Sustainable growth, not disruption

An edited version of this piece appears in The Irish Times , 1 August 2014 (online here)

In defining the criteria by which the judges of The Startup Academy will adjudicate which companies would be accepted into the programme we have done something radical. Normally a competitive process like this might select only the startups that are most likely to grow to a vast scale. In our case, however, the primary objective is not what startup incubators call “scalability”. Instead the Startup Academy’s criteria require judges to select startups that are most likely to grow sustainably.

Moving beyond disruption

In 1942 Joseph Schumpeter, an economist, described “creative destruction”, a process whereby new businesses entering a market “incessantly destroy” incumbent companies. These new entrants will themselves fall prey to later entrants who introduce new products or services that disrupt the incumbents’ businesses.

This view of disruption has been the mantra chanted in the technology sector with growing confidence from the late 1990s on, when a Harvard business theorist, Clayton Christensen, published the landmark disruption book “The Innovators Dilemma”. In Silicon Valley at least, disruption has since become dogma. Christensen’s place in the tech firmament is now so central that an attach on his research in a recent piece in The New Yorker caused a furore. None other than Marc Andreessen, the co-founder of Netscape and one of the most prominent investors in Silicon Valley, took to twitter in his defence.

The theory of disruption is one of the few things that is immune to disruption. In a more recent piece in The New Yorker Nathan Heller wrote about Francisco’s gentrification as wealthy tech employees drive up property prices and displace residents. The benefits of the startup boom are only for some, as the protestors on San Fransisco’s streets complain. The Christensen spat and the culture war currently raging in San Francisco are linked. There is something not quite right with the tech startup culture. Something that needs fixing.

We look upon disruption as a foreign concept imported from centres of innovation in the US, but there is something inherently disruptive in the Irish psyche. It surrounds us. Our cities are a mess of oddly planned clutter. Our rural landscape is a patchwork of irregular hedges. It is not possible to move in Dublin without braving the hazard of pavement hopping cyclists, swerving cars, and jaywalking pedestrians. This kind of disruption is what the Irish person lives with each day, and it supports a free-wheeling attitude to new ideas.

But there is a darker side to disruption. Entrepreneurs raised on stories of Instagram’s multi Billion dollar sale assume that to disrupt something is necessarily to the good because that which has been disrupted will be replaced by something better and more efficient. This is not always the case.

Disruption is the logic of Darwin applied to business. Natural selection, however, was intended to act for population growth rather than revenue accumulation. The winner takes all logic of disruption can be harmful.

Disrupting an inefficient industry may, for example, carry the very nasty side effect of dumping people with no hope of employment in the new dispensation on to the live register. Even so, one could argue that Schumpeterian “creative disruption” works when the benefit of what is new outweighs what has been destroyed. Yet there are certainly conditions when this test is not met.

And herein lies the question. Should we predominantly support the great disruptors, or should we support companies embarking on more modest – but sustainable – growth?

Go Lean, grow sustainably

If one could design a startup culture from scratch one might very well opt for many small, constant returns rather than few mega wins. It would drive continuous improvement that serves us all better.

For a very small business even modest growth is enough. One tailor told Stephen Brennan, the Chief Digital Advisor at the Government’s Department of Communications, that the difference between his store surviving and closing was the sale of one additional suit per month. Brennan has since bent many of his efforts toward schemes that help small businesses develop an online presence, such as the Trading Online Voucher Scheme announced earlier this year.

Opting for sustainable growth does not mean abandoning innovation. “Lean thinking” is a central tenet of startup thinking in the technology sector, and it applies as much to sustainable growth as to disruptive growth.

“Lean” describes a focus on properly understanding what a customer needs before building a product, and then constantly iterating that product to ever more perfectly meet the customer’s need. Lean was at the heart of the Toyota Production system that elevated Japanese manufacturers above American competitors in the 1980s and 90s. This iterative approach is applicable to every industry.

The better startup culture

A startup culture that embraces all sectors can also embrace more than Schumpeterian disruption. Designing a better culture for startups means minimising the hurt of disruption and maximising the spread of iterative improvement by design.

Ireland’s startup culture needs a change of mind set from winning big to winning sustainably. And as a first step The Startup Academy is looking for companies that can employ rather than creatively destroy.

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