Disruption 101: Transforming an Innovative Idea into a Sustainable Business

Being disruptive is not enough, companies must be customer-obsessed.
Customer Experience

It is happening across myriad industries: New companies are rolling out solutions and services that tap into changing customer behaviors and expectations, forcing incumbent firms to keep up or become obsolete. But for every company that disrupts an industry like Airbnb, Uber, and Spotify, there are others that quickly fizzled out (MySpace) or lost touch with its customers (BlackBerry).

How do companies make the jump from an exciting startup to a sustainable business? Staying customer obsessed is essential, say analysts and business owners. Successful startups find ways to solve customer pain points that have been overlooked by large enterprises, notes Forrester Research Founder and Chief Executive Officer George Colony. "Go where customers are dissatisfied or under-served," Colony says. "It was hard to manage music, or get a taxi, or rent an apartment [and] the disrupters were able to relieve customer pain."

Retail banking is another area that is being disrupted by innovative startups, Colony adds. Online payment systems and digital currencies like Bitcoin that make it easier to move money between accounts have overturned the retail banking industry.

If You Can't Beat 'Em
But the concept of disruption is only a short-term strategy, observes Anne Driscoll, vice president of marketing and sales at Dwolla, a digital payments network. Companies must support their game-changing ideas with sustainable business practices-which sometimes means working in conjunction with established institutions.

Founded in 2011, Dwolla caught the attention of tech investors by offering an online payment system that lets users avoid credit card fees and quickly transfer money between bank accounts, versus the often days-long process of traditional bank technologies like Automated Clearing House transfers.

But the Des Moines, Ia.-based startup is not trying to undermine financial institutions, according to Driscoll. "When you think of disruption and continuity, it's a lot easier not to be fighting massive institutions but to be working with them to offer something different and create value by working together," she says. "Instead of saying we're going to be an alternative payment solution that kills banks, we're actually more of a player within the overarching financial ecosystem that is trying to modernize the infrastructure."

Dwolla is seeking partnerships with banks and recently teamed up with BBVA Compass, the American arm of Banco Bilbao Vizcaya Argentaria, to offer FiSync, a Dwolla service that makes money transfers faster and cheaper, to BBVA Compass customers.

"When you think of disruption that way, it's a much more sustainable business model," Driscoll notes. "Unless you're in a unique place where you've created a whole new market, most of us operate in a place where we also work in an existing system."

Fighting Back with Data
The founders of BloomNation, an online floral marketplace, are competing in an existing market that is already crowded with seasoned players like 1-800-Flowers.com, FTD, and Teleflora. However, using data mining tools and algorithms, the 4-year-old startup is gaining traction.

Headquartered in Los Angeles, Calif., BloomNation offers a self-service platform that includes web tools and CRM services to help florists create a website and profiles with their own floral designs that are displayed on its marketplace (BloomNation charges a 10 percent commission). The florists also fill in categories like color, type of flower, price, and appropriate occasions.

BloomNation then applies the data provided by the florists to an algorithm to organize the images on the site. Customers search for bouquets by filters such as delivery location, price, and occasion, and on the backend, the algorithm takes into account user metrics like click-through-rates and time spent viewing a page to curate the pages.

The idea behind BloomNation came from the poor experience that Chief Executive Officer Farbod Shoraka's aunt, who is a florist, encountered when working with online brokers or middlemen who connect florists with customers. Shoraka, who worked as a corporate strategy analyst, researched the market and saw an opportunity to provide florists and customers with better services.

"With other places, customers get stock photos where the prices are already set and the florists are just filling orders without brand recognition so there's no incentive to do a really good job," says co-founder andchief operating officer Gregg Weisstein. "We wanted to provide florists with the tools to run their own businesses and interact directly with customers."

Through its Florist Business Center, florists get a free suite of online tools that let them create their own website in addition to a profile, email marketing and social media tools, and a point-of-sale system. To further connect florists with their customers, there is also a feature called "BloomSnap" that lets the florists snap a photo of the customer's bouquet before it leaves the shop and share it with the customer.

The company has more than 3,000 florists who use its services and has raised $7.2 million in funding from investors like Andreessen Horowitz, Chicago Ventures, and Spark Capital. The company is focused on growth and "being a disrupter" and continuing to find ways to innovate, Weisstein says. "The challenge is finding more ways to make the experience even better."

Having a clear understanding of what customers value is essential for staying nimble, notes Brent Leary, co-founder and partner of consulting firm CRM Essentials. "Understand how customers adopt new technologies to better realize more of what they value, and be able to deliver that value in innovative ways to constantly improve customer experiences," he says.

Paul Hagen, a senior principal with West Monroe Partners, agrees that firms that are attuned to customer needs and outcomes will be more successful than those that focus on products and features. However, surveying customers "isn't enough nor will Big Data alone get you there," he notes. "Firms need to spend time watching them [the customers] and reading between the lines to see what they're really trying to accomplish."

Hagen points to Airbnb as an example. The 6-year-old startup, which connects travelers with local hosts, has raised about $795 million with listings across more than 190 countries. Part of the company's success stems from positioning itself as a purveyor of travel experiences. "Airbnb realized it wasn't just providing rooms to people," Hagen says. "Its real business is hospitality, not rooms."

Another strategic move is to engage your partners. A company that fosters an ecosystem of customers and partners to work on its behalf "will do better than those hunkered down behind its own walls," Hagen adds. However, a company must maintain the goodwill of its partners. Uber, for example, rose to success via an app that summons a legion of drivers with premium cars, but "many of the company's recent actions arguably are creating ill-will," Hagen notes. "That could undermine the ecosystem and thus the company."

Disruption Predictions
Utilities and education are two industries that are ripe for disruption, maintains Hagen. "I can imagine 10 years from now the utilities industry looking very different than it does today," he says, noting that nontraditional players like SolarCity and Tesla are developing solutions for energy generation and storage while consumer-focused companies like Apple, Google, and Verizon are looking at the home automation area. "Deregulation in some areas, plus increased pressure for utilities to do a better job engaging customers around efficiency programs is forcing utilities to pay more attention to neurons instead of just electrons," he notes.

Change is also inevitable in education as costs continue to soar. "If done right, organizations like Khan Academy, Coursera and edX will become platforms for new models for delivering vastly improved educational outcomes at a lower cost," Hagen predicts.

Leary says he is "keeping an eye" on Amazon's Echo product. Designed as an intelligent, talking home speaker/virtual assistant, Echo "could be an interesting way that Big Data is brought into the home, as well as other Internet of Things devices," he says.

But regardless of the industry, all companies are becoming "software companies," observes Forrester's Colony. "The capital of digital will be customer experience and customer data-not money," he says.