E-Commerce and the Innovator’s Dilemma

Listening to customers. Keeping an eye on competitors. Making the smart investments that yield high profits.

Late author, business consultant and venture capitalist Clayton Christensen argued that while these behaviors and practices often make companies successful, they’re also at odds with the behaviors and practices that lead to innovation.

Christensen coined this concept the “innovator’s dilemma,” and it’s the reason that well-run companies sometimes struggle and fail in the face of new technology and major change.

Startups tend to be particularly at risk of falling victim to this dilemma, because they’re often hyperfocused on the activities they think will help them succeed, generate profits and please customers today. But to accomplish these goals, they must concentrate on nurturing the disruptive technologies that seem counterintuitive to (but actually drive) success.

Here’s what startups need to know about converting this dilemma into opportunity.

The Power of Disruptive Innovation

Businesses today innovate in two distinct ways: sustaining and disruptive. Sustaining innovation — the kind that improves a product or service based on customer feedback — is critical for eliminating defects, improving quality and meeting a customer’s current needs.

In contrast, disruptive innovation often initially looks like a mistake. It just doesn’t seem to have the features the market wants. Instead, it has more flaws, lower performance and slower speed. But it’s exactly the innovation that helps identify and meet customers’ future needs.

How Disruptive Innovation Benefits Startups

Startups are in the perfect position to benefit from disruptive innovation. Because their initial market is generally small, startups have time to fine-tune their technology and understand what their market really wants.

And while larger, established companies aren’t often willing and able to dedicate time, money and resources to unproven offerings, this is exactly where startups can shine. Just consider the number of startups today whose disruptive innovations have affected big business. Uber and Lyft dealt a huge blow to the taxi industry. Waze all but eliminated the need for standalone GPS hardware. Kindles have transformed the way authors publish their books.

But even with the promise that innovation and disruption offer, startups aren’t immune to the risks of choosing security over innovation.

How Startups Fall Victim to the Innovator’s Dilemma

At first, it’s easy for a startup to focus on (and even become known for) innovation and disruptive technologies. But as time passes, they often find themselves mired in the day-to-day operations of running a business and turning a profit. Some find they no longer have the resources to nurture innovation and disruption. Instead, those resources are now exclusively dedicated to resolving the business issues at hand.

It’s not that these startups become unable to identify, develop or embrace disruption. In fact, it’s quite the opposite. What instead happens is that startups perceive the ROI that’s needed to advance innovation and disruption is low and they assign new innovations to help their current customers, not their future ones.

The result is that startup management stops investing in unproven technologies, believing they’re being fiscally responsible. All of a sudden, new markets are seen as risks, not opportunities.

What Startups Must Remember

What startups may fail to realize is that sustainable innovation may be enough to satisfy a customer’s needs today, but it’s a short-term solution that could result in the company’s failure in the future. But investing in disruptive innovation will let businesses meet a customer’s future needs, identify a niche market that’s often ignored by the larger market and help the company succeed.

By keeping disruption at the heart of a business — even when it feels like a sacrifice —businesses keep one step ahead of rivals in an increasingly competitive market. While startups may not have the financial resources their bigger counterparts do, what they do have is the agility and low cost structure that lets them nimbly create new opportunities.

For startups to succeed, they simply must explore new ways of attracting and retaining clients. Here are two ways they can do just that.

1. Structuring for Success

According to Bernardo Lustosa, ClearSale’s CEO, the key to maintaining a successful business while fostering innovation is by building an experimental mindset into company culture. The best way to overcome the dilemma of choosing between stability and experimentation, he says, is for leaders to create a culture and practice of learning. While he realizes it’s important to meet business goals and customer expectations, he acknowledges it’s just as critical to make space for learning that lets innovation happen.

When leadership embraces experimentation, he believes, they can structure the organization in a way that lets the company leverage its existing expertise and tools while still being flexible enough to explore options that may not connect directly to business goals.

2. Being Prepared to Pivot

In Lustosa’s opinion, the real trap of the innovator’s dilemma is staying stuck in the patterns that worked in the past but that no longer meet customers’ needs. So, once innovation has been solidified as part of the company culture, leaders have an important role to play during times of disruption to pivot and meet market demands.

And there’s probably no better example of this than what we’ve seen during the recent stay-at-home orders. Consider the recent pivot of Netflix, who now offers “watching parties” to let members stay connected even while isolated at home. It’s a pivot that’s helping the company grow revenues in a time of reduced consumer spending.

When startups foster a culture or learning from the onset and are willing to pivot to deliver on customer needs, they put themselves in a prime spot for outperforming well-established competitors.

How ClearSale Is Easing the Innovator’s Dilemma

A former startup ourselves, we at ClearSale understand the power of innovation. Despite the company going bankrupt twice in its early stages, I had a passion for innovation that fueled my determination. Today, innovation has become a cornerstone of the company, and the leadership fosters this by supporting employees’ personal and professional development, encouraging everyone to think outside the box and bring disruptive ideas to the table, and taking the risk to try things that have never been tried before. And with our new ClearSale Holdings group, we’re proud to serve as an incubator for other innovators and startups, ensuring they never fall victim to the innovator’s dilemma. How can we help your startup business grow safely and securely? Contact us to learn more.

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