How to survive disruption by being your own worst enemy

Why not create an independent fund with a mission to found startups which are exclusively aimed at disrupting your core business?

If you want to ‘immunise your business against disruptive innovation’, you are going to need to do things faster than a large organisation does, with fewer decision makers in the loop.

You are also going to need to be prepared to see investment of your money go into teams which may fail, fail quickly and fail often in order to find and execute a more sustainable (disruption resistant?) business model than your own.

Nonetheless, they will still fail much more inexpensively, productively and survivably than your core business.

Your money will be invested in people who will need to be allowed to break rule after rule in your corporate employee handbook, doing anything they want short of breaking the criminal law.

Your main problem will not come as a result of their failure.

It will be when the rest of your organisation starts to suffer as a result of their disruptive success.

What would you do when that happens? The newly successful startup could be losing you money overall, by making small profits at the expense of impacting your main business’s bottom line.

Your shareholders won’t want to hear that.

If that happened, would you:

(a)   just ‘buy the startup out’ and then shut them down?

(b)   implement changes in your main business, in order for it to attempt to regain competitiveness with the startup?

(c)    continue to let the fund invest in scaling them up?

(d)   let them ‘exit’ and become completely independent (but nonetheless negotiate a significant equity position)

Notice how options (c) and (d) would not be ‘your choice’ if the fund you create to found startups was genuinely independent.

In fact, the prospect of option (d) should bring home the inherent risks associated with this strategy, simply because it  opens up the possibility that the new startup could become:

  • a self-inflicted existential threat
  • an opportunity for a large competitor to purchase the startup and thus the whole ‘startup creation exercise’ would be just ‘handing your business to an existing large competitor’

If, for one moment, you consider these risks to be so enormous and so unnecessary as to justify treating the whole idea with the contempt that anything so masochistic-sounding seems to richly deserve, consider the alternatives.

History shows that effective disruption, when it comes, makes a mockery of the last-ditch survival responses of those it eventually displaces.

With hindsight, the only effective response to disruptive innovation is to be part of the disruption itself.

And the only way to guarantee that this is happens, is to be a part of the disruptive process, before it is capable of disrupting your operations.

Before your future startup nemesis has failed often enough to have learned enough to discover what it takes to create a scalable new business model which successfully undermines your own.

If you do create a startup fund, there will inevitably be a strong temptation to severely restrain its independence ‘as an insurance policy’.

But what you would be doing, if you succumbed to that temptation, would be to take out insurance against its success.

Yes, of course startups are meant to be in a position to fail on the road to eventual success, however, if you start off with successful disruption being something that the terms of the fund enable you to constitutionally override, all you will be doing is risking putting your fund’s startup founders at a serious motivational disadvantage when they are pitted against truly independent startups, thereby undermining your own disruption prevention strategy.