Almost every startup is looking to build an innovation centric business. We are always under a pressure to move the pointer significantly. If you are building a better social network, operating system or a search engine, you will be discouraged by your friends, who will say Facebook, Windows or Google is good enough and there is a little chance of a new company breaking in. Are they true? Where do disruptions typically happen and how innovative companies have operated in the past?

To understand this let us understand the common trends in innovative companies like Pixar, Google, Toyota, Apple, Facebook and Microsoft.

1. Hugely innovative businesses enter well established or cold/declining industries

The conventional wisdom is that big innovation happens in hot, new sectors. However, history shows that most disruptive businesses enter cold sectors that have looked well set with well-entrenched incumbents. When Karl Benz invented the modern automobile in 1881, transportation was a well set business – with 1000s of years old horse carriages, boats and the decades old trains. Again when Toyota & Honda started, Detroit was very well set.

When Pixar began making animation movies in 1995, well set players like Disney had already started quitting the animated series. Sony Walkman was a household name when iPod entered music player world; Yahoo and MSN had started to move-on (to portals) when Google entered search business. In 2006 when Apple started its phone business, smartphones were almost dead with both Motorola and Windows Mobile looking to exit and Palm in tatters.

When Toy Story came in, animation movies were in a decline. (Copyright of Walt Disney Pixar)

But, as soon as these businesses entered, they created a whole new profitable sectors out of old, dull, money losing ones. These new enterprises took normal innovators (who went after hot sectors) by surprise and won the battle.

2. Disruptive businesses focus on a kick-ass execution.

In late 90s Search was a well-understood concept. In mid 2000s smartphones were well known. So, there was nothing out of the world about the idea in Google search or iPhone. But, what made them world changing is their kick ass execution. Groupon made deals highly streamlined & organized, Google was substantially more relevant, iPhone made it super-easy to use smartphones & mobile applications, iPod allowed you to store 1000s of songs and played without skipping when you were running in a gym. MS-DOS (and later Windows) was a very easy to use operating system that brought in the masses to computing. Facebook looked less spammy, more real and more mature than incumbant social networks. Toyota and Hondas were very cheap – to buy, run and maintain compared to American and European cars.

In general disruptive ideas build a better solution for an existing problem that is either faster, bigger, efficient or relevant. The idea is not important, but the execution is.

3. Disruptive businesses take on incremental innovations instead of big revolutions

Let us take a look at the top 4 big revolutions in Computing:

Analytical Engine of Charles Babbage that formed the basis of modern computers.

Now which of these made big chunks of money for their innovators? None. Compared to these, the innovations produced by Google, Facebook, Apple, Microsoft were more incremental but made huge chunks of money. The problem with a too revolutionary innovations is that by the time world understands the problem and your solution, you could die broke. First mover advantage is not significant in most cases and could easily be neutralized by the effort spent in developing the market. While labs and universities should focus on huge revolutions, as enterprises we should focus on the incremental.

4. Innovative companies don’t worry about the big incumbents

Microsoft entered OS business when goliaths like IBM, DEC, AT&T Bell labs (that made UNIX) and Apple were so good at software & computing. Google entered a business where monopolies like Microsoft and giants like Yahoo operated. iPhone had to compete with the likes of Nokia, Motorola, Blackberry, Samsung and others. But, these innovative companies didn’t worry about the monopolies. Successful disruptive businesses focus on building a kick-ass product/solutions and don’t fret about their competitors.

So, if you are building the next-gen search engine, operating system or other boring sector don’t worry. Build a great execution and there could still be a scope for your idea. There are still a zillion avenues for innovation.

To recap, the 4 traits of hugely innovative companies