Amazon just raised the cost of its Prime membership from $99/year to $119/year. But not that long ago, Amazon was just a startup with dreams of disrupting a multi-billion dollar retail industry. And now that Amazon is one of the largest retailers in the world, it’s ironic that by raising the pricing of its own membership dues, Amazon is sowing the seeds to their own market disruption.
But what are the conditions required to disrupt a market? Although many experts and economists argue that each industry and market has differing conditions, there is a general consensus about the main requirements a disruptive startup needs enable to succeed in an entrenched and well-established .
Here are the 4 required conditions to disrupt an industry or market:
- A noncompetitive Market or Industry
- Disrupting an industry that has 1 or 2 market leaders is much easier than disrupting an industry that has a series of them. Additionally, with a clear market leader to topple, your goals and strategies will be hyper-focused, and you won’t be competing with companies that were held back by the market leader. A good example of this: Uber disrupts taxi services
- Overpriced services or products (customers eager to change)
- This is a key condition – but it doesn’t have to be tied to price. It can be the ease of use of the product or service. Unless your consumers are ready to change, you’ll spend tons of money and effort trying to convince consumers that your product or service is better. Luckily (see condition 1 above), with only a few market leaders who are overpricing their services/products, consumers of this market should be willing to try anything different. A good example of this: Netflix vs Blockbuster Video
- Stagnant technologies (low or decreasing barrier of entry)
- In general, this is your competitive advantage. Almost every well-established market leader has difficulty innovating. And with evolving technologies, a decreasing barrier of entry will help your startup enter with minimal cost or resistance. Unfortunately, a decreasing barrier of entry allows competitors and other startups to follow your lead. Good examples of this: Netflix vs Blockbuster Video, Apple’s iTunes store vs Music Industry
- Minimal impact of external forces (eg. legislative, geo-political, dependent logistics, market volatility, etc.)
- As a startup, this is often the hardest factor to control. Without a large reserve of capital, influencing or mitigating external forces (as listed above) is near impossible without some creative use of technologies. A good example of how legislative forces can negatively affect disruption: “Lawmakers fight online gambling“
Kue has a Masters in Business Administrations (MBA) from California State University, Fresno. He works as the Director of Education and Outreach for the California Department of Business Oversight in addition to being a contributing writer for news, business, and international blogs. He has also written, directed, and produced an award-winning film as well as authored several books on business, philosophy, and Asian folk lore.