What is a disruptive business model?

Disruptive business models are disruptive innovations that bring new business ideas or technology to existing markets. A disruptive business does not fit the profile of a standard business model. Amazon is considered as one of the world’s most disruptive companies.

Brad Nakase, Attorney

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A disruptive business offers a new idea to a crowded marketplace, gaining the interest and respect of consumers. Instead of trying to find a place among competitors, this kind of company creates a new market altogether, challenging other established companies, who must either copy them or be left behind.

It can be thrilling to create a disruptive innovation. It can also be very lucrative if the idea is popular among a large audience. That said, every entrepreneur knows that it is risky and challenging to build a business from the ground up.

If a business owner is unsure about their disruptive business plan, then they should be sure to weigh the pros and cons of the opportunity. Small business owners who enter the market prepared and with a plan are in a much better position to succeed than their competitors who jump right in and hope for the best.

It is hard to imagine a world without companies like Netflix, Amazon, and Uber. But there was a time not too long ago when these successful companies were selling concepts that no one had ever thought of before. Their ideas may have even sounded crazy. Still, these companies managed to pave the way for countless new, innovative businesses.

These companies are examples of disruptive businesses. This article will review what disruptive business models are, how they work, and what their major pros and cons are. By studying disruptive business models, a business owner can learn from successful companies that have used their innovations to their advantage.

What Are the Pros of Starting a Disruptive Business?

  1. Competition Is Limited

Often, disruptive businesses have few competitors, even none, because their concepts are so unique. This means that if a company’s concept takes off, the business can secure a share in the market before other copycat businesses emerge. Also, by being the first businesses to address a particular need, a company’s name will stand out, even after others start similar businesses.

  1. Better to Be the Disruption Than the Disrupted

According to Forbes Insights/Treasure Data, over fifty percent of executives can expect to see significant risk to their market share and revenues over the next five years. This is because of startups’ technology-driven startups and innovations.

The same survey observed that over eighty percent of executives who considered their companies to be market disrupters reported an increase in revenues over the past three years. Compare this to the mere 54% of executives in non-disruptive companies. In the end, these numbers show that it can be risky to be a disrupter, but being a non-disruptive business is a worse position to be in.

  1. The Business May be Bought at a Premium

Facebook bought the social media platforms Instagram and WhatsApp at prices that seemed high at the time. It did so to prevent these companies from becoming competition. If a business becomes disruptive enough to an established company, then those who consider it to be competition may want to acquire it, whatever the price.

That said, an entrepreneur should not start a company just in hopes that it gets purchased for some outrageous figure. Though this sounds fantastic, it is important to focus on the short term. One must build their business and focus on making it a success. Only after this is achieved should a business owner consider the benefits of selling the company.

What Are the Cons of Starting a Disruptive Business?

  1. It Can Be Hard to Earn Customers’ Trust

Often, when a business disrupts an industry, there are already solutions that serve customers’ needs. While there were no other smartphone providers when Apple released its iPhone, there were plenty of other mobile phone options available to customers. It can be hard to convince customers that it is worth switching to something unknown. It is probable that a customer would rather trust an existing business than a new one, which is a reality that disruptive business owners must consider.

  1. Big Companies May Try to Interfere

If a new business is viewed as a disrupter that can drastically change the established market, then other companies may try to prevent the business from succeeding. This could mean lawsuits and other legal obstacles meant to take up the business’ resources and time. If these lawsuits and other problems continue, then it may be too hard for the disrupter to operate.

Entrepreneurs should have a thick skin, and they should be prepared to face the ill will of others. One of the negatives of running a disruptive business is dealing with these kind of stressful situations.

  1. Few Disruptive Businesses Succeed

It can be tempting to believe that one’s business will be extremely popular. However, more than ninety percent of startups fail. Forty-two percent of startups do not last because there is no need for their service or product. Before starting a company, it is vital that a business owner know their market and how they will sell their innovative business model. If an entrepreneur is not sure how they will achieve this, then the business model may need to be revised.

Conclusion

Starting a new business venture is always risky, but the payoff can be well worth the stress. One in every 20,000 startups will be worth at least $1 billion. While these are steep odds, motivated entrepreneurs with a dream may take the risk.

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