Key Insights For Entrepreneurs To Understand When An Industry Is Ripe For Disruption

When considering opportunities for creating a startup, entrepreneurs should focus on large industries and look for a problem to solve. A large industry proves the market is there, customers are currently buying products or services and any small gain in market share could be significant. It’s also easier to study an existing market where there might be quite a few problems in the complete value chain. When looking to disrupt an industry, it means more than just startups gaining market share from existing companies.

Disruption has to come in the form of a shift from “the normal way of doing business.” It has to be a business model change, a value proposition shift and/or a completely new way to transact.  In general terms, disrupting an industry should squeeze out the inefficiencies and those profiteering from lack of transparency or service, pushing the industry forward and offering a better solution. When you step back and think about disrupting an industry, it sounds like an enormous task. But in reality, the customers are there and it’s actually easier to conquest existing customers than to create new ones. PayPal did not invent making payment transactions, just offered the service online.

So, if you are serious about examining an industry you care about or feel that an industry as a whole is ignoring their customers, here are three insights you can use to determine if that industry might be ripe for disruption.

The customer experience is neutral or negative. For how many years did we complain about the service we received when taking a taxi? Inconsistent service, fees we did not understand, inability to accept multiple payment options and yet we tolerated it. As a new company in this industry the price of entry would be high. You would need vehicles, employees, buildings, etc. Or do you? Uber so expertly understood that as consumers we were not loyal to local or regional taxi companies and stepped into the market without vehicles using a new business model and a mobile app. It sounds simple and it was not. But what other industries are there where we are absolutely tolerating a mediocre product or service?

The customer does not understand the cost model. What does it cost to go to an attorney and have them create a simple trust or will for your family? $1,500 dollars? $3,000? Why does it cost this much? Who knows. And the cost differs by city and state. Well, Trust & Will is disrupting this industry by being “nationally” transparent and offering online wills starting at less than $100 and trusts starting at less than $400. It turns out when consumers question why does something cost as much as it does and no one really has a good answer, that industry is ripe for disruption. We never really understood why renting a single movie from Blockbuster for three days cost $4. Netflix came along and offered unlimited movie rental (three at a time) for less than $10 a month. Boom.

Industry seems well or heavily regulated. While it may seem counter-intuitive to positively enter a heavily regulated industry, it’s quite possible based on timing. The timing being related to the consumers frustration, technology advances and the incumbent’s company’s refusal to advance an industry and to just try to maximize profits. If you look at banking and even financial investing, these industries are heavily regulated and were seemingly controlled by lumbering giants. As recently as the 1990’s, you could not trade a share of stock unless you went through a stock broker. Well online trading companies like E-Trade and Schwab entered the industry and eliminated the broker. Now they have eliminated the fees. And to further democratize investing for the individual investor here comes companies like Robinhood. The banking and investing industries are still not perfect although it is getting better. Other heavily regulated industries are ripe for change including insurance, healthcare (with telemedicine) and even the automotive industry with companies like Carvana.

If you are an entrepreneur or want to be one, don’t try and craft a startup that has to go and drive demand from new customers. You would be better served to target a large industry with millions of customers that meets one of the three conditions listed above and give those customers a better alternative product or service. Who knows, perhaps you will disrupt the industry.