaneously.

The process of innovation as it has been conceived historically consists of three general, yet overlapping phases: invention -> innovation (use) -> diffusion (King et al. 1994). There are many approaches from a variety of schools of thought on the flows and influences of innovation that critique such a linear approach and present other approaches, but diffusion is always considered to occur late in the process. I argue that the model of innovation being spread since late 2000’s has shifted that flow, making it looped or even backwards. And by way of the global reach and connectedness of the tech startup community and certain funding mechanisms, this is fundamentally changing the flow of innovation from one that begins with an invention or product to one that begins with a focus on global diffusion. And this inherently changes the types of “innovations” that make it the market.

In the first dotcom boom in the late 1990s, it was very expensive to build a software product. Startups had to have an initial product or an idea that seemed really good. Then they would get investment a priori to build it or to continue building it. With funding, they would then build it and then see how well it diffused. Today, it is cheap to build software, so you can easily start to develop something. But now, in order to get funding, you have to show how it would scale, not just guess how it would. Metrics showing traction and validation are key. This focus is oriented by the Lean Startup model and Customer Development practices, which rely on several concepts that originate from Rogers’ work on diffusion of innovations (DOI).

In Lean, an MVP need not be a functioning product. It can, and often is, still in the idea phase. As Steve Blank, the creator of Customer Development says: “You’re selling the vision.” The idea or experiment is tested with “early adopters,” a phrase coined in Rogers’ DOI work. Validation of the idea relies on tracking metrics and creating a “funnel” of potential customers. The goal is to exhibit the ability to “Cross the chasm,” i.e. move from early adopters to the mainstream market— which is based on the graphical depiction of innovation diffusion over time in Rogers’s work.

This is not the same as going out and researching a market to develop a product. The focus, rather, is on evaluating whether the product will scale before actually fully developing it. The process moves from finding potential early-adopter customers for an idea, to refining that idea based on how they may use the product, to then developing the actual product. The potential for diffusion precedes the innovation.

This flow was not possible until recent years. First, the global, networked platform of the internet has enabled software and digital products to be globally scalable. Secondly, recent technological advances underlie the ability to measure global scalability. One can now test an idea and analyze data in ways previously not possible. Analytics tools like KISSMetrics, Mixpanel, and Google Analytics enable the development of measures to determine demand and scalability. Advertising platforms like Google AdWords and social networking sites like Facebook provide methods to experiment. And the models of Lean and of Customer Development provide the structure to follow. Teams can start with a premise or an assumption of a problem and create advertisements on Facebook or Google AdWords to target potential customers. They can then measure their interest directly based off of clicks and conversion rates and other metrics, all before committing a single line of code in the product.

The common conception of ‘startups’, the canonical literature in this area, and adoption of Lean methods and principles are all products of Silicon Valley. The terminologies and cultural views of this origin are imbued into the structures, practices, and approaches — and this includes adoption of the venture capitalist business model and its underlying goals and objectives. While VCs provide value to the innovation teams by injecting economic capital, VC funds also rely on (and expect) a return of capital via increased valuation and a future liquidity event, commonly known as an “exit.” This enables the VC to provide returns and to fund its future operations. It is a hit business; it makes many small bets with the goal of having at least one team among many become successful. Therefore, by design, the goal of VC operators is to foster an environment that produces large capital gains within a short timeframe. In practice, this translates into a culture within the startup world that promotes creation of globally-focused, scalable, and profitable businesses. It privileges global scalability (diffusion) over what the actual technology is or how it is used.

Seed-stage and early-stage startups are trying to create a product and create a business simultaneously. They are focused on doing something innovative, but also on building legitimacy and showing that they are scalable. Their survival relies on funding, and funding is rooted in both of these. They have to show investors they are building something scalable and have metrics to prove it. They also have to appear legitimate, participating in the culture and practices that are part a startup world. The incentives for mass diffusion shape the direction of the product more than developing an innovative or useful product do. Even if that is not the goal in the beginning, startups often reorient to garner continued investment from their funders, who become their advisors.

Placing the focus a priori and continuously on diffusion fundamentally shapes the types of innovations that are made. Namely, it shapes the focus toward designing technologies that are easily adopted, and that would be adopted broadly. This may influence focusing on broader problems that effect many people. It may also promote the development of products with immediate impact, which can then be built upon, contributing to cumulative innovation (Murray & O’Mahony 2007). But, prioritizing for potential diffusion, but not for radical change, notably also limits the possibility for disruptive innovation.