Hi, it’s Nicolas from The Family. Today, I’m reflecting on the legacy of the late Clayton M. Christensen, in part using my home country of France as an example.
😓 Busy week! First of all, if you’re in Paris tonight, please don’t miss the panels I’ll be moderating at The Family about how technology can help fuel activism—and how corporations can learn to handle that. Here’s the link to register (all in French 🇫🇷): La tech au service de la mobilisation ⚠️
🇬🇧 Then, Brexit is due to happen in 2 DAYS. I’m not sure anyone is paying attention anymore—it’s been so long in the making, with so many ups and downs, that everyone has been moving on. But it looks like Jan 31 will be the day; I’ll be keeping an eye on it.
🇨🇳 Meanwhile, a pandemic has erupted in Wuhan, China. I happen to have visited the city last year, with my colleague Emilie Maret. It’s an interesting place—basically, the largest Chinese city you’ve never heard about (along with Chongqing)! I’m saddened by what Wuhan is going through and I hope the people we met there are safe.
🇺🇸 As Brexit and the pandemic unfold, I’ll be on a plane to the US, where I’ll spend a whole week in the Bay Area. Here’s where you can find me:
I’ll be speaking about AI and self-determination at the French Consulate’s Nights of Ideas on Saturday, Feb 1 at 10pm. Here’s more: Night of Ideas SF.
I’m staying the whole rest of the week, so if you want to meet and discuss European tech, please reach out. I’m looking for people with sharp views or stimulating questions on the matter.
😵 And then, Professor Clayton Christensen of Harvard University passed away last week 😢 I’m shocked by the loss of such a towering figure and great human being. I have written about him in the past—you can read it here: Clay Christensen, Our Secret Godfather. Today, I wanted to expand my thoughts and to discuss the many lessons that Europe in general, and certainly my fellow French citizens in particular, still have to learn from the late theorist of disruptive innovation. Read along 👇
1/ Christensen died of leukemia at the age of 67. His death led to many reflections and condolences from around the world, as Christensen was the author behind concepts that entered into our daily lexicon, like “disruptive innovation” and “the innovator’s dilemma”, the latter of which was the title of his celebrated first book, published in 1997. Many people use these concepts, sometimes without understanding them, yet very few know that we owe them to Christensen.
2/ Once a consultant and later a business builder, Christensen came to the academic world late, trying to respond to a question that obsessed him: Why do major corporations, those who are winning the race and which have virtually infinite resources, always find themselves overtaken by the market’s new entrants? In theory, these dominant companies should be able to hold on to their lead: they have abundant capital, competent employees, well-known brands, access to government. But as history shows, they always end up running out of breath and stumbling, watching as others roar ahead. And the pace at which they stumble has only been accelerating in today’s Entrepreneurial Age, to the point where Christensen became a major inspiration in the world of Silicon Valley-style startups!
3/ The reason that even the best-run companies end up failing is Christensen’s famous “innovator’s dilemma”. Dominant corporations do indeed have everything needed to innovate. Yet unfortunately (for them), innovation is always seen by their executives as the promise of losses, not the potential for gains. Innovating means taking your eye off current, demanding customers who prefer to keep buying the same products. It means disturbing employees who must either learn new skills or leave the company. It means scaring shareholders who are keeping a sharp eye on next year’s dividend—and will make you pay with your career if you endanger that in the name of “disruptive innovation”.
The resulting dilemma leads to a series of flights by incumbents. When a new player enters the market, it is often by offering a less sophisticated product to less demanding consumers. At that moment, legacy companies are only too happy to leave behind the cheaper end of the market where margins are very low. They see it as an opportunity to focus on the most sophisticated customers who are ready to pay the most money. Christensen often summoned the example of personal computing to drive his point home. Personal computers were far from being as powerful as the mainframes or the minicomputers of the past. But they were good enough for the vast majority of potential users, who were all too happy to help startups such as Apple and, later, Dell and Compaq, get off the ground...and then move up!
4/ Indeed, what dominant players don’t see, blinded by confidence in their own strength, is that the lower end of the market is only the first step. After warming up there, the new player is going to start moving up the ladder. Once the higher-margin incumbents have deserted the low end of the market, new entrants have only each other to fight off, and therefore get caught up in a destructive war of attrition in which the only competitive option is to bring prices down. Thus some of them usually reinvest their free cash flow in moving toward more profitable market segments, again catching up on incumbents and crowding them out. Over time, thanks to their speed and reduced need for higher margins, the upstart disruptors end up shoving aside the previous winners and becoming the new market leaders—at least until the next wave of disruption comes along!
5/ Christensen long fought against flawed interpretations of his theory. Indeed, “disruption” is such an attractive word that everyone is tempted to use it to describe any phenomenon that upsets the established order. But that creates many misunderstandings:
One clear tendency is to describe any radical innovation as “disruptive”. But not every new thing fits into Christensen’s theory. Tesla, for instance, is not about disruption. It’s definitely not about offering a simpler and more affordable product to less demanding customers. In fact, it’s the exact opposite: a fancy luxury car with an electric engine and state-of-the-art embedded software. Up until the launch of their more recent models, a Tesla was so expensive that only a handful of wealthy and sophisticated customers could afford one. That’s not disruption.
Another confusion is that between Christensen’s “disruptive innovation” and Geoffrey Moore’s “crossing the chasm”. The latter is about conquering a market by first serving the so-called “early adopters”, who are interested in high-tech novelty and eager to provide feedback. Only after conquering that segment do you move on to the “early majority”, that is, practical customers who will buy your product because it solves their problem right now. “Disruption”, on the other hand, has little to do with being shiny and new. Rather it’s about selling a good enough product to underserved customers at the low end of the market—and then moving up from there.
In any case, Christensen’s theories were never consensual. He had his critics, most notably the historian Jill Lepore (also of Harvard!), who once published a long-form article in the New Yorker to tear down the concept of “disruptive innovation” (to which a stunned Christensen responded here). Likewise, prominent writers in the tech world have discussed Christensen’s ideas to enrich them with some nuances as well as the occasional objection. Have a look at Ben Thompson’s What Clayton Christensen Got Wrong, and Alex Danco’s Disruption Theory is Real, but Wrong.
6/ My home country of France is one that has never, ever expressed interest in Christensen’s work. His books were never translated into French. Well, almost never: you can find old translations, but they’re by tier-2 publishers and are now out of print. The result, as I once remarked, is that almost no one in the French corporate world knows about Christensen and his theories. And yet everyone, like anywhere else in the world, speaks about “disruption”! The result, as you can guess, is frequent misunderstandings:
As exemplified by the likes of finance minister Bruno Le Maire, most of my fellow French citizens tend to think of “disruption” as the next moonshot. For them, “disruption” is about investing billions in trying to catch the next technological wave, be it artificial intelligence, quantum computing, or any other thing that will (maybe) deliver value decades from now. But that’s not what Christensen had in mind when he crafted his theory. Again, in his eyes, disruption isn’t about the most sophisticated technology, but instead the ability to offer a decent product at a lower cost to customers who have less money and fewer skills.
Xavier Niel’s Free, the low-cost troublemaker of the French telecommunications market, has been implementing Christensen’s playbook: fewer plan options, with simple and cheaper pricing, which ended up being good enough for many French consumers. The Aérospatiale/BAC Concorde, that perennial trophy of French technological excellence, was the opposite of a disruption: a more sophisticated airplane, faster, more expensive, with only the richest customers able to climb aboard. And look where it all ended: Xavier Niel is now a billionaire and the father figure of the French tech scene; as for the Concorde, it never operated beyond the small scale of a few itineraries and then went bankrupt with a whimper.
7/ Indeed, France is a country quite removed from the idea of conquering a market by way of disruption. What we prefer is innovation targeted at the happy few at the top. The Concorde was one example. French cuisine is another: yes, we have a number of the most innovative chefs in the world, but who can actually afford their meals except for wealthy people and splurging tourists? Yet another example is the French approach to higher education. We have those excellent grandes écoles that train the top 5% of students in each generation, while all the others must content themselves with crumbling, overcrowded universités designed for the masses.
As such, it is no coincidence that Bernard Arnault has been the most successful French entrepreneur in recent times. Arnault is the epitome of how we do business in France. Educated at the Ecole polytechnique (arguably the best “grande école” for engineering), he has built the LVMH luxury empire by playing on France’s main strength: our ability to serve the happy few with exceptional, sophisticated products. What made Arnault’s success and fortune was his prescient realization that, with globalization and economic development on emerging markets, the happy few were about to become much more numerous. So yes, you can still do business and make a fortune serving those happy few, meaning that the French approach has not been rendered completely irrelevant. But that’s the opposite of disruption.
8/ On the other hand, there’s a reason the theory of disruptive innovation is strongly resonant in the world of entrepreneurs and venture capitalists. The low end of the market is where the most users are. And unlike in the past age of the automobile and mass production, today even low-end users create a lot of value for those willing to serve them, as they’re the ones who have the power to deliver those powerful demand-side network effects—the main source of increasing returns to scale in the Entrepreneurial Age.
Here lies the main reason why France is doing so badly. It’s true that we are making progress. But we’re still lacking the large tech companies dominating at the global scale—after all, we’re having a hard enough time building unicorns. We admire Elon Musk, the most non-disruptive successful tech entrepreneur of our time because he uses the French playbook, selling luxury items to the happy few. But in doing so, we miss how important it is to scale up well beyond that segment, how scaling up is more easily done when starting at the low end of the market, and why Christensen’s “disruption” is the best approach to getting a foothold on that particular segment.
9/ Unlike what happened in Europe, many American captains of industry contributed to publicizing Christensen’s ideas and stressing their relevance for building businesses in the Entrepreneurial Age:
Steve Jobs had The Innovator’s Dilemma on his bedside table when he returned to Apple in 1997. You can read how he implemented it within the entire organization in this article, published just a few months before his death: How Apple Works: Inside the World’s Biggest Startup.
Andy Grove, legendary boss at Intel, was also a big fan of Christensen’s, to the point where he mandated that all Intel managers be taught the professor’s theories within numerous working groups. When he was asked why such a theoretical approach was so interesting for him, the ultimate practical executive, Grove answered that a good theory is a strategic and management lever: “A common language and a common way to frame the problem so that we can reach consensus around a counter-intuitive course of action.”
10/ As I mentioned above, Christensen was more than just a professor. A member of the Mormon faith, he was active in the church’s governance, having followed its precepts throughout his life: all Saturdays were for his family, all Sundays were for service to God (make sure to watch this video in which he explains it all in the funniest way). He was a practitioner, not only publishing books but also founding a consulting firm (Innosight), an NGO (the Christensen Institute), and two investment firms (Rose Park Advisors and Innosight Ventures). Struck by a number of illnesses, including the one that would eventually take his life, he became an expert in the organization and operations of the American health system, which became the subject of another (brilliant) book. And as a budding economist, he developed the theory of the “capitalist’s dilemma” to explain why a dwindling in disruptive innovations leads, according to him, to the financialization of the economy and slowing growth.
All who knew Christensen, and not least his students at Harvard, remember him as a kind, empathic, and generous individual. I had only one opportunity to listen to him live, at the 2016 Global Drucker Forum in Vienna, and he was riveting. But I never had the chance to interact with him. And so, like the many people who didn’t know him but were fond of his work and ideas, I will simply continue to refer back to his theories and to put them into practice in my daily work growing a business.
Please scroll down for a comprehensive reading list on Clay Christensen and his intellectual legacy.
🌋 One of our portfolio companies, Planet, sends an insightful newsletter three times a week to busy professionals who don’t want to miss what’s happening in tech. They’ve grown quite a subscriber base over the course of two years (in French 🇫🇷 at the moment), and they just launched a new product that I very much encourage you to try: it’s called Magma, and in exchange for €19.90/month you will receive a bi-monthly brief analyzing the business trends and opportunities you need to discover before they explode. Have a look here, sign up for the French 🇫🇷 version—and the English version is coming soon.
🇩🇪 Speaking of which, it's been almost 5 years now that The Family has published virtually all of our content in English. It was a strategic decision (and we believe the correct one) to signal and realize our ambitions as a truly pan-European investment firm. English will remain our dominant language moving forward, but we also recognize, as I discussed in this newsletter here and here, that the fragmentation of Europe requires a variety of solutions. And so, my colleague Irina has the first of a series of articles discussing what The Family is, this time published in German, with other languages coming soon: Welche Unterstützung brauchen europäische Unternehmer wirklich?
🐈 If you've ever visited The Family's website or offices, you'll know that our visual identity isn't exactly that which comes to mind when you think “investment firm”. My co-founder Alice Zagury is responsible for that, and she gave a talk in Berlin about finding your own style and creating emotions. If you're an entrepreneur or simply someone who likes to think about how creativity really can be used in business, check it out: Find your style and create emotions by Alice Zagury, CEO at The Family.
Here are more readings from or about Clayton Christensen:
Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things (Clayton M. Christensen, Stephen P. Kaufman, and Willy C. Shih, Harvard Business Review, January 2008)
A Capitalist’s Dilemma, Whoever Wins on Tuesday (Clayton M. Christensen, The New York Times, 2012)
What Is Disruptive Innovation? (Clayton M. Christensen, Michael E. Raynor, and Rory McDonald, Harvard Business Review, December 2015)
Know Your Customers’ “Jobs to Be Done” (Clayton M. Christensen, Taddy Hall, Karen Dillon, David S. Duncan, Harvard Business Review, September 2016)
Clay Christensen, Our Secret Godfather (me, European Straits, February 2018)
Disruption Theory is Real, but Wrong (Alex Danco, October 2019)
Clayton Christensen Passes Away, Professor Christensen and I, Kobe Bryant and Measuring Your Life (Ben Thompson, Stratechery, January 2020)
Videos of Christensen himself (must-watch!):
The Innovator’s Prescription (on disruptive innovation in the healthcare system, 2009)
A Theory of Economic Growth (lesson at Oxford’s Saïd Business School, June 2013)
The Process of Research (part of the same series, June 2013)
Clayton Christensen & Marc Andreessen (Startup Grind Global, YouTube, February 2016)
Conversation With Clayton Christensen (an interview by Business Insider’s Henry Blodget, October 2014)
Holy Non Sequiturs, Batman!—What Disruption Theory Is…and Isn’t (not Christensen but his co-author Michael Raynor, a16z, October 2015)
Competing Against Luck (a conversation with Marc Andreessen and Steven Levy, a16z, September 2017)
Finally, about France:
French Engineers and Entrepreneurship: It’s Complicated (me, The Family Papers, April 2016)
Startups: It’s NOT About R&D (me, European Straits, November 2017)
Emmanuel Macron’s artificial intelligence pitch risks falling short (me, The Financial Times, April 2018)
Macron’s Industrial Policy: More of the Same? (me, European Straits, April 2018)
French “grandes écoles” & Progress Studies (me, European Straits, August 2019)
From London, UK 🇬🇧