Clay Christensen, Our Secret Godfather 

European Straits #57

Dear all,

Since our founding The Family in 2013, one of the internal battles that I have yet to win concerns the use of the word “disruption”.

Many in the entrepreneurial world, including members of our team, frequently use that word because it best conveys the idea of how startups radically redesign their industry’s value chain. Furthermore, this upheaval often comes as a surprise, if not a veritable shock, for established market participants.

On the other hand, the word has become a cliché, especially since it has made its way onto the cover of mainstream newspapers and magazines. And Harvard University’s Clayton Christensen, the very father of the theory of disruptive innovation, has repeatedly warned against using it to describe anything that is new, startup-like or entrepreneurial in any way.

That’s because disruptive innovation has a very precise meaning, which Christensen himself reminded us of in the following article: What Is Disruptive Innovation? For him, disruption is not about high-tech moonshots (self-driving cars, reusable space rockets, advanced artificial intelligence); rather it is about typically unimpressive products targeted at the lower end of the market. (By the way, Christensen’s article is an echo of Michael Porter’s landmark What Is Strategy?, which was written in 1996 with exactly the same goal: countering the widespread misuse of a word with a very precise meaning.)

Even worse, I’ve recently discovered that Christensen, while a superstar in the entrepreneurial world and among US corporate executives, is all but ignored by European elites. I’ve had the opportunity to test his fame with various audiences, including (just to cite some from the past six months) a group of CFOs of large French multinational corporations and a team of senior civil servants working on innovation policy. Most of them had read about the vague, general idea of “disruption” in newspapers. But few among them had ever heard about Clayton Christensen.

What I most don’t want is for our firm to join the vulgar crowd and seem to be participating in hazardous allusions to a misunderstood theory, against the will of its very own author. Indeed the concept of disruption is misused by entrepreneurs who want to overhype their “Uber for pizza delivery”. It’s also misused by the French minister Bruno Le Maire when he announces the launch of a state fund to finance “disruptive innovation”—when in fact he means (typically French) R&D-heavy moonshots instead of the simpler, cheaper products that are at the heart of Christensen’s extraordinary theory.

I do believe, though, that what we do at The Family is very much in line with Christensen’s theory:

  1. Most tech entrepreneurs actually are obsessed with creating simpler, cheaper products destined to be used on larger markets. That’s because they have all integrated the Varian Rule: “A simple way to forecast the future is to look at what rich people have today; middle-income people will have something equivalent in 10 years, and poor people will have it in an additional decade.” Startups are not about using technology to make better and more expensive products. As once stated by Venture Hacks’s Babak Nivi, they’re about pursuing “higher quality at a larger scale, simultaneously.

  2. In doing so, entrepreneurs are riding a wave of evergoing technological progress. Once they’ve found a foothold at the lower end of the market, where incumbents are at their weakest, technology helps them trigger powerful network effects that make it all the easier to grow upstream and serve more demanding customers, either by making a better version of their product (like Dropbox for Business, for instance), or by converting the upper ends to the simpler, cheaper value proposition that is already delighting those at the lower end (which is exactly what the process of commoditization is about.)

  3. Finally, frequent readers of this newsletter know that The Family’s investment thesis is best understood in the perspective of the bigger, more institutional picture. We think there’s a direct relationship between vibrant entrepreneurship on the ground and prosperity and inclusiveness in our economy as a whole. On that front, I strongly encourage you to discover how Christensen explains the direct contribution of disruptive innovation to economic growth, either in this article or in this video.

The reason why I wanted to pay tribute to Professor Christensen is that for some reason I’ve been spending a lot of time recently watching him on YouTube—and I’ve become even more of an admirer in the process. Christensen reinforces many of my personal convictions about strategy, innovation, and the importance of theory in the business world. He’s also a master at explaining complicated ideas by using simple graphs and entertaining anecdotes. Finally, he’s a formidable speaker, whose soft voice, quiet flow, personal stories, and utter humility are riveting and moving for his audience.

And so even though you may be under the impression that you already know enough about the theory of disruptive innovation, I hope you can spare an hour or two in the coming days and give a watch or listen to one of these:

Warm regards (from London, UK),