MIT_Sloan_Management_Review_-_Spring_2020

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SLOANREVIEW.MIT.EDU SPRING 2020 MIT SLOAN MANAGEMENT REVIEW 41


he term disrupt has become synonymous with being an ambi-
tious startup of any type. There’s an almost cult-like devotion
to the idea that becoming a disrupter is the best path to success —
witness, for example, the annual TechCrunch Disrupt confer-
ence. But most studies of disruption have focused on the
disrupted — why businesses that are seemingly at the top of
their game suddenly find themselves in distress. In short, in-
dustry leaders are vulnerable to disruption when they are stuck
in their profitable business model, finding themselves unable
to see or respond to the mismatch between what they are offer-
ing and what current or future customers actually want. In almost every instance,
disruption is precipitated by a new technological opportunity.
But even if market leaders in an industry are hamstrung in exploiting those new op-
portunities, can we take for granted that others — notably, new entrepreneurial entrants —
will be able to do so? And even if they are able to seize those opportunities, should they?
Disruption is a choice. But it’s only one of many viable options for startups. Rather than
single-mindedly heading down the path of would-be disrupter, new entrepreneurial
companies can and should evaluate the trade-offs between disruption and other strate-
gies. Doing so allows them to choose a strategy that is right for that startup, in that market,
at that time, and to learn as the company commercializes its idea. To disrupt, or not to
disrupt?Thatis a veryimportantquestion.Here’showtothinkit through.


A Tale of Two Startups
Even the early days of disruption saw glaring exam-
ples of alternative paths that could be chosen. In the
late 1990s and early 2000s, the internet had just
gone commercial, and there were numerous at-
tempts to exploit it as a technological opportunity.
One domain that garnered initial attention was the
prospect for online grocery shopping. One com-
pany, in particular, stood out as a potential disrupter
of grocery retailing. As we will see, things didn’t
really work out. What’s more, as will be explained
later, those lessons have not (yet) been learned.
Webvan was perhaps the quintessential dotcom
company, enjoying a massive IPO of over $4 billion
before going bankrupt just three years later, in



  1. During its years of operation, Webvan offered
    a unique and, in many ways, beloved service.
    Customers could log on to its website, do their en-
    tire grocery shopping online, and have it delivered
    to their door — for less than they would pay at the
    supermarket. Its advertisements highlighted the
    consumer pain point of waiting in store lines. The
    company’s plan was to generate enough scale to use
    local distribution centers to ship goods to people
    and bypass supermarkets altogether, saving on
    stocking, rent, and, of course, bricks and mortar.


However, the plan didn’t work: Webvan could
not deliver goods at a cost that allowed the com-
pany to keep charging low prices. As it turned out,
creating a new value chain for distributing goods to
customers was expensive, involving massive invest-
ments in logistics and distribution centers. Unless
customers ended up buying more groceries than
before, Webvan would never reach a scale that justi-
fied those costs. Despite its value proposition, it
wasn’t able to attract enough consumers — even in
the internet-savvy Bay Area — to generate econo-
mies of scale. And there were other issues, such as
supplying products that needed refrigeration. All
this meant that the would-be disrupter flamed out
before supermarkets noticed a difference in their
bottom line.
To use the internet for grocery shopping seemed
like a good idea. But was the strategy of being a dis-
rupter the right way to go? We know now that it
wasn’t (at least back then). Another entrepreneurial
venture, Peapod, saw a similar opportunity but
chose a different path. Founded by the Parkinson
brothers in 1989, prior to the commercial internet,
Peapod initially used computer networking to
allow consumers to purchase groceries from super-
market chains such as Jewel, Krogers, and Safeway.
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