Although the concept of disruptive technological innovation is now almost twenty years old, ‘disruptive technology’ has been one of the buzz-words of 2015 so far.

Although definitions differ, disruptive technology can be broadly defined as technology that displaces an established technology or way of doing things, through innovation.

Disruptive innovation ordinarily establishes a new market, frequently by disrupting an existing one. While many commentators differ (and there is a certain ‘chicken and egg’ aspect to it), to my mind there are four main conduits for disruptive innovation, namely:

  • technology hardware disruption (e.g. the creation of the tablet or the digital camera)
  • format disruption (e.g. the DVD or mp3 formats)
  • channel disruption (e.g. iTunes or Netflix)
  • ‘consumer taste’ disruption (e.g. online groceries or internet banking)

Disruptive innovation is often contrasted with ‘sustaining innovation’, which is more readily associated with market incumbents. Sustaining innovation works within an existing market, but does not redefine or create a new market. It is frequently associated with ‘business as usual’ incremental improvements, i.e. doing the same thing marginally quicker/cheaper/faster than it is currently done. Because incumbents normally have, among other advantages, existing revenue streams and distribution channels, they are commonly conservative and risk averse in their approach. An attempt by an incumbent to compete with disruptive innovators may lead to a cannibalisation of the incumbent’s existing market share.

Disruptive innovators are often at a significant disadvantage, ordinarily due to the lack of both capital and established distribution channels. However, disruptive innovators also have a number of advantages, including that they are at a much lower risk of cannibalising their existing revenue in order to compete. In addition, the development of the Internet over the last twenty years has significantly neutralised the incumbent’s distribution channel advantage. A start-up disruptive innovator also has a near unparalleled ability to ‘pivot’ as new markets and opportunities present themselves.

Innovation is also particularly interesting from a legal perspective, as it represents the intersection between technology, intellectual property rights and the market. Many view intellectual property rights as representing a statutorily conferred monopoly from society in the hope of stimulating greater competition and innovation. Paradoxically, therefore, a short-term anti-competitive monopoly is conferred in the hope of stimulating long-term competition and innovation. Intellectual property rights are particularly relevant for start-ups as, in the cash-flow and asset poor ‘valley of death’, intellectual property rights may in many case be the only actual proprietary asset of the company.  A clear (and commercially intelligible) exposition of the intellectual property rights claimed by a start-up can significantly aid a start-up to obtain further financing and investment (for example, by properly valuing the IP claimed). At a minimum, we would ordinarily recommend an IP audit, followed by an IP reconciliation (particularly to ensure that any ‘founder’ IP created before the existence of the company is owned by the company), followed by the development of an IP strategy. While specialist legal advice will often assist, the hyperlinks provided indicate the wealth of free resources available.