They point to five major barriers to competition in a market listed in increasing order of difficulty to assail. Instead of reviewing the incumbent’s strategy, I’m going to flip these around to reverse engineer these defenses and build a startup’s playbook for disruption with examples from our portfolio.
- The inertia barrier: When entering a market, a startup has to convince a customer the value of switching is greater than the switching costs including building a new relationship, implementing a new provider and training.
- The tech-implementation barrier: Startups should leverage their nimbleness and focus to bring a better product to market faster. Ex. Expensify is building a mobile-first expense reporting solution with great OCR and a better customer experience. By iterating quickly and responding to customer needs, Expensify is outpacing its competition and winning market share.
- The ecosystem barrier: Products don’t exist in a vacuum. Startups need to build and master their go-to-market strategy. This means building core competencies in sales and marketing, in addition to striking the right partnerships. Ex. Electric Imp must build an ecosystem of vendors to succeed. Without OEMs integrating our technology, the company cannot get their product to market.
- The new technologies barrier: Sometimes, startups have to develop new technologies to enter a market. This is particularly true when incumbents are already competing with each other with commodity goods and use price as a differentiator. Ex. Pure Storage has built software to enable cheaper, but more failure-prone consumer flash drives to achieve the quality of service enterprises demand.
- The business model barrier: By radically altering the cost of sales or cost to serve a customer, startups can decimate incumbents. Ex. Netflix’s DVD distribution business didn’t require the massive capex and real estate investment of Blockbuster. ThredUp is challenging brick-and-mortar consignment in the same way.
The linchpin of every business is deeply understanding customer needs and building a product that solves problems. Combining a passion for the right design with a play from the playbook above is key to disrupting a market.