3 Tips for Startups to Really Disrupt

Credit: Elinor Mills

 

Silicon Valley is rife with talk about disrupting technologies. Everyone claims to have one. Few really do. So it was interesting to hear the founders of several hot startups — Airbnb, Pebble, Dropcam and Expensify — reveal their secrets to shaking up existing markets and creating new ones during a panel on “Disrupt or be Disrupted” sponsored by the Churchill Club and recently held in Santa Clara, Calif.

A common theme to the success of each company was innovation that empowers people to adopt new behaviors or make existing behaviors incredibly easy and cheap. Based on panel discussion, here are three tips for successful disruption that I walked away with:

1. Look for new market opportunities in unlikely places, but enable trust

When hotels in San Francisco were sold out for a design conference in October 2007, two of the founders of Airbnb rented out an extra bedroom. They realized that there was a huge market opportunity to give people a way to make money off their spare bedrooms or empty apartments. Ninety percent of the inventory was never available before, according to Nathan Blecharczyk, CTO and co-founder. Now, the site hosts 400,000 properties and has four million guest users.

As good as the idea was, it wasn’t enough to just create the new marketplace. After a customer forgot to pay their host twice during an early trial of the service, the Airbnb founders realized they needed to step in, take payment up front and handle transactions themselves to eliminate the possibility of friction or misunderstanding over money. “Guests and hosts never anticipated that this (renting out space in their homes) was something they would want to do,” Blecharczyk said.

2. Be prepared to radically change your business model, think “services” and listen to user feedback

Both Pebble and Dropcam started out as hardware companies, but “pivoted” their business models to focus on services. Dropcam’s founders went from packing Wi-Fi-enabled video cameras into shipping boxes to running cloud servers that “take in more video than YouTube,” according to Greg Duffy, co-founder and CEO of Dropcam. The company is “bringing software and services to a category of what used to be just hardware” solutions, he added.

Another company that discovered services and user experience trump the device is Pebble, maker of a smart watch that talks to your smartphone via Bluetooth. The inspiration came to Pebble CEO Eric Migicovsky when he wanted to see why his phone was vibrating in his pocket while riding his bicycle when he lived in Holland five years ago. Initially, the firm was a typical hardware startup and had produced three versions of the product, but hadn’t figured out the product market fit or captured much attention, he said. Then in April 2012, he decided to launch a Kickstarter project. “That launched our company from being a company that made watches in our garage to one making tens of thousands of watches we’ve shipped worldwide,” Migicovsky said. He used the Kickstarter page to create a community of 68,000 supporters, allowed them to provide user feedback. This approach “helped elevate us above the noise of creating a new hardware product to creating a platform.”

3. Make an everyday business action very affordable

Expensify isn’t in a particularly sexy space – processing of expense reports. But it does bring the economics of the digital world to a broad market that receives widespread complaints. “The way we disrupt our industry is not just by having a better product, but having a dramatically lower cost of sale,” said Expensify CEO David Barrett. “We have a business model that leverages the unique dynamics in our industry to change the rules of the game.” Timing was everything for the company — Expensify couldn’t have existed before smartphones had autofocus cameras and app stores. “It’s about being ready for the opportunity and jumping through the door when it opens.”

The founders also had other valuable suggestions for maintaining the culture of disruption as companies grow: 1) Use data to refine products, but not to innovate; 2) Give engineers space to work on skunk works projects; 3) Use your own product; and 4) Stimulate fresh ideas with new experiences. The last suggestion is one Expensify goes to extreme lengths to accomplish. The service’s international currency support is tested by the company’s own employees in a program that sends the whole company to work overseas for a month at a time. And Barrett said he finds that employees come up with their best ideas in unorthodox places, like a beach in Thailand. I hope that business management idea catches on.