Sounds Pervasive, But Your Company Needs a Disruptive Business Model

Disruptive Business Model September 02, 2020

Lauren Christiansen

Writer

Finding new solutions and reaching untapped markets are how businesses continue to innovate and grow. Championing an idea that contradicts conventional wisdom may be risky, but it's how some of the greatest inventions came to exist.

From Apple to Amazon, former no-name startups capitalized on a disenfranchised customer base that was itching for alternative solutions to their problems. By utilizing a disruptive model, these businesses uprooted entire industries.

Being a disruptor can be challenging, but there are also a lot of benefits to be gained.

What is a Disruptive Business Strategy?

Disruptive business modelsrefer to an organization that implements new strategies to improve or make changes to an existing business model. These models are employed by innovative businesses to create and grow new markets that can eventually uproot established businesses.

Disruptive companies address a set of customer demands that have been ignored by leading providers and manufacturers within an industry. Alternative products and services are offered, challenging the status quo, and paving the way for new industry leaders who utilize the disruptive process.

Serving Unmet Customer Needs

If an industry has employed a standard, mainstream approach to address customer needs, it is likely that some needs have not been met.

Shaking up a respective industry by taking a nontraditional approach tends to appeal to disenfranchised customers who want an alternative solution to a problem. By challenging the norms of an industry, disruptors can grow its consumer base or create a new niche market.
Disruptors focus on appealing to a small, untapped market rather than trying to steal the customer base of established businesses. By doing this, disruptors can be flexible in how they offer products and services.

Dissatisfied markets are more receptive to new solutions because they've been ignored and neglected by established businesses.

Startups vs. Existing Businesses

Startups are usually more willing to implement a disruptive business model because they have to prove that they can offer an alternative solution that mainstream businesses don't provide.

However, established businesses can also employ a disruptive business model due to their large budgets, extra resources, and name recognition. The real challenge is trying to figure out how to do so without losing their customer base and mainstream status.

It's somewhat of a Catch-22. Startups have an upper hand in utilizing disruptive business models because they are forced to set themselves apart from leaders within the industry.

Yet, startups don't have the resources or name recognition that established businesses do, making it more challenging to disrupt.

Sustaining Innovation vs. Disruption Innovation

Keeping current customers happy by meeting demands for product or service improvement is referred to as sustaining innovation. Unfortunately, this tactic only works in the short term for addressing customer needs.

This may seem like the right path to take, but it doesn't set up the incumbent for disruption. It is merely a conventional approach to solving problems and addressing customer concerns.

Disruption innovations are about creating an entirely new approach and offering completely new solutions. Disruptive innovations are not just about making improvements on an existing service or product; it is about uprooting the system and implementing something unique.

8 Ways to Approach a Disruption Business Model

1. Embrace Change
Be open-minded to new ideas and strategies. Consider all of the possible alternatives to a current solution, product, or service.
2. Observe Industry Trends
Keep a close eye on how the competition operates. Follow industry trends and learn what customers are looking for in the long-term.
3. Tap into Niche Markets
Seek to broaden the customer base and look for untapped markets. Expand offerings to those who have been ignored.
4. Seek a New Perspective
Hire an outsider who can look at existing markets and discover their lacking elements. Utilize new or unique methods to solve problems.
5. Act Quickly
Act quickly by putting new ideas and solutions into practice instead of waiting for another company to pave the way first.
6. Don't Be Afraid
Taking a chance on a new idea requires proper planning and strategizing. Make sure the company can survive disruption by taking the necessary steps to prepare. Reinventing the entire model may be the best risk to take.
7. Rethink Everything
Make the product or service affordable, simper, and more accessible than the competition. Challenge the standard approach that established companies have taken.
8. Listen to Customers
Take customer feedback seriously and listen to shifting demands. Customize a service or product to the changing needs of the customer base.

3 Examples of Disruptive Business Models

Here are 3 examples of new business models that have been responsible for some of the most important innovations.

1. Marketplace Model
This business model utilizes an online marketplace to facilitates interactions between buyers and sellers. Revenue is generated through brokerage fees, commissions, fixed transaction costs, membership fees, or advertising. Amazon, Uber, and Etsy are examples of marketplace models.

2. Subscription Model
Businesses can offer products or services through customer subscriptions. Billing is performed periodically with the aim of acquiring the customer in the long-term. As opposed to one-time-services, the customer is eligible for upgrades, improvements, and extensions with their subscription. Netflix and Hello Fresh (meal-kit delivery service) are examples of subscription models.

3. Freemium Model
For this model, the customer receives a service or product free of charge. Only basic functions are offered, and the customer must pay for premium functions. This is a way to reach a broad customer base and tap into new markets while converting non-paying customers into paying ones. Freemium models are most useful when marketing and customer information has a higher financial value than operating costs. Examples of freemium models include Spotify or social media platform LinkedIn.