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Disruptive innovation requires proprietary technology, creates value

By Kirk MacDonald

Pyrrhonian Partners

Toronto, Ontario, Canada


Of the six people who started PayPal, four built bombs in high school and three came from former communist bloc countries. I am not talking about Elon Musk. He came from South Africa through Canada and was playing around with miniature rockets.

Of course, the exercises were ones of teenage curiosity and nothing more, although Musk did build Falcon rockets, which I am sure you have read about.

These are the roots of classic disruptive innovators.

Those who lead the disruptive revolution often introduce new technology into mainstream society.
Those who lead the disruptive revolution often introduce new technology into mainstream society.

When PayPal was sold to eBay for US$1.5 billion two years later, all of the “original” PayPal Mafia went on to found companies valued today at US$1 billion or more, such as SpaceX, Tesla, LinkedIn, YouTube, Yelp, Yammer, and Palantir.

Writing a disruptive innovation blog post is not as fun as it might seem. You better have something disruptive to say and be able support it and stand by it. I asked a good friend to read the first draft of this post. His reply: “A little stale.” I shredded it and started over. He was right.

My job is to stimulate your thinking far beyond the norm. It is to turn your thinking upside down so you do less of the same. It is to provide you with a point or two that might push you to create a framework for experimentation and breakthrough action and answer this question posed by Peter Thiel: “What important truth do very few people agree with you on?” 

That is the first question in the disruptive innovation dance. I look at disruptive innovation through the prism of transformation, something that looks completely different from the starting point. I also look at disruptive innovation as a means to create value, defined as market capitalisation and not as a producer of short-term profits.

Going back a little further in history than December 1998 when PayPal started, here is one of my favourite innovation quotes from Henry Ford, inventor of the first ethanol-powered engine in 1896. (German Karl Benz was credited with inventing the first automobile 10 years earlier.) “If I had asked people what they wanted, they would have said faster horses,” Ford said.

Benz and Ford understood the limitations of horses and buggies and embarked on the biggest industrial and technological breakthrough of their time. And 100 years after Benz and Ford automated transportation, Thiel and his PayPal mafia did the same with automated payments.

Here’s the bomb: The bedrock of disruptive innovation is proprietary technology. Why? Because, to quote Thiel, “proprietary technology is the most substantive advantage a company can have because it makes your product hard to replicate.”

About Kirk MacDonald

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