Disruption. It might be the most overused buzzword in the startup world. It’s become the holy grail of entrepreneurship—the notion that your idea is not a mere product or service, but a revolution taking on the established order.
Honestly, it’s not hard to see the appeal.
Disruption, as one writer put it, is “high drama.” It places entrepreneurs at the heart of an epic struggle. They are David, going up against the institutional Goliaths of our world. Netflix slaying Blockbuster. Uber bringing down the taxi industry. 3D printers threatening to make old-school manufacturers obsolete.
“There is a joy in seeing ‘the system’ shaken up, old hierarchies upended,” the same writer observed. But what if that’s not what’s really taking place?
Much of what passes for disruption today is anything but a dismantling of the established order or reshaping of the prevailing power structures. Many of the most highly feted disruptors are value-extractive, taking more than they give from the communities they disrupt.
Disruption as we know is not the answer our economy needs. The real game-changer is when we disrupt to democratize.
The failure of the disruptive business model
Consider two of the best known categories of disruption currently changing the way we live: ridesharing and food delivery.
Both impact almost every American. In 2019, Uber completed nearly 7 billion rides—that’s almost one for every person on the planet—while demand for traditional taxi services plummeted. In 2020, as indoor dining ground to a halt because of Covid-19, a record 45 million American households turned to food delivery apps to enjoy their favorite meals at home.
But these disruptions did not upend old hierarchies; they merely created new ones. Just three apps—DoorDash, UberEats, and Grubhub—control 96 percent of the food delivery market. It’s even more concentrated in the rideshare market: two companies, Uber and Lyft, have a near-100 percent lock.
The taxi services felled by Uber and Lyft were hardly beloved institutions. Major cities tightly controlled ride-hailing markets, limiting who could operate through systems that were rife with cronyism. Uber and Lyft disrupted that, to be sure—but they have replaced the old system with one that is just as anti-competitive.
Which brings us to a sobering truth about a lot of disruptive businesses today:
Many disruptors reinforce or replace—rather than eliminate—institutions that get in the way of innovation.
In this model, the corporation is still sovereign. The middlemen may be different, but they are still calling the shots. In the case of ridesharing, the most coveted asset may no-longer be a city-issued medallion authorizing you to drive a taxi. Instead it’s a sleek, user-friendly app. But the end result is the same.
These disruptors do not put any more power or choice into the hands of those they claim to benefit. Their ultimate priority is maximizing shareholder return, sometimes at exponential rates of 50 or 100 times. This, in turn, leads another problem with the disruptive business model, as it is practiced today:
Many disruptive businesses are value-extractive, rather than value-creative.
Take ridesharing apps that have upended local transportation services. They rely on drivers who are often classified as contractors instead of employees, many of whom live outside the city. The fees they collect for providing access to a service—without providing any of the hard equipment or infrastructure themselves—go straight into the pockets of their investors, rather than back into the community itself.
Food sharing apps pose a similar dilemma. They were hailed by some as the only thing keeping restaurants afloat through the pandemic. The reality, though, is far murkier. The service fees they charge restaurants average about 30 percent. Some food delivery apps take as much as 50 percent. Considering the typical restaurant runs on a profit margin of 3 to 5 percent under the best of conditions, it’s likely these food sharing apps did more to hurt than help—just as 1 in 10 restaurants were forced to close temporarily or permanently.
Technology is not the problem. It’s the business model.
The technology powering some of the world’s top disruptive business ideas is phenomenal. Who would choose to go back to the old way of hailing a cab when you can book a ride on your phone and see exactly where it is and when it will arrive?
The problem is not the technology. It’s that too many disruptors are following a broken business model—one that extracts value from communities instead of creating it. This model demands an incessant focus on shareholder return, incentivizing disruptors to pile on more and more extractive fees.
But technology can be leveraged to create, just as effectively as it can be used to extract. It can be leveraged to connect people across borders, time zones, social classes—faster and more efficiently than ever before. In doing so, power can be more widely distributed than it is under the prevailing model.
The key is to examine every category that is ripe for disruption—and some that have already been disrupted—and ask: is there a less extractive, more value-creative way to do it?
Disrupting disruption: community-based value creation
The next frontier for massively scalable solutions will look a lot different than ventures of the past, even the very recent past. The same technology behind some of the most value-extractive disruptions today will be harnessed to build networks and give people power to question everything about the way the world works—and to rewrite all the rules.
Unlike the disruptors of today, tomorrow’s digital solutions will:
- Eliminate old-school institutions and remove no-longer-needed middlemen.
- Connect people directly to one another.
- Upend existing economic and power dynamics—for the good of us all.
As the extractive model of food delivery apps came to full light during COVID-19 lockdowns, innovators started to take note. Twin brothers David and Aaron Cabellow developed Black and Mobile, a delivery service targeting black-owned restaurants and charges lower fees than other platforms. Chowbus is another app that was developed exclusively for local, small Asian restaurants thrive. Without big chains buying ad space, these smaller restaurants can get consumer eyes on their food. Chowbus charges a flat rate that makes it sustainable for restaurants, drivers, and diners.
Another example is The Drivers Cooperative in New York. They offer the same basic service as Uber and Lyft, but they are in many ways the exact opposite. As a crowdfunded, driver-owned cooperative that runs on a revenue sharing model, their profits go into the hands of drivers instead of Silicon Valley investors. Their drivers earn more and, in contrast to the “contractors” who work for Uber and Lyft, they are less likely to fall below the poverty line.
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Our systems of building, growing, and investing are in dire need of disruption. But disruption is not an end unto itself. It’s essential we ask: disrupt for what?
Value-creative disruption is the future. It’s a future where networks matter more than institutions. Where trust is valued over hierarchy and bureaucracy.
A future where anyone can be a Builder. Where anyone with an idea can have access to the tools, resources, and networks they need to test and scale their idea into what could be the next game-changing disruption—one that adds more good to our communities.