Who’s going to buy your edtech tool? New ideas in the sector are abounding, and many edupreneurs are grappling with how to make the biggest splash as they enter. They would be wise to think about a similar question that Clayton Christensen asked at the end of The Innovator’s Dilemma. Having worked through 240 pages of theory explicating disruptive innovation, Christensen reserved the end for a case study about how he would think about commercializing the electric vehicle if he were an automaker. By so doing, he offered a primer for any edupreneur commercializing something new, so listen up.
Christensen began by determining that electric vehicles “have the smell of a disruptive technology.” For one thing, they do not satisfy current mainstream market needs. They offer a minimum cruising range of 50 to 80 miles, but most drivers require 125 to 150 miles. They cannot go from 0 to 60 miles per hour fast enough. And they do not offer the range of feature options that mainstream buyers expect. So, as Christensen put it, electric vehicles “offer a set of attributes that is orthogonal to those that command attention in the gasoline-powered value network.”
Meanwhile, the technology behind electric vehicles is moving ahead at a faster rate than the market’s trajectory of need. Traffic laws and other factors impose a limit on the usefulness of ever-faster, more powerful cars. But the performance improvement of electric vehicles is clipping along. This suggests that although electric vehicles cannot compete in mainstream markets today, they very well could catch up.
So who would buy one of these beaters? Don’t expect the SUV-driving dirt biker, the parent in the raucous minivan, or the guy polishing his Mustang to trade in any time soon. Christensen said in 1997 that “though it is impossible to predict [the initial value network], it almost surely will be one in which the weaknesses of the electric vehicle will be seen as strengths.” He suggested one fertile market could be small-parcel delivery vehicles or taxis to serve the crowded streets of Southeast Asia.
Turns out Christensen was close (surprised?). Recently Mike Ramsey of the Wall Street Journal published “Forget the Prius. The Future of Electric is the School Bus.” He noted that school buses are almost ideally suited to be electric vehicles. They cover fairly short distances on their daily runs. They follow set, predictable routes, so their battery needs are knowable. Plus, school buses are off the streets most of the day, affording them time to recharge. Sure enough, electric and hybrid-electric models are slowly making their way to school districts around the country.
The story of the electric school bus points to at least four lessons for others with products that “have the smell of a disruptive technology.”
First, turn the lemons into lemonade. Look for an initial market where the very attributes that make your new product uncompetitive in mainstream markets actually count as positive attributes for your first customers. Gasoline- and diesel-powered vehicles like to go far and fast. Electric cars actually benefit from stops, because they can draw energy from the use of their brakes to recharge their batteries. Many automakers have poured money into their electric models to try to make them distance and acceleration competitive. That was tackling the wrong problem. They should have focused on finding a market that values vehicles that thrive on frequent stops.
Second, brainstorm a start outside the system. Some electric-vehicle entrants, such as Shai Agassi’s Better Place, are trying to compete head-on with the gasoline-based value network by setting up battery charging and switching stations around the world to make owning an electric vehicle practical. In this paper, authors Shuman Talukdar, Michael Horn, Richard Alton, and Clayton Christensen say that because Better Place seeks to replace gasoline powered vehicles in the developed world, it is competing head-on with traditional cars. To win, it must build vast, vast infrastructure, yet still be just as cost effective as the incumbent solution. The authors believe Better Place “faces a long, tough road.”
In contrast, electric school buses have the potential to avoid competing head-on with the existing school bus value network. They improve fuel economy by 30 to 65 percent over diesel-powered buses, despite their slower acceleration and shorter cruising ranges. Thus, they could enter the market as a low-end disruption, offering a solution to poor districts that otherwise cannot afford to operate another bus or that do not need all of the power of a diesel bus. Furthermore, the systemic complexity of the school bus value network is not as mind boggling as in the larger network of consumer vehicles. School buses do not need a filling station every few blocks. An entrant like Better Place has to replace a much vaster infrastructure web than does an electric school bus entrant, which only must equip district school bus yards.
Third, find real people who pay real money, not government subsidies. Electric vehicle makers might be tempted to turn to government to enforce a green solution and decree a market. In 1990 California required that at least 2 percent of all vehicles that large manufacturers produced each year must be zero-emission (electric). A court injunction indefinitely delayed the implementation of that standard. But the prospect in many sectors, including education, remains alluring. Why not lobby for subsidies and regulations rather than finding a natural market? The problem is that like in California, non-economic-based markets prove capricious. They are likely to distort rather than solve the problem of finding a secure foothold.
Finally, find investors who value trial and error. Google’s mantra to “fail quickly” rings true for innovators. The first designers of the electric vehicle did not imagine that one of its best initial applications would be the school bus. But scan the business plan templates on most venture capital websites, and you’ll find that VCs want hard data—market sizing, focus-group studies, projections of financial returns. The problem is Excel cannot predict the right early markets. Markets that do not yet exist must be found before they can be analyzed. That happens best through try-and-fail expeditions into real markets with real paying customers, not through market research.
We all learned many things on the school bus. The electric school bus provides an instructive epilogue to Christensen’s speculations about the right market for a disruptive technology.
