More on The Innovator’s Dilemma – with Unicorns

I responded to Lou Kerner’s article on ‘prunes’ with this:

The line of argument appears to be that companies fall out of the S&P500 because they fail to innovate; they fail to innovate because they invest in value-destroying M&A instead of break-through innovations; so they will continue to decline until they learn….something – but what?

Christensen’s key point that it is almost impossible for an incumbent to respond to a disruptive technology – the incumbent simply has too much invested, and too much to lose by changing its business model to embrace the new technology. Acquiring a new tech business is easier than setting one up and genuinely letting it compete with the parent. Christensen said (in ‘The Innovator’s Solution’) that the incumbent investor should be impatient for profitability from its investment, not indulgent. And that, even so, this is really HARD.

Most of the companies that have dropped out of the 2014 list have not failed – they have simply been supplanted at the top of the market cap mountain by others. Most of the 2015 unicorns have not made it up the mountain, and most will fail before they do. It is fashionable to sneer at Yahoo for its failure to sustain its early Internet promise, but it, and most of the other ‘prunes’, are not basket cases, nor are they bottle-rockets. They are not even all threatened equally by disruptive forces – they are simply part of the normal churn of today’s business.