The Lasting Legacy of Disruption

Running a business shouldn't feel like surviving a software group project. One app for accounting, another for inventory, another for sales And somehow none of them talk to each other That's where Odu comes in. An all in one business management software that brings every part of your business together, from sales and accounting to inventory and marketing all in one powerful platform. No messy integrations, no bouncing between tabs. And best of all No spreadsheets. Stop managing software and start managing your business with one unified system Try for free today at odu dot com slash iheartradio. That's odoo dot com slash heartradio You caught it This episode is presented by Odoo Jacob, today is episode number three in our series on American gen. Writers that changed the way we do business in this country we had Benjamin Franklin. You created Hustle culture, in the mid seventeen hundreds, right? Id did Tarbell The reporter who gave businesses a conscience early nineteen hundreds And today Satan. M Christensen Christen. o, notot a household name But you've probably seen his book for sale in airports all around the country Innovators dilemma Clayton after he wrote this, didn't get his face on the money. There are no statues of him And frankly, I think he would be embarrassed to be on this list of American geniuses. He was a humble Business school professor, if such a thing exists. And yet we live today in Clayton M. Christensen's world because he was the one who popularized the word disruption Everybody wants to be a disruptor now. Innovatorss dilemma influenced Steve Jobs. He recommended it. Jeff Bezos encouraged his managers to read it. Michael Bloomberg, Mark Cubinan, it's on all of their reading lists Beyond popularizing the word disruption Clay Christensen developed a theory of disruption why business history is strewn with the carcasses of failed businesses. businessuses that used to be on top And then we're disrupted into oblivion. We've done them here on the show. Sears Exactly. Sears number one biggest building in the world. whereere are they today? And there's this question you ask that we probably asked, how did Sears not see the challenge of Walmart or online shopping? You know, wereere they stupid? Had they lost their touch? Clayton says no In the innovator's dilema, he argues they were not stupid There is something in the nature of technological change that makes it nearly impossible big companies like Sars to adapt They fail not because they're bad at business They fail. because they are too good at business, toooo good at the game And then the game changes I'm Jacob Goldstein. I'm Robert Smith and this is Business history sure about histreory business The innovors's dilemma isn't about how big companies can't innovate because they totally can. They have money, they have personnel, they have the means to do it. They just choose not to do it or to do it in a different way. For very smart and sensible economic reasons And then those companies die. That's the dilemma. That is the dilemma, which we will illustrate today by reading A children's book. I'm going be the Lavar Burton of Business History. Reading raainbow We love to start the show with a swashbckling profile of an entrepreneur or thinker Unfortunately, Clayton Magleby Christensen, Did not ride the rails with hobos. Did he work as a telegraph operator at age thirteen? Did not, he didn't get kidnapped by pirates. Time, No time on a ship. No time on a ship Clayton Christen had the most basic business school life trajectory I' ever seen. He was born in Salt Lake City, second of eight children, went to Brigham Young University, Rhodes Scholar, Harvard Business School, Boston Consulting Group I like going to sea with pirates He No it isn't. He was a literal fign pirate. He was a literalout. Yes. I bet he was an Eagle sccout. He was an Eagle sccout. And then he spent twenty five years as a scout master, den leader, troop chairman. I mean, true boy sccout But evenven his foray into business was weirdly uramatic. He teamed up with a bunch of professors at MIT when he was at Harvard And he helped start Ceramics Pcess Systems Corporation. That's a lot of boring words together. I feel like Do you need process and systems? I don't know if they made the process or the ceramics or the systems somethingomething happened with this company that gave Clayton Pause And that was His tiny company succeeded It succeeded wildly. Ceramics process Systems was competing with some of the biggest, smartest companies in the world, DuPont, AlcoOa And Clayton's company beat them all. a less humble professor would have said, well, of course I'm a genius. I went to Harvard Business School But then he thinks, you know, is that really it? Like Dupont and Alcooa people from Harvard Business School, hundreds of them. They have MIT scientists There must be another way money. they know their markets. They should win. They should win This is very admirable that he rethinks this, right? Well, this is the moment I sort of fell in love with Clayton because he decided to actually devote a research project to study Why He and his startup company were not special or not extraordinary. There must be something in the water of business that makes this happen. And when this is like what, mid nineties Yes. You know, now it is less surprising to us when some new company comes along and topples in a comppet because this is the world we're living in. I think back to the General Motor showow, where I looked at the biggest companies in America in the mid nineties. And they were all a hundred years old. It was AT and T and Philip Morris. And this idea that a little company could be a big company was not in the air the way it is now. And this is part of the world that sort of Clayton Christen is helping to bring about, right Yeah, and his hypothesis was that this David and Goliath dynamic affects all sorts of industries. As he later wrote, why don't you give me this quote here? There's something about the way Decisions get made in successful organizations that sows the seeds of eventual failure. I just want to say that again, it's a little bit wordy, right? But what he's saying is The way successful organizations make decisions is what screws them Exactly. It doesn't sound right on its face, right? Because presumably they're successful because they have made good decisions and they'll continue to be successful And Clayton comes up with this idea with actual data He studies the disk drive industry for computers. Now, I feel like our audience remembers disk j. Okay I remember the big actual floppy ones and the little hard ones that were still called floppy. Well, there was this whole competition then for Putting more information on your disk drive, obbviously in computers, you wanted more and more memory But at the same time, computers were getting smaller from the big mainframe ones. so you wanted your disk drive to get smaller and smaller And he had a specific reason Clayton did for studying disk drives. He wrote about how biologists study fruit flies because they're born, reproduce and die within a single day. So you get a lot of evolution in a small amount of time. Exactly. Jacob, give us this light reading from Clay If you want to understand why something happens in business, study the disk drive industry Those companies are the closest things to fruit flies that the business world will ever see Because the technology was evolving so fast in the nineteen eighties and nineteen nineties that companies could launch in one year top of the charts in the next year and then be gone in the year after that So Clayton starts collecting all the data for the industry. And when I say all the data, such an Eagle Scout I mean, all of the data month by month, sales, new products year after year after year And he sort of maps the genome, if you will of the disk drive industry. and There are so many technological innovations he finds that Sometimes the innovations make everyone better. He can see how all the companies new technology and you know they can put more information on the disk drive, sure. So this is not sort of IP protected. For whatever reason, some professor figures something out. everyverybody can do something at the same time Yeah, it's all one small industry they're learning from each other.. But then sometimes an innovation comes along The whole market changes. Companies flourish out of this or they go out of business Christisten ased himself like what is happening here And this is his thesis. This is the thesis of the whole innovator's Dilemme is about to write And that is that there are two kinds of technological innovation. There's two ways to leap forward Number one is what he calls sustaining technologies. Sustaining technologies are the things that companies do all the time to get better. Every company gets better all the time. you know, maybe who have different magnetic film that holds more information. Everyone shares this information, every company gets better. The big companies stay big, small companies stay small That's sustaining technologies The second kind of technology Christensen calls disruptive technology. Here it is, which sounds cooler is cooler And it works in this much wonkier way. Every year, someome new company will come up with a disk drive that is smaller and simpler and frankly worse than the old disk drives Do doesn't hold as much information, but it's smaller, right? And the old disk drive companies will ignore it They'll just be like, That's not going to be the thing. It's a worse product. It's supposed to hold information and it holds less information and then Woos. Next thing you know, the small company is inay market share from the big disk drive manufacturer. and all of a sudden someone else is on top again and again in the disc drive industry This is surprising, right? This is his fundamental insight. and we'll unpack it more, but I just want to underline the surprise here, which is company making what in many ways is a worse product. is the disruptor. I would tend to think naively, o, somebody in a garage figures out a better way to do something Clayton Christen is saying, No, it's not that Weirdly' somebody doing something worse And we will go through this in detail. I'll explain how this works But not about disc drives because I read Clayton's research on disc drives and it's so dense. And there's a lot of like five and a half, bat's eight and eight, beat's three and a half. It's really hard to figure out what's happening.. But luckily He wrote about something that's a little bit more in our wheelhouse for business history. You wrote about Tins, steam shhovels. Steam shovels very good. I have to admit, I was like, o, steam shovels and I didn't know why I was so excited and then I thought There was a children's book I had when I was a kid. called I have it here Mike Mulligan and the steam shovel How old are you, Rovet very old. This was even after Steam shhovels had gone away, but here I want you to read some of Mike Mulligan and the Steam shhovel Mike Mulligan had a steam shovel Beautiful red steam sho Her name was Mararyianne. Yes. Yeah, Okaykay It was Mike Mulligan and Marary Anne and some others who dug the great canals. You didn't tell me there were going to be canals. We got to do a canal show for the big boats to sail through. Yes. Do I keep going? Yeah. You're gonna like this one. And it was Mike Mulligan and Mary Anne and some others who dug the deep holes for the deep cellars of the tall skyscrapers in the big cities classic Children's Riting Beautif Then along came the new gasoline shovels and the new electric shovels and the new diesel motor shovels and took all the jobs away from the steam shovels Mike Mulligan and Marianne were' very sad. I'm going interrupt you here, Cliffhanger on the steep shovel. But I wanted to explain the technological innovation in this book. didid not know it as a child. I know it now. So now we're pivoting away from the book to the actual history of steam shovels as described by American genius Clay Christensen. That's exactly right So steam shhouffvelles used to have a single steam engine that pulled cables. You may have seen. kid I hid steam shhovelles. So they pulled cables to make the giant claw pickup dirt. o. And then along keep the gasoline shovels, the gas engine But they used the same cables. They just installed a different engine and they had cables. Isn't this sustaining innovation? Yeah am I tracking correctly? Children's book doesn't tell you this, but it was actually fine for the steam shhovel companies, bad for Mar Anne, fine for the companies. twenty three of the twenty five largest steam shovel companies survived this inustry. So they just switch over. everyverybody switches over. Yeah. and then everybody has a gas engine. got the same companies on top Now the twist in the story They don't get into it in the children's book This is we should write We should write that version The disruptive one of Mike Mulligan. Yeah, absolutely. And that was hydraulic excavators in the late nineteen forties. Now, if you see an excavator today, you'll see there's little pistons at each of the joints. That's what makes Claw move. Okaykay. But this was a new technology And This would turn out to be the disruptive one because Hydraulic technology Kind of sucked.. Like it was weaker or slower or what? They were smaller. You just couldn't run a giant Marianne sized digg You had a tiny digger and the big earth moving companies, they knew about this technology and they looked into it and they talk to their customers and their customers were like, u Digging the big canals and the deep holes for the cellars of the tall skyscrapers We need a really big steam or gasoline engine, this hydraulic thing would take forever. Yeah. And so the big companies care about their customer Yeah, they're doing what they're supposed to do They'reose the customer. they're listening what the customers want. They're serving the customer. There is no market for this. There were a few companies JC Banford, Henry Company. They started to make hydraulic. versions of this? And they sold it to a different set of people, like farmers, landscapers, Smaller, basically people doing smaller projects. Yeah, because if you think about it, if you had to dig an outhouse, you're not gonna like bring in Maryianne, the giant. Yeah steam shovel. All of a sudden gave you a chance to, you know Move a little tree or bury a cable And it was good enough for the job, right Then the hydraulics God This is the twist. Yes. And then eventually the new technology could move as much dirt as the old technology And then people realized, oh, they're actually more reliable and they're safer because there's not a big cable going through it. And then suddenly those tiny companies making the hydraulic shovels We're on top They became the big companies. Eone moved over to hydraulics and that's what you see this day. Clake Christon wrote about these companies These companies did not fail because the technology wasn't available They did not fail because they lacked information about hydraulics or how to use it. They did not fail because management was sleepy or arrogant They failed because hydraulics didn't make sense until it was too late. I love that. You assume that management made a mistake. Yeah. But in this case, the goal of a business is to serve its customers And you can't abandon them to try a new market that you don't even know if it exists. Like you would be fired. You know, I like this because it's more interesting in the world when everybody is kind of smart. Like, oh, dumb people make dumb decisions and they lose and smart people make smart decisions and they win. Isn't a very interesting theory of the world The theory of the world that takes into account complex dynamics and what's going on at different institutions. and looks at all these people, it's like everybody is acting rationally in their own context, but in some of these instances acting rationally or what seems to be rationally leads you to destroy your business. Give me a Clay Christensen quote. Okay Successful companies routinely give their customers more and better versions of what they, the customers say they want. productucts that do not appear to be useful today may squarely address their needs tomorr. Don't ask your customers what they want. They don't know is what he's saying here. And even if you could tell customers, you're wrong, you're going to want this in the future There's another big force holding incumbent companies back And that is money and investors to the brake If your business runs on five different apps, twelve browser tabs, and one spreadsheet that everyone's afraid to touch P'srobably time for Odu OdU is an all in one business management software that connects every part of your business into one powerful, easy to use platform So instead of wasting time switching between disconnected systems, your entire business works together in real time Your team moves faster, your data stays accurate, and you can actually focus on growing your business. Let one unified system run your entire business From the first opportunity to the final payment, everything works together in one place Whether you're a small business or managing a large operation Odu gives you one flexible platform built to grow with you Try for free today at odoo. com slash iheart radio. That's Odoo d. com slash iheart radio And we are back. Clay Christensen took all his research on disc drives and steam shovels, and he put them into book form in nineteen ninety seven. Was it a children's book? No, It was the innovor's dilemma. It sold over a million copies, as the sticker, I'm sure, said on the front of it. And it won all the big business book awards. And the timing was really perfect, nineteen ninety seven came during the rise of the interternet, the dot com bubble crash, like all of a sudden it seemed like Disruptive innovation was everywhere. It was picking up at fruit fly speed. Big companies were vulnerable. Everyone wanted to be the flashy new startup. After reading the book Jeff Bezos, said You want to give us this? My mother in law calls it ammazon. com Jeff Beza said As a company, one of our greatest cultural strengths is accepting the fact that If you're gonna to invent, you're gonna to disrupt A lot of entrenched interests are not going to like it And can I just mention, I'm just gonna to do a little Jeff Bezos as side here because there's this story of him when they created the Kindle. I'm a fan of the Kindle. He created this Kindle group and said to them, your job is to destroy our book business Right? Like he understood the implication and what it meant. I feel like at this point, if you're an entrepreneur writing any sort of press release, there's a little thing that pops up and says, do you want to use the word disrupt? You should use the word There's a conference called disrupt. Literally called disrupt. Somebody should start a cheaper conference that everybody goes to instead. That's a little bit worse at the beginning Now that's a natural thing, but I'm more interested in the poor middle manager of a giant company. They're at an airport in nineteen ninety nine. They're looking through the innovator' dilemma. And if you read the whole book, you start to realize there is not a lot you can do to stop disruptive innovation, to stop Jeff Basos. The thesis of the book is that big companies have such a strong incentive to keep doing what they're doing And we talked about the pressure from customers to keep serving the same products, you know, maybe slightly better, right? But there's also pressure from investors. Jacob If you're an investor in a company, which I know you are What do you want it to do You wanted to make money. Exactly The whole point. If you give a dollar to a company, you want it to spend that dollar on the thing that makes the most profit. Yes. profit maximizing. That is the term of art. And every business is resource constrained. So if you spend money on one thing, it means you're not spending it on another. And so you want the business to focus on the thing with the highest return. Clayton argued that disruptive technology isn't just worse than old technology It usually has lower profit margins at first. Profit margins are a huge deal for businesses and investors, serious investors, want those margins to go up And they certainly don't want them to go down Clayton illustrates this profit margin incentive with a story about steel mills. Steel mills. Okay, that seems up your alley. These are all twelve year old boy examples. Have you been to a steel mill? Oh of course, I've been to a steel mill. bothoth abandoned and actual working steel mills. and The thing that's amazing about them is the integrated steel mills, the big steel mills are huge acres and acres and acres and they got train tracks coming in for iron ore and coal. And you know, the buildings are enormous and there's lava looking stuff's lowering out so Amazing And it's also so expensive. you know, we're talking billions of dollars to build the plant, billions of dollars to operate it every year. This is the classic big Bus Heavy industry Yeah, the heaviest. So if you have a very expensive industry, Jacob If you're a salesman for the steel company, what do you want to do with your steel? I want to sell it for as much as I can Yeah So you look for the richest people you can sell steel to. So car companies who want gleaming steel for their cars planes. planles, absolutely G turbine systems.es. Industrial appliance makers, like that is where you make your profit margin because it's so expensive to make steel. Now you know the disruptions coming here It's always surprising when happens. Tell me the story. I found another children's mug. So it features a unicorn on the front and a steel mill. So what's it called R? It's called a recycling adventure to the steel mill. Is that a real book iss a real book. but This essentially tells the story Of the disruptive innovator in the steel industry and of unicorns too. You're saying unicorn You don't mean a billion dollars startup. You mean a horse with a horn on its head. That's how you make it interesting, Yes Okay Today You'll see how scrap metal gets turned into brand new steel using something called an electric arc furnace. And there's somebody else pointing it and they say That's ferris metal. It's magnetic because it contains iron Yes, yes. Should we point out that there's a building that says Ncore on top? That seems quite important for what I know. They are one of the disruptors, yes. and probably paid for this book H that look? Okay, do I keep going? Yeah, one more page First, we pick up the scrap metal with an electromagnet The metal is dropped into an electric arc furnace Then comes the biggest fireworks display you've ever seen O So NCorore, the company featured in the book in the late nineteen sixties. Eespecially since Nuccor on the cover, I know I don't think this book is on the up and up, Robert So before they got with publishing indistry Newcourt is the largest steel mill. And children's bookmaker of the country, the combination So in the late ninet to sixies, they opened what is called a mini mill, which is just kind of a tiny steel plant. And instead of using coal to have a giant furnace, they use electricity. And just clear cyc this time they're like a startup doing this. So No, they are a large company that's been around for a long time, but they have a division that's providing steel to another one of the divisions So they design this thing, this mini mill, it's about the size of the big steel mill. And a tenth of the cost, they use the recycled steel And they were a classic disruptor because they were cheaper They were smaller, they required less labor And They made kind of crappy steel, huh It was weaker steel, it was bumpy, it was ugly, like no car company is going to want mini mill steel New cororn and these other companies knew that there was a market that didn't care shiny, nice looking steel And that was get excited. rebar. Oh, I love rebar Yeah, rebar is the stuff you put in concrete to make it tougher. That's like a breakthrough, rightike When you're building a building the rebar concrete combo is like a huge innovation of its own Yeah's it, when you go to the developing world for whatever reason. so much It's like ubiquitous, right? The building where there's like they built two stories and you can tell they're planning on building a third because there's the rebar sticking out the top And you know, if you want the rebar, you don't really care what it looks like. You just want the cheapest rebar. You're not going to see it Now, this is key Big steel mills They had been making rebar But it was such a low profit margin. It was like seven percent profit margin much lower than selling steel to GE. Yeah. So when Ncorn, these small mini mills came around, Big companies were like, thank God We don't have to be in this dogat dog commodity business anymore. And getting out of that business presumably would mean their margins go up. which is what they want, right? You get out of the low margin business, your overall margin's going go up. This is exactly right. And the big steel mills, they were suffering from foreign competition in the seventies and the eighties. and they really needed this high profit steel to look good to investors. And for a while, it worked, it worked great until until, of course, new Corn and the minini Mills Matter better at making steel and they expand into angle iron. Oh, that's fine. I don't know what it is either. Iiron an angle and bars, they make corrugated steel, you know, for KQanet huts, you know, but they're moving up quality of matter of theQwet Hut business, look out And eventually they make the massive structural beams are that are good enough and then They make rolled up steel, which is the nice fancy steel and NewCore has vacuumed up the customers from the bottom up and the next thing you know, new core Hero of our Children's book is the biggest steel company in the United States,u Classic checkmate. People in business love these stories. I kind of felt it as I was reading Clay Christiensen's books. It's like a horror film for executives like And the key to a horror film is you see, you see the evil thing coming, you know it's coming somewhere. you just don't know when they're going to jump out at you with the knife. I also maybe I don't want to go too far here, but it's a little like a classical tragedy, right? Like the Greek tragedy. where're like There is this tragic flaw, right? The need to be a profit maximizer, the need to listen to your customers. And that is the sort of inevitable undoing of the incumbent of the hero So I imagine the executives of these companies, they read the innovator's dilemma terrified, they're properly scared And remember Clayton M. Christensen is a Harvard Businesschool professor. So he knows what to do next. He's gonna to sell the antidote poison. In two thousand three, he publishes The Innovators' Solution. C on In two thousand nine He publishes the innovator's prescription. No In twenty ele. This is the horror movie. In twenty eleven he put out the Innovator's DNA. No, he didn't. He did. I'm a little disappointed in Clay Christensen Eagle Scout. Oh, he had to make the b was. I it wass totally fair sererving the customers, Chicken soup for the CEO's soul. So the good news for corporations, there is a way to fight off The disruption Bad news is to start to act like a disruptor after the break We are back Clayton M. Christensen did pretty well for himself after the success of his many innovators books He started his own consulting firm But he stayed a professor at Harvard for twenty eight years writing case study after case study on failing companies He was a Mormon and he moved up the ranks of leadership roles in the church And near the end of his life, he started to write more books about personal meaning and finding your way in relationships. And just like in the innovor's Dilem Happiness, he says, is a matter of resource Allocation Let me give it a little Little life lesson from Clayton The secret to happiness is having strong loving relationships and intentionally investing time in Seems reasonable. We're now happy in this podcast. I mean, I'm not out on that. I basically agree with that. Yeah. no, it's good. It's so simple But in terms of fixing your company, well Clayton had sort of a more complicated prescription. He basically said there are three solutions big company. facing disruptive innovation Number one A list waited out waited out when the new technology is mature enough Profitable enough thenen you have all the money and you can just move into the industry and blow away the little guys. Okay, right. so you see the disruption coming But when it's still really cheap and crappy, you don't get involved. You wait till the new technology, the disruptive innovation is big enough And then you move in. Rarely works, he says. Rarely works because at that point the disruptors are better at doing the thing.,ight. It's their whole business. They've been learning it. Yeah. And and they have different techniques and they're smaller and they're more nimble, all this sort of stuff It does happen occasionally, I think about Apple uters right? It's hard to think about anything that Apple was firstced to There were smartphones before the iPhone, but they were cludgy, low bandwidth, low profit, exactly who you expect to be the disruptor. Was the Blackberry those things? It was a Blackberry. It it had a little thing. It was definitely. I mean, I mean, I remember the low bandwidth. I mean, I tried to navigate on a little map on my bllackberry and it was super hard. It was basically for email, It was basically a good for email Apple moved in with the iPhone at just the perfect time, just as mobile internet was getting better, getting faster And you know, it made the phone beautiful and intuitive. So it pulled this off, but it's very hard to do. So Clayton has solution number two by your competitors. That's the one they're all doing now, right? That's not all of the one incumbents are doing buying everybody. Yeah. And, you know, old steel and steam shovel companies probably didn't have billion dollars laying around like literally lay around. Lerally lay around catch to buy their competitors. But the interternet economy companies do and Founders these days have such control that I think They care as much about their investors and about maybe even their customers. like they are more willing and have more control of their company. And they've read the Inited They've internalized it, right? They understand It is more fruit fly like now, right? We are not in that nineteen ninety five era where the biggest companies in the world ' been around for a hundred years. The biggest companies in the world now are largely run by the people who found them who were themselves disruptors. So they are built to be afraid of being disrupted huge disruptor, but By twenty twelve, Facebook is the big social media company. Their investors were thrilled, their customers were thrilled. Everybody loved the Facebook, right insside the company, Mark Zuckerberg was noticing more people using mobile phones. And he knew that Facebook was big on the desktop computer, that maybe the demographics were getting a little bit older than he liked. And he notices a company called Instagram zero revenue, thirteen employees, thirty million users. So very good. but Facebook had a billion users And Mark Zuckerberg You know, sure he read the innvator's dilemma And he did something that seemed sort of insane at the time, which was he bought Instagram for a billion dollars billion dollars, zero revenue, thirteen employees Tk them three or four years to get ads on there, right? But the disruption was averted You know, at least for Facebook. Yes. And then they did it again with WhatsApp years later, right? Exactly when they saw that internationally they needed something that people could message on And you know, Google bought Android, Apple Bought Siri, Salesforce bought Slack. Good luck to them. But it doesn't always work. you know, Yahoo bought Tumblr Don't know which one's in worst shape now. Okay, so first two ways to avoid disruption have the timing genius of Steve Jobs or the spare cash Mark Zuckerberg And then there's the third way, which I find really interesting Create a small disruptor within your company. Culturally, that one is super interesting Yeah, and it hard to do because you can't fake it. You can't just a conference room aside and say you are the disruptors Because what it really means is if it works, the disruptors should put most of your company sort of out of business, right? As a company, it'll still work. But the people who've been spending their lives selling the incumbent thing going to like the disruptor. They're going to think it's bad So the companies that have succeeded at this P, maker of printers and many other things They had in the nineteen eighties, this amazing new product called the Laser prrinter. shoots outint printed copies of things I don't know why'm explain what a pro. so you'reing wait a minute. you're saying, you're saying you turn a a piece of paper And it comes out and notite with symbols on it I know, I know So Heuler Packard is number one in laser printers, and there's this new technology called Inkjet printers. It's a smaller printer. It has these little buckets of ink in there, and it's kind of blurry and doesn't work that well. It's slower P Huel Packard sees that this could disrupt their big laser printer business And so what they do is their printer divisions in Boise, Idaho They send a bunch of people to Vancouver, Washington, whole new office, giveive them their own budget their own decision making power and essentially say putut us out of business. Like do the best inkjet printing you can. And this is the essential thing. You don't have to be as profitable as the rest of the company. Right. The margin. They are solving the margin problem. You just need to make enough money to make more inkjet printers and come up with a solution. Yeah. And eventually the HP inkjet printer becomes big because everyone wants a small, cheaper thing that they could put next to their laptop computers. It's cheaper until you have to buy more ink That's the other thing is once they figured out that you could make the printer that only accepts HP Ink. then you could sew ink forever If you think about it, that one seems really hard to do because the fundamental thing they're doing is agreeing to lower their margins, right? To whatever extent they're putting capital into this little, you know inkjet division, they' accepting that their overall margins are going to come down, which is anntithetical to what executives want to do, right? That's why that one seems hard veryer hard and few people do it But if you could pull it off, then you get to be the disruptor. and the incumbent company at the same time. D It didn't cost a billion dollars Jacob, it's time for the to be fair section To be fair None of this is true It's true in a business school way, which is it is a smart and a useful theory that you see everywhere these days But it's not a law of nature. And I think Clayton admits to this too that he picks companies profile that fit his thesis There's lots of companies Don't work this way. L lots of times the big company is fine The disruptors all fail Yeah Pushkin's own very own Jill Laport who used to host a show called The Last Archive. About a decade ago, she was writing for the New Yorker. She pointed out that Clayton often doesn't include complicating factors. For instance, she pointed out The fact that the big steel industry had unionized labor. and a lot of the mini mills did not. It is easier for them to be nimble and profitable if they don't have to deal with legacy union contracts She also pointed out that Clayton started an investment firm to invest in disruptors. He had this big idea. whyy not make money off of it And it ended up losing money and he shut it downu Because like prediction's harder Yeah. than describing the past Iite all this, like I think it's fair ick Clayton as our third American genius because His ideas are so core to how we think about business today, even just psychologically, everyone wants to be a disruptor. You know, even the largest companies on Eth call themselves disruptters. And you can't launch a business without putting out a press release saying you're disrupting something, right So Casper mattresses, said it was disrupting the sleep industry Which it kind of was. kinda was, yeah. I'm sure the people selling mattresses at the time said those mattresses are terrible. Like I don't even know But I'm sure that it happened, right? That's what you say land them before they ship it to you Yeah. Who's going to want that Rubicon. Uber of trash says they're disrupting waste management I ever got no trash? The founder of Nature Comode Toilet company. a composting porta potty says, this is a quote We're looking to disrupt an industry that is ripe for disruption. Well, that's the place to disrupt Two disruptions in one sentence.. Ripe is a good word in the toilet business And I've been most fascinated by what we've seen over the past two years in the AI world. The largest corporations, literally the largest corporations in the world panicking. and trying to disrupt themselves by spending billions totals trillions. we look at all the companies innovate