In 2008,
due to the financial crisis, two designers by the name of Brian Chesky
and Joe Gebbia were unable to afford their rent in San Francisco. So, they
rented out air mattresses in their apartment to an ongoing design conference.
They called it Air Bed and Breakfast.
This idea planted the seed for a global transformation in
the world of hospitality. At the time, hospitality industry was ruled by the
usual behemoths like Marriott, Hilton and Hyatt. The barriers to entry were
high due to excessive investments in property, maintenance, refurbishments, and
operations. Airbnb disrupted this model completely just by creating a digital
platform. They had no assets but just a platform which aided in listing and
rent of properties across the globe. This immediately caught the attention of
several backpackers, trekkers and vacation aficionados who were looking for
cheap but comfortable accommodations. As
the platform grew, Airbnb became a two-sided ecosystem: hosts gained income
from underutilized assets, and travellers gained affordable and localized
experiences. Traditional hotels could not easily copy this as their business
models depended on owning or franchising physical assets.
The term Disruptive Innovation was coined by
Professor Clayton M. Christensen of Harvard Business School. Christensen used
the term to describe how simpler, cheaper, and initially lower-performing
innovations could eventually displace established market leaders. These
innovations often start in niche or underserved markets, where incumbents
ignore them because the margins are small or the technology seems inferior.
Over time, as the innovation improves, it moves upmarket and disrupts
mainstream customers, eroding the incumbents’ dominance.
However, in modern day scenario, large businesses frequently
blunt or absorb these threats through acquisition, replication, or resource
advantage making sustained disruption difficult.
Recent empirical work by OECD shows that incumbents
frequently acquire startups sometimes to integrate new tech, sometimes to
prevent a nascent competitor from scaling. These acquisitions can materially
change a startup’s innovation trajectory.
Nevertheless, there have been strong case studies of notable
startups who have broken this cycle and emerged winners by competing head-on
with long-time industry dominators.
Take for example, Netflix. Consumers drove to stores,
browsed shelves, and paid late fees, a habit so profitable that traditional DVD
rental industry saw little imperatives to transform. Meanwhile, in a quiet
corner of California, Reed Hastings and Marc Randolph launched Netflix,
a mail-order DVD rental service. The company wasn’t created to compete head-on
with mainstream customers. Instead, it targeted the cinephiles and early online
adopters with a subscription model that prioritized selection and
simplicity. In 2007, it shifted from DVDs to streaming, even though streaming
technology was unreliable and broadband penetration was limited. As streaming
scaled, studios and cable networks, tried to fight back by withdrawing content.
Netflix responded by becoming a studio itself. By producing original content (House
of Cards, The Crown, Stranger Things), it transitioned from
being a distributor to a global entertainment powerhouse.
This brings us to a deeper question: why do some startups
scale disruptions while others get absorbed?
There is no fixed tactic for rags to riches narrative. However,
based on my research, I have distilled a strategic playbook that emerging
ventures can adopt during their growth phase to accelerate scale.
Focus on business model innovation:
This means not just product or technology innovation, but
changing how value is created, delivered, and captured.
As per University of Nanjing, a study of 149 Chinese
startups found that both novelty-based and efficiency-based
business model innovation positively correlate with startup performance.
Traditional E-commerce traditionally focused on merchants,
warehouses, large logistics, inventory-heavy models. Meesho, an Indian
strartup, created a reseller model wherein individuals could become
resellers using WhatsApp/Facebook as their storefront, with no inventory, no upfront
marketing cost.
Building an ecosystem position:
A study of 41,380 firms done by Queen Mary University of
London over the course of 15 years found that startups that quickly acquire a
central position within the broader ecosystem are more likely to show long-term
economic success.
Startups should invest early in fostering partnerships,
platform-oriented thinking and community building to leverage on its
compounding effects.
Uber’s growth strategy included aggressive driver and rider
acquisition along with strategic collaborations such as partnerships with
vehicle-leasing, local driver networks to embed itself in broader mobility
ecosystems.
Organizational Flexibility encompassing faster time-to-market
along with incremental innovation:
Startups must cultivate a culture of rapid experimentation
and adaptive execution continuously testing hypotheses across product design,
market fit, and pricing. This requires maintaining a lean organizational
structure, embedding data-driven feedback loops and clearly defined KPIs to
evaluate progress.
A study by Cornell University examining approximately 1,800 startups
found that integrating lean startup methodologies coupled with AI capabilities
substantially enhances product innovation outcomes due to rapid prototyping.
Emerging ventures are not required to operate on fixed template of growth, but they are expected to beat the envelope. Startups that thrive are those that move beyond novelty to institutionalize agility by embedding experimentation, ecosystem thinking, and business model fluidity
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