Startups love claiming that they’re disruptive… and “changing the industry as we know it”.
But sometimes you just gotta call their bluff.
The early-stage investing world is riddled with companies pitching what’s nothing more than a bag of innovation –– a different method of doing the same thing, an idea with no sales, or a better model of XYZ widget.
Here lies the dilemma — every Angel wants to invest in disruptive innovation, but even the seasoned investor can struggle to spot it.
It’s like when Blockbuster had a chance to buy Netflix early on and they passed on the deal.
Can you tell the difference between a flop and a unicorn amongst the thousands of startups looking for investors any given day?
Let us analyze the deals and alert you when there’s one you should have on your radar.
There’s no easier way and no better time to get started with Angel Investing.
My investing partners Jeff Bishop, Allan Marshall, and yours truly are opening the doors to Angel Investing Insider with a 1-month sneak peek for just $7.
Once you’re inside, you’ll have access to invest in 8 red-hot startups, complete investor education materials, and our exclusive Insider Secrets video series.
The opportunity has never been greater and time is literally running out.
Once the clock hits midnight tomorrow… this deal vanishes.
However, after you capture our deal. I’ll want you to continue reading here.
Because we’re talking about “disruption” …. What it is, and what it’s not.
But most importantly, how to capitalize on it.
The term “disruptive” gets thrown around a lot in the startup world. Nearly any company that claims to do something unique drops this word into pitches and marketing material.
Disruption is used as an umbrella term for any innovation that upsets competition or revolutionizes a market. In reality, it has a much more specific meaning. One that is is far more interesting.
Now more than ever, knowing what a disruptive startup looks like is essential for angel investors. Most of the economy is at a standstill, but disruptive startups continue to innovate and provide opportunity to angels.
Let’s dive in and demystify this buzzword. We’ll see what disruption is, what it isn’t, and how you can use this knowledge to take your angel investing game to the next level.
What is Disruption?
Disruption is a process, not a product or service. Disruption occurs when new technology changes the traditional way of doing something. This change can relate to consumers, businesses, or entire industries.
Disruption begins at the bottom of a market, or an entirely new market, with a low-end product or service. Disruptive innovation is affordable, accessible, and valuable to consumers.
The process of disruption is achieved when the quality of the product or service catches up with its novelty. At this point, mainstream consumers start adopting it.
While many people use disruption and innovation interchangeably, this isn’t right. If you want to invest in truly disruptive startups, it’s important to know the difference.
Disruptive innovation almost always comes from startups.
Trying to create and scale a disruptive product is risky, so most established companies avoid it. Instead, they opt for steady incremental change.
Small teams of creative entrepreneurs, however, start at the bottom. For them, accessibility, affordability, and value are key to their business model. To capture a large number of customers quickly, disruptive startups need to provide something simple, cheap, and new.
What Isn’t Disruptive
Even revolutionary innovations aren’t necessarily disruptive.
When tossed around like a buzzword, the term draws your attention to trendy startups that already have eyes on them. But, if you understand the real meaning, you can find the elusive, truly disruptive companies you will want to invest in.
Long story short, if it doesn’t lower gross margins, target small markets, and offer simpler solutions than their competition, it isn’t disruptive.
Let’s make things clearer with a few examples.
Examples of Disruption
The first automobiles revolutionized transportation. They were a brand-new product that outclassed existing technology.
But, automobiles did not disrupt their market. Everyone still used carriages.
The first cars were high-end luxury items that very few people could afford. People continued to use horse-drawn vehicles for decades — the market was unphased.
Then, Henry Ford’s produced the Model T. This mass-produced, affordable automobile was made for the masses. It disrupted existing technology because it hit the low-end of the market and then grew.
Making sense? The Ford Model T was an accessible option that cut under its competition. It sucked up the market until it was too late for its competition.
Let’s check out some more modern examples.
First, DVD replaced VHS. It was an innovation that was clearly better than its predecessor and took over the market.
But it didn’t disrupt the market. The business model was the same. Physical units were sold to customers in brick-and-mortar stores for a fixed price. The customer took the product home and popped it into a device to watch it.
It didn’t reach new customers or create a new market by offering a more convenient or affordable option.
Netflix, on the other hand, did disrupt the entertainment industry. By delivering movies and later streaming them, it destroyed traditional video rental. Today, it’s disrupting cable subscriptions.
Ironically, Blockbuster passed on the chance to buy Netflix in 2000. Just ten years later, it closed its doors. This shows how hard it can be to spot disruption. Blockbuster wasn’t worried about a small company nibbling at the fringes of its market until it was too late.
Skype disrupted traditional calling with free, global communication. Anyone who signs up can send text messages, call, and video chat, free of charge
I’m sure you can see now why this was disruptive.
More affordable than telephone service and video chat software — check.
More convenient than using separate apps for texting, calling, and video chatting — check. Accessible to everyone — check.
Started by targeting a small market of users — check.
Today Skype has 74 million active users. It has totally replaced its predecessors for many people.
While not a startup, the non-profit Wikipedia beautifully illustrates disruptive innovation.
Many of you may have forgotten the days of physical encyclopedias. The traditional model involved experts writing multi-volume sets of encyclopedias to be sold for profit.
These collections were pricey, heavy, and quickly became outdated. The former market leader, Encyclopædia Britannica, sold their book sets for over $1,000 dollars. Their product was over one-hundred pounds of hand-bound volumes, containing about 120,000 articles.
Wikipedia came around, offering a similar service, for free. They offered virtual articles written by volunteers. The service was hard to take seriously at first. It was untrusted and unrespected for years.
Eventually, enough of the market’s fringe adopted it. Then, the application improved to the point where it gained mainstream use.
Today, it has over six million articles that are updated frequently. It weighs nothing, costs nothing, and anyone with an internet connection can access it.
Why Disruptive Innovation is Lucrative For Angel Investors
In the angel investing realm, disruptive startups are highly sought after. We love sharing the next hot disruptive startups with our Angel Investing Insider members.
They offer the best opportunities and the most potential.
Do you want a favorable valuation, rapid growth, and a profitable exit? A disruptive startup has got you covered.
Because they focus on simple, low-end products, the cost to make them tends to be low. Many of these startups don’t need much so they’re not worth much. This means you can get a favorable valuation on a startup with incredible potential.
Nothing is better at quickly growing a customer base and soaking up the market than a startup that makes something cheap, innovative, and accessible. Rapid adoption is more practical with disruptive technology than a luxurious one.
Finally, disruptors are pervasive and hard to predict. Market leaders will rarely realize a startup is a threat until they have seized a chunk of the market.
What we find with successful disruptive startups, is that the ones that don’t make it to an IPO are often silently and desperately purchased by large companies. Market leaders can wait to eat up their technology and market share. This means a profitable exit strategy for you.
Is It Still Safe to Invest in Disruptive Startups?
With the COVID-19 pandemic changing the early-stage investing ecosystem, you may think there aren’t any great opportunities out there.
Even though the waters are choppy, disruptive startups are still out there, creating solutions to today’s problems.
Just think of the demand for disruption in healthcare, remote-working software, and automation right now. It’s higher than ever.
In reality, if you have access and can find disruptive startups, it’s like you’re the only one at the buffet. Take your pick, eat your fill. This is because startups’ need for capital is sky-high and valuations are low. Angel investors with the right vision can find these companies and get incredible deals.
I know how hard it can be to find great startups alone. But with the right team, it couldn’t be easier.
I’ve had some of my biggest successes by learning from the expert angel investors around me — and so can you.
Angel Investing Insider is the incredible package we developed to educate you on angel investing essentials. We even give members a weekly deal-flow of outstanding disruptors they can invest in, all hand-picked by experts.
Let me know what you think–drop a message in the comments below!