In a recent podcast with Future Africa, Michael Seibel, CEO and partner at Y Combinator (YC), noted that, “80% of the companies that do YC raise money on demo day. [Only] 2% build successful companies.” He went on to explain that money isn’t the real problem these companies face, and that other factors are critical for startups to succeed.
For context, YC is one of the world’s most successful startup accelerators. The organization’s acceptance rate is in the single digits, and it attracts thousands of applications from across the world. Companies such as Stripe, Airbnb, Cruise Automation, DoorDash, Coinbase, Instacart, Dropbox, Twitch, and Reddit have gone through YC’s program. With multi billion dollar organizations like these, Seibel and his organization most likely have extremely high standards as to what defines a successful company. But regardless of how they define success, the main point is that very few companies meet the bar. YC is not alone in this regard as most efforts at innovation fail. The question is why?
Obviously there isn’t a single answer as to why most innovations fail, but the late Professor Clayton Christensen focused his career on helping organizations improve their odds of success at innovation. To that end, he developed “theories,” or frameworks, that help managers make better decisions. His belief, and ours at the Christensen Institute, is that if more innovators leverage good innovation theory, they’ll make better decisions that will ultimately lead to success.
Although theories are often related to the hard sciences such as Physics and Chemistry, they are incredibly relevant in innovation. Theories focus on the supremely practical question of what causes what—and why? When theories mature to the point that we understand causality, they provide a helpful lens for framing some of the world’s most intractable problems.
For example, consider the history of mankind’s attempts to fly. Early researchers observed strong correlations between the ability to fly and having wings and feathers. But when humans attempted to follow what they believed were “best practices” of the most successful fliers by strapping on wings, jumping off cathedrals, and flapping hard, they failed. Although feathers and wings were correlated with flying, they did not cause flight.
The real breakthrough in human flight didn’t come from crafting better wings or using more feathers. It was brought about by Dutch-Swiss mathematician Daniel Bernoulli and his book Hydrodynamica, a study of fluid mechanics. In 1738, he outlined what was to become known as Bernoulli’s principle, a theory that, when applied to flight, explained the concept of lift. But identifying the mechanism wasn’t enough to make the theory predictable—further research was needed to identify which circumstances yielded the desired result, and why the mechanism didn’t work in certain circumstances. Only then was the theory of flight well-researched and trustworthy enough to make flight possible.
Consider how important and relevant theories are in innovation. Shortly after publishing his research on disruptive technologies, Christensen received a call from Andy Grove. At the time, Grove was the CEO of Intel Corporation and he wanted to understand how Christensen’s research applied to the company. Christensen went on to explain the Theory of Disruptive Innovation to Grove and his executives by describing how the phenomenon played out in other industries.
He started with an industry so obscure and irrelevant it may have seemed a joke: steel. He explained how Nucor, an upstart in the industry, was able to upend, or disrupt, much larger and more heavily resourced integrated steel companies by selling rebar, the lowest-margin steel product at the time, to customers the integrated steel companies were all too happy to flee. These customers, however, provided Nucor with enough business and cash that enabled the company to spend more on technology and improve its operations. As Nucor grew, the company eventually began producing sheet steel, one of the most sophisticated and highest margin steel products. Once this happened, it was game over for many integrated steel companies. This was the process of disruption.
After explaining how disruption happened in industries as diverse as steel, disk drives, and mechanical excavators, Grove got it. This insight led to Intel’s investing in the Celeron line of processors to combat a much smaller upstart company called Advanced Micro Devices (AMD). Understanding The Theory of Disruptive Innovation helped Intel fend off the seemingly innocuous but disruptive threat from AMD.
Christensen developed and worked on many other theories and frameworks including Jobs to Be Done, Modularity Theory, and the four components of a business model. Each of these is designed to help innovators increase the odds of success at innovation, and they’re especially relevant to those working in growth economies.
To help empower entrepreneurs and managers with some of these theories, the Christensen Institute launched an executive learning course and the Market-Creating Innovation Bootcamp—an eight-session innovation workshop designed to help leaders make better management and innovation decisions.
Developing successful innovations may never become an entirely predictable exercise, but by applying innovation theories to help demystify complex problems, innovators can surely increase their odds of success.