Disruption wins — except when it loses

Disruptive innovation requires viewing the world differently from conventional wisdom.

Disruptors who succeed manage to change the conventional wisdom.

Disruptors who fail end up victims of the conventional wisdom. And that includes the conventional wisdom inherent in government regulation

Disruptors who ignored the rules

YouTube was built on pirated, copyrighted content. It violated rules and was subject to lawsuits. When Google took it over, it was operating outside the law. Now, though, the copyright holders and YouTube have come to a rapprochement in which there is some policing, and both profit.

Tesla insisted on a direct sales model that was in direct violation of state laws that required that auto dealers be independent of automakers. If some states had not agree to change the rules or look the other way, there would be no distribution for Tesla. Its cars are still unavailable in some states, including my home state of Maine, due to these laws. Tesla bet the company on being able to evade the rules, and succeeded.

Amazon made no profit for nine years — including seven years after going public. Conventional wisdom was that successful companies needed to make a profit. Amazon bet people would invest in its future, even when the path to profit was unclear — and it paid off.

You hear about these companies because they were eventually successful. But for every company like this, there are a hundred that tried to violate the rules and failed. I received briefings from some. Napster built a business on pirated content. Aereo assumed it could stream over the air TV without permission. Moviepass bet it could sell subscriptions to movie tickets and make money on ancillary services. You don’t know the names of the hundreds of others because they sank beneath the waves without making an impact. They tried to change the rules and failed.

Silicon Valley is betting they’ll beat back the regulators again

Embedded in the “move fast and break things” ethos of Silicon Valley is that a popular idea that violates the rules will change the rules. Startups will bend reality to their will. Consumers in love with what they’re offering will demand it.

It’s happening right now with Twitter, which has violated rules about notice for layoffs, prohibiting hate speech in Europe, and policing required to stay in the Apple app store. Elon Musk is betting as the quintessential disruptor, he can generate so much success that he’ll be able to get away with violating the rules. After all, that’s what’s always happened with Silicon Valley successes.

But not every disruptor succeeds. Disruption is risky. Especially when your company is already huge.