Why Do Great Companies Fail?
Imagine you’re the CEO of a dominant company—let’s say you run Kodak in the early 2000s. Your company invented the digital camera. You’re aware of the tech, but digital photos are low quality, expensive, and your customers still love film. So, you focus on making film cameras even better. Fast forward a decade, Kodak is bankrupt, and Instagram is worth billions.
Sound familiar? The same story played out with Nokia (vs. iPhone), Blockbuster (vs. Netflix), and Intel (vs. NVIDIA).
Why do well-managed, profitable, industry-leading companies collapse while startups disrupt them? The answer lies in Clayton Christensen’s The Innovator’s Dilemma—a book that explains why success can be the greatest threat to survival.
Clayton Christensen (The Innovator's Dilemma) on How to Build a Disruptive Business | Startup Grind. YouTube Link.
The Innovator’s Dilemma: How Giants Lose & Startups Win
Christensen argues that big companies fail not because they’re bad at innovation—but because they’re too good at listening to customers.
Sustaining vs. Disruptive Innovation
- Sustaining Innovation = Incremental improvements to existing products (e.g., faster Intel chips, better iPhones).
- Disruptive Innovation = A new technology that starts as inferior but improves faster than market expectations (e.g., Tesla EVs, OpenAI’s ChatGPT).
The problem? Big companies optimize for their best customers, making products bigger, faster, and more profitable—and in doing so, they ignore the small, low-margin markets where disruption begins.
This leads us to Figure 2.6: The Disruptive Technology S-Curve—one of the most important ideas in business.
Figure 2.6: The Disruptive Technology S-Curve (Explained)
Imagine two lines on a graph:
1️⃣ The Incumbent’s Growth Curve – Companies like Intel, Kodak, and Ford start strong and improve steadily with each new generation of products.
2️⃣ The Disruptor’s Curve – Disruptive innovations start as weak substitutes (low quality, niche market), but their improvement accelerates exponentially—eventually overtaking incumbents.
🔎 Example: Electric Vehicles (EVs)
- 2008 – Tesla’s first Roadster: expensive, poor range, slow production. Dismissed by Toyota & GM as a niche product.
- 2018 – Tesla Model 3: Better performance than most gas cars. Now, every automaker is playing catch-up.
- 2024+ – Tesla is dominant in EVs, while legacy automakers struggle with unprofitable EV models.
By the time Ford and GM realized EVs weren’t a joke, Tesla had already built a gigafactory, a global charging network, and massive brand loyalty.
💡 Lesson from Figure 2.6: If you’re waiting until a disruptive technology is "mature" before taking it seriously, you’re already too late.
Case Studies: Startups That Won & Giants That Fell
🔻 Intel: The Innovator That Forgot to Disrupt Itself
- In the 1990s and 2000s, Intel dominated chips for PCs and servers. But instead of investing in new markets like mobile & AI chips, it kept improving faster and more expensive processors—a classic case of sustaining innovation.
- Meanwhile, Apple built its own ARM chips, NVIDIA took over AI processing, and TSMC mastered chip manufacturing.
- Now? Intel is losing market share, while NVIDIA & Apple are worth more than Intel ever was.
Lesson: If you don’t disrupt yourself, someone else will.
🔺 Tesla: A Textbook Case of Disruptive Innovation
- In 2008, the Roadster was a niche, expensive, low-production car.
- By 2020, Tesla was selling hundreds of thousands of EVs—while Ford & GM were just waking up.
- Today, legacy automakers are struggling to catch up, and Tesla dominates in cost efficiency, battery technology, and software.
Lesson: Startups that focus on emerging markets (instead of competing head-on with giants) can grow exponentially.
🤔 Who’s Next?
- AI Startups (Anthropic, OpenAI) vs. Big Tech (Google, Microsoft)
- SpaceX & Starship vs. Traditional Aerospace (Boeing, Lockheed Martin)
- Fintech Disruptors (Stripe, Revolut) vs. Traditional Banks
Disruptors start small but move fast—and incumbents realize too late that the game has changed.
The Startup Playbook: How to Beat the Giants
If you’re a startup founder, entrepreneur, or innovator, here’s how to use The Innovator’s Dilemma to your advantage:
1️⃣ Find Underserved Markets – Look where big companies don’t care (e.g., Tesla in early EVs, Airbnb in budget travel).
2️⃣ Embrace Low Margins Initially – Big companies chase profits, so they won’t compete with you at first.
3️⃣ Innovate Faster Than Market Expectations – Start small, but iterate fast. EVs were weak in 2008, but now they’re better than gas cars.
4️⃣ Don’t Listen Too Much to Existing Customers – Solve future needs, not just today’s problems.
5️⃣ Separate Disruptive Innovation from Core Business – If you’re in a big company, spin off a team to avoid corporate resistance.
Bottom line? If you’re an entrepreneur, you have the advantage. You’re small, fast, and not locked into legacy thinking. The real question is: Are you using this advantage to disrupt—or will you be the one disrupted?
Are You the Next Disruptor?
What industry do you think is ripe for disruption?
Drop a comment below—I’d love to hear your thoughts.
📢 Tag a fellow entrepreneur who needs to read this!
Disrupt or be disrupted. The choice is yours. 🚀
References
- Christensen, C. (1997). The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business Review Press.
- Disk/Trend Report (1995). Annual Review of the Hard Drive Industry.
- Tesla Investor Relations (2023). Financial Reports & Market Expansion.
- Intel Earnings Call (2023). Challenges in AI & Chip Manufacturing.
- McKinsey Report (2022). Disruptive Innovation in AI & Mobility.