Feb 25, 2020

How Do You Spot a Disruptor?

While performance and momentum are important criteria for evaluating investment opportunities, I am particularly drawn to companies whose products and services are truly disruptive.

We frequently receive pitches from companies claiming they will disrupt their industry, change human behavior, and transform life as we know it; but what does it really mean to be a disruptor? How can investors sort the true category creators from those putting a fresh marketing spin on what’s already been done? And why do these distinctions matter?

  1. Disruptors Define Entrepreneurship
    Disruptors notice problems or gaps in the marketplace (business entrepreneurs) or in the community (social entrepreneurs) and deploy creativity and innovation to fill those voids. This is what defines an entrepreneur: the vision to see what is not there, and the willpower and resourcefulness to bring it about. You can be a great operator or manager; that makes you a business administrator. You can be an innovator; that makes you an inventor. To be an entrepreneur, you need both the creative spark and the temerity to execute.Disruption emerges when you can isolate false assumptions and challenge them with better solutions. It often starts with asking, “Why is something being done this way? Why do we need to accept a compromise? Is there a better way to solve the problem?” We often live in the expedient world of “Or” but a Disruptive Entrepreneur follows the “And” philosophy. Instead of accepting a false compromise – say, to make a product that is healthy or tasty, but not both – a disruptor will approach these purported trade-offs with skepticism. Even it if it takes the disruptor longer to decode a solution, it will seek ways to achieve two seemingly incompatible objectives by seeing the world through a different lens and taking on the arduous path to achieve its vision.
  1. Disruptors Change the Game
    To level the playing field in a land dominated by goliaths, a disruptor must exercise creativity and resourcefulness. While some big companies favor predictability and stability (for fear that re-thinking a business model or pattern will be costly, timely, and destructive), the new guys on the block have a much smaller downside and bigger incentive to disrupt. True entrepreneurs will recognize “doing business differently” as their competitive advantage.It is not just the innovative products or services that differentiate the disruptor; it’s the disruptor’s entire approach to bringing these products and services to market. The startup cannot thrive playing by the rulebook of established companies who may enjoy the advantages of scale and entrenchment; these rules are rigged against it. So Disruptors ideate on how to change the game itself. While an established company pays slotting fees to gain shelf space and advertises on TV to generate awareness, a Disruptor may lack the funds to deploy such tactics. Instead, it pours itself into creating products that are so fantastic that word of mouth and grassroots buzz handle the marketing for it. In a quest to stay relevant and on-trend, retailers will then actively court the Disruptor to meet consumer demand and to get its products onto their shelves.
  1. Disruptors Anticipate Consumer Needs
    We often think about disruption as being aimed at competitors. But real disruptors are even more focused on their consumers than on the competition. Yes, they are doing things differently, but above all they are doing things the way that consumers prefer. Disruptors are both differentiated AND appreciated.In the food space, we refer to unimaginative imitators as “copycat” items – products trying to ride the coattails of a successful pioneer. But, while it may be easier to copy an existing product, mimicry is unlikely to gain traction. Consumers will opt for the leader who introduced the innovation, unless the new product brings a truly incremental and unique value proposition to the table.Take the Greek yogurt category. Head to your local supermarket, and you’re sure to encounter over 300 types of yogurt. In a sea of so many choices, how could more yogurt be the answer? And what makes all the “new” choices special?I recently invested in Ellenos, a Seattle-based company making Greek yogurt unlike any yogurt I’ve ever tried before. Instead of “competing” with other yogurt brands, Ellenos does its own thing. The brand uses an authentic Greek family recipe handed down through hundreds of years; it involves a five-day artisanal process as opposed to the typical hours-long production period utilized by more industrial brands. Ellenos relies on locally-sourced fruits and flavors without any artificial ingredients.Why would anyone go through such a complex process to make the product? When you try Ellenos, you will stop asking that question. While its impact on the competition is secondary, the brand is growing the category by anticipating and meeting an unmet consumer desire.

LinkedIn Article Published February 25, 2020

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