Disruption by Design – Book Review, part 2

The book “Disruption by Design” provides a guide to designing and executing a disruptive business strategy. The author provides a framework of what are the key characteristics of an idea that has a potential to disrupt the industry. 

The book is organised in three parts.

The first part of the book introduces the disruption by summarizing Clay Christensen’s work. The key concepts of disruption as well as the criteria for an idea to have a disruptive potential are outlined.

In the second part of the book, the author lays the foundation work on steps needed to design a disruption methodology. The topics include:

• What should my product do?
• Segmentation
• Positioning
• Pricing
• Messaging and
• A disruptive business model

In the last part of the book the author describes the “end game” as well as “what it takes to stay on top?” once you have reached there.

On this second review, I continue the review starting with the “Positioning” chapter.

Positioning

Positioning is not about identifying product requirements, designing a solution or establishing a price model. All of these elements are concrete and necessary. However, positioning is as important. In fact, the author claims that if you want to be disruptive having a good positioning strategy is critical.

Positioning strategy relates to answering the following questions:

• What are the alternatives to what you do for customers and how does your solution       compare to them?
• What is your value proposition?
• What are the most important outcomes that your solution delivers to customers?
• How do you summarize that in a few concise words perfectly chosen to communicate your values, your ethos, and what the market should expect from you?
• What piece of real estate do you want to occupy in your customer’s mind?

The author states that it is important that you decide your positioning strategy otherwise the competitors will be more than happy to do that for you. The key message to be communicated is “What is the unique value proposition and the Jobs-To-Be-Done that customers will hire your product for?” 

The message about positioning should be Consistent. Resonant. Relevant. Simple.

The author states that Positioning is something that happens in the customer’s mind. The key is to position yourself and have a place on a person’s mind. Because each of us perceives the world differently, each of us has a different version of reality. He asserts that Positioning is about influencing the target consumer’s perceptual reality, establishing a frame of reference for understanding, and occupying a unique place in the customer’s mind.

The author provides some background in the psychology of the mind and how we have various selective perceptual filters. He claims that if you are to be considered as a candidate for the Jobs-To-Be-Done, you must first break through a number of perceptual barriers that actively prevent your message from reaching the customers. Given we can only keep more or less up to seven items in our short-term memory, Leadership is the best position in any category. As a potential disruptor, it is important therefore to define the category around the core JTBD that our solution uniquely serve and/or do better job than anyone else. This would ensure a leadership position.

The author reiterates that the goal of positioning is to create a unique pigeonhole in the consumer’s mind that you, and only you, can occupy, enabling quick retrieval based on the right cues.

The author offers the following tips on Positioning:

• To establish a strong and unique position in the consumer’s mind, resonate with the target consumer, be relevant to the consumer’s interests and JTBDs, and be the leader in accomplishing the JTBD when compared with all alternative solutions.
• Uniquely position yourself by identifying with the customer’s JTBD and you will establish yourself as the category leader, forcing everyone else to position against you.
• Surprisingly, products can be disruptive and sustaining at the same time, depending on what you compare them with. In fact, how a product is positioned often determines whether or not it is disruptive.
• Great positioning describes core truths simply. It resonates with the consumer because it is a job that they need to get done, but you need to communicate that and be the first to own that position in the mind, or it won’t matter.

Following the instructions provided by the author, Grabtool has to establish a positioning strategy that uniquely identifies the value we provide to the customers. When people want to search online, they say “I will google it” even they may use different search engines. Similarly, we want to become visible in people’s mind that anytime they would want to use a tool they automatically will think GrabTool.

Pricing

As mentioned in the first review, market disruptions typically start with underserved customers at the low end of the market. They cannot afford any available options to address their needs. Therefore, pricing strategy is one of the most critical levers that can be used to create a disruption opportunity.

The author describes the anchoring concept when it comes to pricing. When a new product is introduced, people usually need to have a reference point so they can compare it and based on that decide on a price that they are willing to pay. It is important to establish a price that customer will perceive as good value for what is being offered. More importantly the author stresses out that depending on how you price your product it will determine which products you will be directly compared with and the range of alternatives for which you could be considered. This can potential affect total served market, total profitability, potential growth rate, and how large your market share will be.

However, if the pricing is done incorrectly it can stagnate your growth and future market shares hence dramatically reducing the chances of being disruptive.

Some key takeaways from this section are:

In order to be disruptive, you need to have at least 2-3 times lower cost of production advantage regardless of any other factors.

Two techniques, Freemium and cross-subsidization are discussed. These techniques are among the most effective for viral spread and rapid growth of market share. Some examples of these techniques are free subscription for some basic functionality and if users want extra features then they will upgrade to a paid service. Lost leaders are commonly used in the retail industry which leads to the same effect.

Another takeaway is that the price should be set as low as possible, considering whether you can ride the downward slope of “deflationary economics” to market dominance. This is somewhat counterintuitive but squeezing out excess margin will help winning the market today as well as towards future would-be disruptors.

The main takeaway from the pricing section is that if you want to be disruptive, pricing is not something you set once and forget.  Innovation always pushes the boundaries and today’s low prices can be considered high compared to tomorrow. As well, there are always disruptors that are trying to undercut you and eat your lunch. Pricing accordingly is therefore both disruptive and a necessity once you have a sustainable business.

In the case of GrabTool, our pricing model is based on the monthly subscriptions and pay-per-use. Given that myself and one of my team members are planning to pursue this opportunity a little further, the advise given by the author in Pricing will be very beneficial. Also as our business will be shifting from subscription based to having a platform for people to share tools, we have to revisit the BMC and go through the validation process. We will continue revisit the pricing to ensure we are following the advise from the author that pricing is not a "set and forget" type of exercise.

Messaging

As mentioned in the pricing section, when introducing a potentially disruptive innovation to market, you do not have an established market to sell into, and therefore your intended audience does not have a frame of reference to understand the value that your product offers.

Therefore, it is very important to focus in creating the market first regardless whether the innovation is low-end or new-market innovation.

The messaging means explaining the Jobs-To-Be-Done and how your solution accomplish it. Messaging should not be about product features that most marketing programs are designed to communicate.

The author recommends that the hard work of message development should be done by yourself. Only when the content is generated you can involve third parties like consultants and marketers for wordsmithing and not the other way around.

Some key takeaways with regards to messaging are: 

• Disruptive messaging must communicate the change you deliver to the world in a way that is credible. It must show how your product is important (accomplishes a JTBD) and unique.
• Being disruptive is NOT your message. Being disruptive doesn’t tell your customers what you enable or how or why. And, if you fail to communicate that, you won’t disrupt anything.
• Think about the vision, but stay grounded in what you deliver today. Outcomes are what matter to your customers and to your messaging strategy.
• Keep it simple. If you can’t summarize your core message and positioning in a two-sentence elevator speech that your intended audience immediately understands, it’s too complicated.

In the case of GrabTool, we will need to do some more thinking on how we clearly and concisely capture what our messaging would be. Tips from this section will help us focus the message on the value we are providing instead of the product features we deliver. If we are to move forward and bring GrabTool to market, we need to dedicate some effort on our messaging strategy.

Disruption by Design Canvas

The Disruption by Design Canvas is designed to capture what’s different and help you focus on your key success and risk factors. This canvas is closest to Ash Maurya’s Lean Canvas, which he adapted from the original Business Model Canvas to focus on the key risks a startup faces. Disruption by Design targets the unique attributes that distinguish potential disruptors from ordinary startups.

The Disruption by Design Canvas captures a business model focused on what makes a disruptive innovator unique, while recognizing that most of the time disruptors are also startups with a different set of risk factors and milestones to success than established companies.

Consequently, some of the standard business model canvas building blocks are irrelevant or very low priority to a disruptive startup. These include:

• Key Partnerships (usually a startup doesn’t have partnerships);
• Key Resources (important, but also obvious and not a key risk factor in getting a solution to market);
• Customer Relationships (there are no customer relationships to manage).

 The author draws on the canvas differences: "... when comparing this model to Osterwalder and Pigneur’s Business Model Canvas, several boxes are replaced or modified to focus on product and marketing strategy, simplified to reflect a reduced set of choices and the narrower focus required of a disruptor, or added to highlight the risks that could derail a potential disruptor before they even get a product to market or during the early stages of customer and market development."

The business and the business model will evolve over time. You will establish Key Activities, Key Resources, Key Partnerships. All of these elements are recorded in the standard Business Model Canvas, but not the Disruption by Design Canvas. The author recommends that the Disruption by Design Canvas is used, creating a new one for each of the first few JTBDs and their associated target segments.

The author recommends that as business grows and the target segments are expanded into adjacent market opportunities then one should consider adopting the standard Business Model Canvas, but not before.

As mentioned in the first report, Disruption innovation is a very small subset of innovation overall.

Therefore, it stands to reason that there would be similarities in the standard Business Model Canvas and the Disruption by Design Canvas.

Below I provide a review of the key differences between the two canvases are:

•  Jobs-To-Be-Done instead of Key Partners

JTBD were reviewed in my first blog.  The list of desirable outcomes may result in many JTBD’s. The hard part is to select top three jobs that are high value and “underserved,” that is, not adequately addressed by available alternatives. This process results in pre-validation of the opportunity, which is important when contrasting the Disruption by Design Canvas with the Lean Canvas.

•  Key Metrics instead of Key Resources

Key Metrics cell is the same as the one used in the Lean Canvas. It is important for any startup to track a small number of indicators that measure risk and/or show progress toward their ultimate goal. Some examples include percentage of signed up users that convert to sales, growth rate, cash burn rate, retention or churn rates, and so on. I discuss key metrics further in the next section.

• Unfair Advantage instead of Key Activities

The Unfair Advantage cell is also borrowed from the Lean Canvas, but applies even more to potential disruptors, because every disruptive innovator has an “unfair advantage.”

Consider that you are offering a Unique Value Proposition for an unmet need for a target user who is an exact match for the JTBD you are offering a solution for and directly addressing a market scarcity with

your solution. From a marketing perspective, this is a powerfully unfair advantage.

Additionally, disruptors tend to hold patents on unique technologies or have developed processes that radically reduce cost, improve productivity, increase quality, or improve usability. And after you’ve succeeded in disrupting a market, you should have dominant market share or be the preferred choice among all the alternatives, and customers always prefer to buy from market leaders.

Unfair advantages are unfair because they can’t be easily bought or copied by competitors. You may not have any unfair advantages if you are just starting up, but being disruptive implies that you have or will have at least one.

• Addressable Market Scarcity instead of Customer Relationships

As mentioned in my first blog, the elimination of market scarcity is the root cause of all market disruption because the shift from scarcity to abundance causes a radical unbalance of the supply and demand curve.

The first step in understanding and validating the scarcity is to write it down. Define why it’s a problem and how the shortage manifests in behaviours of people, other companies, the market, and workarounds that are used because of the lack of supply.

Are prices too high, leaving out a large percentage of would-be users? Is there a monopoly or oligopoly market condition that creates artificial shortages, price gouging, or poor service? Would people make different choices about how to get their job done if they could?

Both your description of the scarcity and evidence should be testable and verifiable by talking to people and observing macro behaviors and trends. Look especially for contrary evidence, and if you find any, try to explain whether it invalidates your hypothesis or is simply a false indicator or an anomaly.

The following to figures give a side to side comparison of the Disruption by Design Canvas and the one demonstrated in class.

Taken from [1]

Taken from [2]

In the case of GrabTool, especially with the new shift of being a platform for people to share tools, I can see following the Disruption by Design Canvas more appropriate than the standard BMC. Key partners, Resources and Customer Relationships will come at a later stage once we have passed through the MVP stage and are ready to launch. This section resonates very well and enhances the ideas that were covered in class. Especially the J-T-B-D cell in the canvas has really resonated with me as I see it very crucial in identifying the customer needs.

End Game (Product Launch)

The author gives some tips and ideas in this chapter that are focused on tactical implementation of a disruptive strategy, although many of these concepts apply to any startup.

The key difference that a disruptive innovator has is the unique solution to an addressable market scarcity and the priority outcomes of the JTBD that the solution provides. Without these, you can’t be disruptive. Having something that no one else has also gives you distinct advantages that make some parts of your job easier if you leverage them.

Some key takeaways are:

Leverage the things that make you unique as a disruptive innovator—the market scarcity that your product addresses and the unique results relative to the JTBD—as shortcuts to competitive analysis, for establishing thought leadership, and for developing marketing tactics. This saves resources while increasing your chances of success.

Avoid most of the traditional metrics of an established business. They won’t help you measure progress against your goals or mitigate the unique risks you have. Instead, choose the smallest set of critical metrics appropriate to your stage of development and the risks you face getting to the next stage.

If you have disruptive potential, you should not have any direct competitors at this point. You should be “competing against non-consumption”—targeting a new market or a niche for whom existing alternatives to get the job done are too complex, inaccessible, poorly designed, or just too expensive. In this context, traditional competitive analysis is unnecessary and may even distract you from your unique value proposition and how you are the best solution to the customer’s JTBD.

What needs to be done instead is to identify the most likely substitutes in the market that you will be compared to, based on your positioning, messaging, pricing, and the jobs you accomplish for a user, or more specifically, the desired results that will motivate them to buy your solution. Because you are focused in a very narrow target customer range, the alternatives are likely only a handful—perhaps three to five possible solutions (including performing the job manually, without any products).

The author states that if your sales message to the target market is focused on these key metrics and comparisons, you will find yourself easily talking about the customer’s JTBD and what is important to them, and if you are truly disruptive, you shouldn’t lose to a substitute solution for the simple reason that they fail to deliver on the most important qualities that the customer desires. By contrast, this type of competitive analysis is not only directly actionable, but it’s faster, more useful, and keeps you focused on the customers and what they’re trying to get done, in contrast to worrying about competitors.

The author asserts that the biggest difficulty you may have if you are creating a new market or product category is when the prospective users don’t understand what the opportunity is to get their jobs done better and why. If a market doesn’t yet exist, it is because people don’t understand the new technology and the connection to a job they need to get done. You need to make that connection for them and show how your solution is an essential tool.

There are many common metrics used by startups, and for the most part, the same set of metrics apply to disruptive innovators. The author lists and describes metrics in Marketing/Sales, User and Financial area. They are summarized below

Marketing and Sales Metrics

• Customer Acquisition Cost (CAC).
• Payback.
• Magic Number.
• Sales Cycle.
• Lifetime Value (LTV).
• Net Promoter Score (NPS).

User Metrics

• Churn.
• Cohort Analysis.
• K-Factor.

Financial Metrics

• Run Rate.
• Gross Margin.
• Burn Rate.
• Average Revenue Per User (ARPU).

The author recommend specifically two metrics that must be used by any potential disruptors. They are:

•  Constant Revenue Growth Rate. (CRGR)
• Disruption Grade.

These metrics are not the same as traditional metrics. The startup metrics need to be actionable and highlight key risk factors in your business. Ratios, growth rates, churn, and conversion rates to sales are examples of good startup metrics.

In the case of GrabTool, the material covered in this section will be a very helpful guide as we move forward with our MVP. I find these metrics very relevant and they tell a story on which direction your business is moving. In our case, user metrics such as Churn will be very important.
As well the Average revenue per user as we can start mapping out which users in which geographical areas are more active in sharing tools with their neighbours. We can study these patterns to mimic in other areas for scale up. Other financial metrics are crucially important as well as they will tell us the pulse of GrabTool.

Staying on Top

The last chapter of the books gives guidelines on what it takes to stay on top once you have disrupted a market.

The author stresses out the fact that once you have made it, the game it is not over. Now you have to be paranoid as you have to fight to stay on top.

As Andy Grove proclaimed, “only the paranoid survive,” and you need to be paranoid not just about the competitive marketplace and new disruptors on the horizon, but also about your own overconfidence.

There is always someone else looking for a way to solve the problem better, reduce costs, and make it easier and more convenient for customers. Just as you came out of nowhere to win the market, the next disruptor who attacks you is going to likely come from a place that you least expect. The way to avoid being disrupted is to build a sustainable business that is always on the lookout for disruptive opportunities, both inside and outside the walls of your firm.

Some key takeaways from this chapter are:

• Pursuit of profit maximization and shareholder value as the “sole purpose of the firm” encourages short-term thinking that makes companies vulnerable to disruption.
• Securing the future is equal in importance to operational efficiency and excellence in serving customers. Firms that do not take steps to secure the future are setting themselves up to be disrupted.
• Design your business to be sustainable by focusing on the jobs your customers need to get done, continually improving on the metrics that customers care about and lowering cost, while always searching for new disruptive opportunities.
• To stay on top, never stop thinking and acting disruptively.
• My goal in this book has been to offer a general guide and set of principles to build disruptive products and companies by design, and I hope that the advice and methods I’ve presented help you do just that.
• Disruption is a process, however, not an event, and it’s not quite like baking a batch of cookies.
• There will be hiccups and unanticipated hurdles all along the way.

In the case of GrabTool we are no near close to the top. Should we succeed and make it this far, I will revert back to this book times and again to review the key takeaways.

Overall, this book is a very useful practical guide for any startup not only for disruption startups.

It uses and enhances on the work that has already been done by many other Startup thought leaders in the industry. I would recommend this book to any students taking Entrepreneurship.

References

[1] Paetz, P. (2014). Disruption by design: How to create products that disrupt and then dominate markets.

[2] Daze, S. (2017). MBA6262 – Lecture Slides