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Where Most Disruptors Ultimately Fall Short: Scaling Out Their Value Proposition

(This post originally appeared on LinkedIn here)

Disruptors enter the market with a Minimum Viable Product (MVP) addressing the business goals of early-stage Economical Buyers with a revolutionary approach. They are on a mission to disrupt an entire value chain, eliminating or at least replacing Incumbents currently controlling them.

More often than not they miserably fail for reasons ranging from inadequate business models and technological hurdles to financial constraints, but ever so often some make it into the mainstream market and become cash-flow positive.

Now the game changes: The Incumbents’ value chain was successfully destroyed and a new one must be built. Consequently, the focus must shift from disrupting to scaling!

This scaling has a quantitative and a qualitative dimension: The Disruptor must constantly remove adoption blockers by growing their sales and delivery organization, building a partner ecosystem, improving ease of doing business for prospects and customers. And most Disruptors do well in this, but they ignore the qualitative dimension.

Mainstream customers have Strategic Alliances with Incumbents and won’t leave these unless they can enter into a new one. Unlike Product relationships on department level, Strategic Alliances are decided on executive level and usually involve a number of CXOs. They are based on a joint, executive level vision, of symbiotic nature, and improve the customer’s value proposition to their customers.

The moment Incumbents accept the eventual invalidation of their value chain they will strike back against the Disruptor, not on Product level (by then they don’t have one), but on Solution or Strategic Alliance level. In other words: They raise the game to a level they already played on for years, leveraging their existing, well-established communication channels on executive level and their ecosystem (which by then also started to feel the heat).

In executive level conversations they will express their appreciation for the new, non-traditional value proposition the Disruptor brings to the table, but then highlight the fact that they are unproven and their organization too immature for a relationship on Strategic Alliance level.

Now the Disruptor is at an inflection point, often completely unaware of it!

They realize that something is changing. Customers start to issue large and complex RfPs, asking for long-term commitments, influence on the roadmap, and even binding obligations putting the Disruptor at the risk of penalties.

Incumbents show up in sales cycles Disruptors never met before. Many of them have no product to build their proposal on, but are willing to commit to building whatever the customer is asking for.

Lastly, customers’ expectations towards discounts and non-billable services literally explode as the Incumbents are willing to subsidize these deals to stay in the game.

All the arguments the Disruptor successfully used so far, e.g., improving customer experience, efficiencies, agility: They are treated as non-differentiating anymore, replaced by financial stability, relationship history, executive alignment, and - most of all - risk minimization.

In other words: The Disruptor doesn’t compete on the level Incumbents raised the game to.

So what is it they must do?

They must prepare themselves for the game to be raised by Incumbents. Instead of disrupting they must start scaling out both their offering as well as their organization’s capabilities all the way up to Strategic Alliance. They must develop and implement strong and reliable engagement models with partners. They must develop processes and skills required to enter into long-term, high-stake, high-risk contracts with very large organizations on a global scale.

What happens if they don’t?

They will not necessarily die, but their growth will slow down and eventually flatten out. Their market share will get stuck in the single digits putting margin pressure on them. Low margins will limit investments into product improvements and geographic expansion. Analysts will qualify them as niche players due to their lack of execution capability.

Incumbents will buy the market with a limited number of highly visible Strategic Alliances. They will screw up a major portion of these because they oversold, but customers will keep this under the sheets to not look stupid. Especially the Late Majority and Laggard customers will follow the “lead” these Strategic Alliances claim to take.

The Disruptor will be left with the long-tail of the market, chasing small ticket deals with low conversion rates. Ultimately they become a walking dead with the best people leaving, easy prey for the next wave of disruption.

By then as an Incumbent.

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