How can you identify investment opportunities that will disrupt an industry?

Disruptive innovation is a term coined by Harvard professor Clayton Christensen to describe how new entrants can challenge established players by offering simpler, cheaper, or more convenient alternatives. As a venture capitalist, you want to find and invest in these opportunities before they become mainstream and capture a large market share. But how can you identify them? Here are some tips to help you spot the potential disruptors in your industry.

1 Look for the non-consumers

One way to find disruptive opportunities is to look for the non-consumers, the people who are not served or satisfied by the existing solutions. They may have unmet needs, different preferences, or lower budgets than the mainstream customers. By focusing on these segments, you can discover new ways to create value and solve their problems. For example, Airbnb targeted travelers who wanted a more authentic and affordable experience than hotels, and Netflix appealed to movie fans who disliked the hassles and fees of video rental stores.

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2 Follow the technology trends

Another way to find disruptive opportunities is to follow the technology trends that are changing the way people live, work, and play. These trends can create new possibilities, challenges, and demands for your industry. By staying on top of them, you can anticipate how they will affect your customers, competitors, and suppliers, and how you can leverage them to create new solutions. For example, Uber leveraged the smartphone, GPS, and cloud computing trends to create a new way of transportation, and Spotify used the streaming, social media, and personalization trends to create a new way of music consumption.

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3 Learn from other industries

A third way to find disruptive opportunities is to learn from other industries that have undergone or are undergoing disruption. You can study how the disruptors emerged, what they did differently, and how they succeeded or failed. You can also look for analogies, parallels, or gaps between your industry and theirs, and see if you can apply or adapt their ideas to your own context. For example, Amazon learned from the book industry how to disrupt the retail industry, and Tesla learned from the software industry how to disrupt the automotive industry.

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4 Test your assumptions

A fourth way to find disruptive opportunities is to test your assumptions and hypotheses about your industry, customers, and solutions. You can use various methods, such as surveys, interviews, experiments, or prototypes, to validate or invalidate your ideas and learn from your feedback. By testing your assumptions, you can avoid investing in wrong or risky ideas, and iterate on your ideas until you find the best fit. For example, Dropbox tested its assumption that people would want a simple and secure cloud storage service by creating a viral video that explained its value proposition.

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Aslak Felin

Strategist and Technical Manager | AI, Behavioral Health Interventions, Digital Identity, applied research and technophile
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Absolutely, to kick start the process, it's all about crafting hypotheses rooted in a unique, contrarian belief. Hypothesis crafting IS how you can identify investment opportunities that will disrupt an industry. Think of hypothesis crafting as elevating your metacognition game, thinking about how, and why, you think the way you think, then going beyond the conventional logic and wisdom. When introducing and using fresh beliefs, logics, and mental models, and being aware enough to switch from old to new frameworks, you pave the way for yourself for testing assumptions, aiming to capture disruptive value. Ultimately, hypothesis crafting is the key to spotting unmet needs. #DisruptiveInnovation #ValueLab

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5 Build a network

A fifth way to find disruptive opportunities is to build a network of people who can help you access, evaluate, and execute on them. You can network with entrepreneurs, founders, experts, mentors, peers, or other investors who share your vision, passion, and curiosity. By building a network, you can gain insights, referrals, introductions, or collaborations that can enhance your deal sourcing and due diligence capabilities. For example, Y Combinator, a leading startup accelerator, has built a network of alumni, mentors, and partners who can help its portfolio companies and investors find and fund disruptive opportunities.

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Mudassir Mustafa

Helping early-stage startups go from $100K to $10M+ ARR with GTM, Growth and Storytelling to build cult-like audiences.
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When it comes to finding disruptive startups, you'll discover the most opportunity where others spend the least time looking - so get out there and make new connections!

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Daniel Lewis

Senior Manager (OT Cyber) @ KPMG | {Strategist, Consultant, Advisor, Mentor, Innovator, Entrepreneur, Leader, Speaker} × {Cyber Security, Cybernetics & AI, Cyber-Physical Systems}
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Look for the change makers - people with deep knowledge of the market and/or the technology, who genuinely want to make a positive difference to the largest number of people. These are the one who will bring about the best original ideas with the greatest potential for future growth.

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Mudassir Mustafa

Helping early-stage startups go from $100K to $10M+ ARR with GTM, Growth and Storytelling to build cult-like audiences.
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Don't forget the importance of timing when evaluating disruption potential. The same startup pitching too early may seem dismissible, while visiting later could reveal an ideal storm of conditions for industry transformation. It's also critical to assess whether necessary tools, talent, and market readiness have aligned to make disruption achievable.

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How can you identify investment opportunities that will disrupt an industry?

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1 Look for the non-consumers

2 Follow the technology trends

3 Learn from other industries

4 Test your assumptions

5 Build a network

6 Here’s what else to consider

Venture Capital

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How can you identify investment opportunities that will disrupt an industry?

1

2

3

4

5

6

1 Look for the non-consumers

2 Follow the technology trends

3 Learn from other industries

4 Test your assumptions

5 Build a network

6 Here’s what else to consider

Venture Capital

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