8 min read off-record

The Cost of Complacency: How Market Leaders Lose to Disruptors

sculpture leaping in the air confidently

Julius Caesar and Blockbuster, Alexander the Great and Nokia, Napoleon Bonaparte and Kodak—what do they all have in common? They thought they were bulletproof, until they became just another version of Achilles: invincible, except for that one glaring weak spot. And no, it wasn’t arrogance or poor leadership that took them down. It was disruptive innovation.

These days, everyone throws the term around like confetti at a wedding, but even the disruptors don’t always understand what it takes to unseat a market leader.

Since the introduction of "Disruptive Innovation," innovators have been scrambling to align their models with Clayton Christensen's theory. Venture capitalists justify their bets by invoking Christensen’s principles, while armchair experts breathlessly predict which incumbents will be the next to fall.

Christensen’s theory, laid out in his books and articles, is rooted in exhaustive studies across multiple sectors—from retail to disk drives to the bleeding-edge technologies of his day. His work captures the essence of disruptive innovation. In this article, we’ll explore his theory, dig into successful cases, and look at real-world examples that deviate from the classic model. We’ll also introduce alternative concepts, offering a more humanistic view of modern innovation that goes beyond the usual profit-driven, mechanistic approach.

But since you probably already know Christensen and his seminal work The Innovator’s Dilemma, let’s skip the long-winded intro and jump straight into the meat of it.

Why Big Firms Lose

It’s not bad management that makes big firms fail. Ironically, it’s the exact opposite. These companies fall because of good management. Executives are laser-focused on doing everything by the book—tracking competitors, pumping out better products, boosting profits. They get so fixated on steering their ship right that they forget to look over the horizon.

They’re like Captain Ahab hunting his white whale. They’ve sharpened their harpoons, manned the decks, prepared for the ultimate storm... and then they hit the iceberg they didn’t see coming. Welcome to the Titanic, ladies and gentlemen.

These firms offer high-quality, reliable products, but then along comes some scrappy misfit with something cheaper, better, and more innovative. Christensen explains in The Innovator’s Dilemma that trying to balance an established revenue stream with a disruptive model is a losing game. It’s nearly impossible to operate both models within one structure because they require completely different sets of rules, behaviors, and mindsets.

Take Southwest Airlines: they nailed the low-cost, no-frills model while American Airlines tried (and failed) to juggle both, showing just how hard it is for incumbents to integrate new ideas into an old framework.

Rebecca Henderson has a similar take. She argues that big firms resist sacrificing what’s already working for something new and unproven. They underinvest in emerging technologies, lose sight of what’s coming next, or worse—ignore it entirely.

Imagine McDonald’s being presented with a revolutionary new way to make burgers. Even if it would blow the competition out of the water, they’d struggle to implement it without risking the consistency and predictability that define their brand. It’s like trying to move a mountain with a toothpick.

Christensen holds onto Adam Smith’s rational consumer theory like it’s a life raft. But people aren’t just rational machines; they’re emotional, stubborn, and sometimes downright irrational. Consider this: In 2000, Reed Hastings walked into Blockbuster with an offer to sell Netflix for $50 million. Blockbuster laughed him out of the room. Who’s laughing now?

Inability of the Theory

The problem with Christensen’s theory? It’s too clean. The reality of disruption is messy. It doesn’t wait for the light to turn green—it jay-walks across the intersection and dares the traffic to stop. The iPhone and Uber didn’t crawl up from the basement like humble little startups. No, they kicked the door down from inside a Trojan horse and conquered the battlefield in broad daylight.

Business models define everything: a firm’s structure, its revenue streams, its target customers. Christensen’s classic disruptors start by focusing on the underserved, usually with an inferior product, and build something completely different from the mainstream producers. Christensen himself admits that these scrappy newcomers often look like the underdog at first, but they gather momentum and eventually challenge—then displace—the incumbents.

But here’s the million-dollar question: do all disruptors have to change their business model as they grow? Or do some go for the jugular from day one? I say both paths happen.

Take Audi, for example. They began as a modest, lower-cost car company, only to evolve into a luxury brand, aiming at the top of the market. On the flip side, you’ve got Netflix. From day one, they didn’t mess around with niche markets—they went straight for Blockbuster’s jugular, positioning themselves as the direct competitor. No slow climb, just a straight challenge to the throne.

Other Factors

If the world was just business and nothing else, Christensen would be spot on. But here’s the rub—businesses don’t operate in a vacuum. They pay taxes, bow to regulations, and get tangled up in the mess of politics. And the folks on the receiving end of those taxes? They don’t exactly make life easier.

Now, let’s talk about speed. Rabbits move faster than elephants. Disruptors often zip ahead, while large firms plod along, weighed down by bureaucracy and sluggish decision-making. It’s not that the big players don’t see the threats coming—it’s that they can’t move fast enough to do anything about it.

Then there are supply chain headaches, political roadblocks, and those lovely long-term contracts with suppliers that lock them into old ways of doing things. These external forces make it overly simplistic to pin all the blame on management for missing the boat on disruption. Managers aren’t just sitting around twiddling their thumbs—they’re caught trying to balance today’s profits with tomorrow’s innovation, while dodging obstacles the size of mountains.

Thinking, Fast and Slow

A man wondering behind countless clocks

In his renowned book, Thinking, Fast and Slow, Daniel Kahneman, particularly in Chapter 17, highlights an important point about the role of chance in success. By following his logic, we can gain a fresh perspective on disruptive technologies.

Successful disruption = Christensen’s theory + Luck + Environment.

No matter how great your business model is and how innovative it appears, sometimes you need just luck, right ideas in the right time at the right place.

We can only speculate about what might have happened if the rise of personal computing hadn't coincided with the Cold War and the post-World War II technological race.

There are countless other disruptive ideas, innovations, and technologies that could have outperformed what we have today, but they never saw the light of day. These ideas didn’t fail because they didn’t fit Christensen’s model; they were simply victims of circumstance, forced into oblivion by the status quo.

A prime example is the scientist Nikola Tesla. His ideas were incredibly disruptive, aligning with many of Christensen’s principles—and often exceeding them. Yet many of Tesla’s groundbreaking innovations didn’t gain enough traction at the time, largely due to external circumstances, which stifled their success.

Disruptors That Didn’t Quite Succeed

A women wearing glasses and disrupted head

Form Over Function: Swiss Watches
Did digital watches send the Swiss watchmakers into the graveyard of old-school businesses? Not even close. They basically declared the Swiss immortal. While disruptors fought over the scraps of the mass-market timepiece business, the Swiss sat back, called it a day, and watched Formula 1 while cashing in. They didn’t just survive; they disrupted the high-end market—a market that didn’t even exist before they made it up. Now, a Swiss watch tells time once a week, at 3:00 PM, right after the start of the Grand Prix. These timepieces are no longer about utility—they’re symbols of luxury, exclusivity, and status.

Mechanical Keyboards
Remember those clunky, noisy mechanical keyboards from the ‘80s? Turns out, they’re making a comeback. Despite looking and sounding like relics, they’ve gained a cult following among keyboard enthusiasts. These folks don’t want mass-market junk; they want quality, customization, and something that feels substantial. This is a perfect example of how some technologies, once thought obsolete, evolve to cater to niche markets and cultural movements like essentialism—where experience and craftsmanship trump convenience.

Cryptocurrencies
Cryptocurrencies? Well, they were supposed to be the great financial revolution. Decentralized, democratized, and ready to take down traditional banking. But the reality? Not so fast. Between regulatory smackdowns, insider scams, and a general public that still doesn’t know what blockchain actually is, crypto’s grand takeover has stalled. Sure, they’ve got disruptive potential, but traditional finance—fueled by the big boys in Washington and their copycats in Brussels—is still running the show. This is a textbook case of how entrenched power structures can keep even the most promising disruptors in check.

Conclusion

At the end of the day, Christensen gave us a powerful lens to view innovation. But let’s not treat it like gospel. Disruption isn’t a clean, linear process—it’s messy, unpredictable, and often just as dependent on luck as it is on strategy. The next great disruptor might be hammering away in some garage—or they might be the next Kodak, collapsing under the weight of their own hubris. Only time will tell.

Disruptive innovations are like black swans: you only spot them in broad daylight, after they've already disrupted the market. Still confused about where I'm going with this? Don’t worry—rewatch this classic Wolf of Wall Street scene:
“Number one rule of Wall Street: Nobody—I don't care if you're Warren Buffett or Jimmy Buffett—nobody knows if a stock's going to go up, down, sideways, or in fucking circles, least of all stockbrokers. It’s all a Fugazzi.” You know what a Fugazzi is? Exactly.

Christensen’s theory? It’s a great place to start, but there’s still a long way to go in understanding why some disruptors thrive while others end up like Kodak. Some industries are cartels, cozying up and colluding to survive, while others are more like gladiator pits—only the strong make it out alive. The market, the product, and the timing all play their parts.

And that’s where Donald Norman’s "cheese hole alignment" comes into play. Success or failure? It doesn’t just depend on one thing—it’s a mix of everything. Timing, external forces, market dynamics, and yes, sometimes just plain dumb luck. When all those holes line up, you’ve got a winner. When they don’t? Well, that’s when you get the next big flop.

References

Christensen, C. M. (1997). Give Responsibility for Disruptive Technologies to Organizations Whose Customers Need Them. CM Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, 89-101.

Sam Rad