Disruptive technologies

In 1999 a small web development business called Pyra Labs was founded by two people.  They were trying to build an online project management system called Pyra.

Times were tough and staff numbers fluctuated dramatically (at one stage, down to one person holding on to the vision). 

Eventually some interest was shown in a side product they had developed and the small company with six staff was eventually sold.  The Pyra Labs product was called Blogger, and it was sold to Google. 

This small business coined the term “Blogger” and founded the now dominant method of online journalism.  Although the price was not disclosed, it’s assumed that a “never have to work again” price was paid.

A bit closer to home, a couple of academics setup a wireless networking business in 1997 based on a brand new idea that came out of their research. With government and venture capital support, this business grew to 57 staff before eventually being sold in 2001.  This small Australian company was called Radiata and they sold themselves to CISCO Systems for $595 million.

Both tiny companies came up with new ideas that weren’t incremental innovations.  They were disruptive, adding a brand new offering into the marketplace that wasn’t previously being taken advantage. 

There are plenty of examples around of these disruptive innovations, in fact the Wikipedia article on it has a great list. 

An interesting thing though is that all these disruptive innovations (a term coined by Harvard professor Clayton Christensen)  have something in common – every single one has its origins in small business, not large corporates.

Large corporates simply don’t bring disruptive innovations to the market for four reasons:

• Disruptive innovations, by their nature, normally start with small markets and the ROI just isn’t there in the planning horizon of the average public company CEO (think mobile phone market in 1990).
• Disruptive innovations have a tendency of cannibalising existing profitable markets (think LCD screens vs CRT screens).
• These innovations are normally accompanied by failures along the way, so can be costly in terms of development funds spent, and for the careers of those scapegoated!
• And finally staff inside the large corporate generally benefit from the existing relationships with suppliers they have, so there is plenty of internal friction and lethargy (would you give up your top salesman conference in the Bahamas?).

So why am I talking about this?

Recently I met with a CSIRO flagship director and had to convince him that it was critically important that CSIRO licence some of its cleverest IP to start-ups.  Obviously he was resitant, as they were keen on only licencing their technology to a large corporate (preferably ASX200) where they could get the best return. 

However this was a laboriously slow process and there were very few wins.

My pitch was that the way to licence your IP into large corporates for the largest premium is to licence it to a small business first (an intermediate step) and let the small business validate there is a profitable market for it first. 

If the small business succeeds, they will get themselves acquired by a large corporate and the licence can then be renegotiated.  Large corporates like this route as the market gets validated and the product refined before they get involved.

The pitch worked.

And back to my initial examples; Evan Williams, a co-founder of Blogger, currently has a brand new idea in the marketplace which doesn’t have a revenue model yet.  You may have heard of it – it’s called Twitter.  The co-founder and CEO of Radiata was a chap called David Skellern. 

David now runs NICTA, an Australian Government agency that is probably Australia’s leading ICT research organisation.  Creating, of course, disruptive technologies.