Disruptive Innovation in SaaS by Competing with Non-Consumption

Clay Christensen, a Harvard Business School professor, asserted in a recent interview that we understand only half of the marketing puzzle: the marketing science involved in a competitive ecosystem, when consumers are buying millions of products. In these markets, concepts like Westendorp Price Sensitivity and conjoint analyses work. But to incite disruption requires a different set of marketing skills.

In the Innovator’s Solution, Christensen proposes the idea of competing against non-consumption. He says, “A new-market disruption is an innovation that enables a larger population of people, who previously lacked the money or skill, now to begin buying and using a product and doing the job for themselves.”

Viewing the SaaS world through this lens, disruption means enabling users to do things for the first time. Because a company’s IT budget is relatively fixed, it also implies shifting budget from one place to another within the customer.

Sometimes this budget shift occurs with category creation. Twilio, Gainsight, Duo Security each created a new category - telephony-as-a-service, customer success, broad two-factor authorization. In most of these cases, customers must allocate new budget to paying for these tools and rationalize it as the cost of doing business.

In other cases, substantially better-than-existing solutions at lower price points broaden the addressable market: Slack and Asana have transformed the way colleagues communicate in the workplace, creating new market segments for collaboration tools.

At least that’s the way the theory goes. You might argue that Slack and Asana might poach budget from Sharepoint and other collaboration suites. Or Duo’s payments siphon dollars from an extant security budget. And most CIOs foresee only a 1-2% annual increase in total IT outlay in 2016. So perhaps the budgets argument doesn’t hold in every case, but it certainly does in new category creation: marketing automation, customer success, sales lead nurturing and so on.

Regardless, the notion of competing against non-consumption as a marketing strategy is still quite a useful way of evaluating ideas for new businesses. It raises the important questions: Where will budget for this software come from? How will buyers think about this solution relative to others? What set of users who were not previously able to use software to satisfy a need or achieve of objective will be served with this innovation?

Product marketing at the very earliest stages of a software company demands a different set of disciplines than the post-product-market fit marketing taught in textbooks and business schools. One way of structuring product marketing at these formative stages is to probe whether a new idea competes against non-consumption.

Published 2016-03-18 in Marketing 

I'm a partner at Redpoint. I invest in Series A and B SaaS companies. I write daily, data-driven blog posts about key questions facing startups. I co-authored the book, Winning with Data. Join more than 18,000 others receiving these blog posts by email.

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