MIT_Sloan_Management_Review_-_Spring_2020

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


DISRUPTION 2020: PLANNING YOUR STRATEGY


In 1996, with the internet more freely available,
Peapod set up a website and expanded its super-
market chain partnerships. The strategy was to hire
people to shop at grocery outlets on behalf of
Peapod’s customers. Advertisements featured busy
professionals — most often women — who didn’t
have time to do the grocery shopping. And Peapod
charged a premium for the service.
Compared with Webvan, Peapod’s strategy was
decidedly nondisruptive. Supermarkets were its
partners, not competitors to eventually be con-
signed to the dustbin of history. To be sure, Peapod
attracted less funding and no financial exuberance,
but it didn’t need as much — its mission was not to
construct an entirely new value chain but to slot it-
self into an existing one. And its customers were
not those looking for a bargain, but those willing to
pay a premium for convenience. In other words,
Peapod positioned itself at the high end of the
market rather than at a low end. Nothing it did was
anywhere in the disrupter playbook.
Things worked out well for Peapod. It went
from a successful IPO to growth, to flirting with
some distribution assets before being acquired by
Ahold — the owner of Stop & Shop — in 2000. It
exists as a subsidiary of that company today.

A Tale of Two Other Startups
The path of a disrupter is not always a lucrative one.
As part of its makeup, the disrupter chooses to take
on established businesses, and sometimes an entire
system, head-to-head. Competition is never easy
and requires an aggressive, up-front investment.
Partnering within the system appears to be an eas-
ier path, requiring fewer resources and incremental
value. But it is far from clear that partnering is a
path to sustained success.
That was surely apparent to Webvan’s founder,
Louis Borders, who also founded the eponymous
Borders chain of bookstores. By the late 1990s, tra-
ditional bookstore chains started to see their sales
challenged by a new entrant, Amazon.com. Amazon
was founded in 1994 by Jeff Bezos, who moved to
Seattle from Wall Street, not to sell books, but to
take advantage of the opportunity presented by the
internet. He chose books because he believed that
they would be easy to ship without being damaged,
consumers knew what they were paying for, and it

was expensive for traditional brick-and-mortar re-
tailers to stock a large variety of books. In Bezos’s
equation, variety was key; hence, the name Amazon
to connote immense size.
Amazon was a disrupter by choice. It had its own
website and sourced books independently of book
retailers. When it entered, however, there had been a
few precursors. For instance, in 1992 Charles Stack
created Book Stacks Unlimited, a Cleveland-based
outfit for dial-up book ordering. It soon offered a
website, Books.com, that offered a large selection of
titles but sourced its books from existing retailers. In
other words, if Amazon was Webvan, Books.com
was more like Peapod. By contrast, however, its life
was relatively short; Books.com was acquired by an
online player, Cendant, and ended up in the hands
of Barnes & Noble.
It would be tempting to try to explain these dis-
parate cases by pointing out failures in execution by
Webvan and Book Stacks or by suggesting that the
grocery and book markets were different in terms
of the “right time” to exploit their respective op-
portunities as a disrupter. But the stories, I believe,
carry another lesson: There is nothing inevitable
about disruption, because there is no compelling
reason when an entrepreneurial opportunity
emerges to be a disrupter rather than something
else. If anything, the lesson is that to be a disrupter,
a company has to tailor all of its strategic choices
toward that goal, as Amazon did. Similarly, Netflix
successfully disrupted Blockbuster (and other
Main Street video chains) in part because it always
understood that it was creating an alternative value
chain to video stores. It was never tempted to en-
gage in halfway solutions that included physical
drop-off and pick-up points (something the “ven-
dor machine” rental operations such as RedBox
attempted).
The conclusion? Choosing to be a disrupter
should not be a startup’s first choice. It’s a hard
road — much harder, longer, and resource-inten-
sive than many new entrants realize. That doesn’t
mean there’s not a viable path to disruption, but
disruption should be a considered choice, and
there are alternatives. An entrepreneurial startup
should weigh each scenario carefully before going
all in. Here’s how to think through the right strat-
egy for any particular circumstance.

Thethinkingin thisarticle
draws on the author’s
research studies with
colleagues at MIT Sloan
(Erin Scott, Scott Stern,
Jane Wu, and Matt Marx)
and Wharton (David Hsu).

It also reflects work
done by the author in
The Disruption Dilemma
(MIT Press, 2016).

THE
ANALYSIS
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