Disruptive innovation describes innovations in products, services, or processes that radically change an industry’s rules of the game.54 Oftentimes, a smaller company with fewer resources successfully challenges established companies.55 Those smaller companies prove themselves to be disruptive by serving overlooked segments of possible consumers with products or services at relatively low prices. Although the term “disruptive innovation” is relatively new, the concept isn’t. For instance, economist Joseph Shumpeter used the term “creative destruction” almost 80 years ago to describe how capitalism builds on processes that destroy old technologies but replaces them with new and better ones.56 That, in essence is disruptive innovation. In practice, disruptive innovation has been around for centuries. Vanderbilt’s railroads disrupted the sailing-ship business. Alexander Bell’s telephone rang the death-knell for Western Union’s telegraphy. Ford and other automobile builders destroyed horse-drawn buggy manufacturers. As Exhibit 6–6 shows, there is no shortage of businesses that have suffered at the expense of disruptive innovation.

It’s helpful to distinguish disruptive innovation from sustaining innovation. When most of us think of innovations, we think of things like the HDTV, backup cameras on cars, fingerprint technology on smartphones, or even Double-Stuf Oreos. These are examples of sustaining innovation because they sustain the status quo. These sustaining innovations represent small and incremental changes in established products rather than dramatic breakthroughs. Original television sets disrupted the radio industry. HDTV just improved the quality of the TV picture.