The Innovator's Dilemma
Small markets cannot save big companies
A mismatch of growth needs
The Innovator's Dilemma, chapters five and six
Big firms do not fail to see the new market; they decline it. Why the refusal is arithmetic, and the remedy he proposes.
What actually happened?
Christensen's second principle is cruel in its plainness: small markets don't solve the growth needs of large companies. A four-billion-dollar firm holding twenty per cent growth has to find eight hundred million in new revenue a year, and a market worth forty million today rounds to nothing. To a forty-million company the same market is a doubling. By the time it is large enough to be worth entering, the first movers hold positions nobody can shift. His remedy for the incumbent is one line: give the job to an organisation small enough to get excited about small orders.
The same opportunity is two things under two denominators
An opportunity's pull is not its absolute size but its ratio to the body weighing it. On a large organisation's scales the small one always loses, which is not about eyesight but about the denominator. Asking the main process to incubate it is asking an elephant to sit on an egg.
Inside a billion-dollar division a ten-million line cannot get approved to start. Inside a ten-person team the same line is everyone's livelihood.
Waiting until it is clear means waiting until the walls are up
Enter when the market is big sounds prudent, but the rules, channels and customer relationships of a new market are written by whoever is already there. Latecomers do not arrive at open ground, they arrive at somebody's home field. Markets that do not exist cannot be analysed, only joined.
By the time the large firm enters the proven category, supply chain, mindshare and ecosystem all belong to the first mover. Ten times the money buys a third of the share.
Independent means independent down to budget and scorecard
The keyword in the remedy is independence: its own cost structure, its own definition of profitable, independent enough that it never competes for a line on the parent's budget sheet. An innovation unit hanging off the parent's process has merely postponed the veto.
If the new business presents quarterly beside the mature one and is ranked on the same returns, its death date is the parent's first bad quarter.
How do I use it today?
Where you are: a new direction looks too small for the company to take seriously.
Ask first: to a team of what size would this be everything, and can we build that team?
Where it goes wrong: independence turned into abandonment, with no resources and no route back to the parent; or strategic patience that lets the main process starve it slowly.
Lines to keep
Markets that don't exist can't be analyzed.
Match the size of the organization to the size of the market.
Same situation, other people are asking
By the time the data is in, will it be too late?Everyone I know is in this. I don't actually understand it.I keep listing reasons this will work. Should I do the other list?Everything I know about this came up one reporting line.I don't have enough information · all 12 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.