The Boy Scout Who Brought us the Age of Disruption

Summary

Podcast Summary: Business History – “The Boy Scout Who Brought Us the Age of Disruption”

Date: June 17, 2026
Hosts: Jacob Goldstein & Robert Smith (Pushkin Industries)
Episode Theme:
A deep dive into the life and legacy of Clayton M. Christensen, the business thinker who popularized the theory – and language – of "disruption," examining his core ideas, their real-world examples, and their immense influence on how modern businesses operate and perceive themselves.

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Main Theme & Purpose

This episode explores the remarkable influence of Clayton M. Christensen, author of The Innovator’s Dilemma, on the history and present of American business. Through playful banter, clear storytelling, and illustrative case studies (including children’s books!), Jacob and Robert break down why disruption happens, how even the best-run companies can end up obsolete, and what – if anything – can be done about it.

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Key Discussion Points & Insights

1. Who Was Clayton M. Christensen?

• Background:
  • Christensen was not the swashbuckling entrepreneur of legend, but a “literal Boy Scout” (Eagle Scout, troop leader, lifelong scoutmaster), and followed a classic, understated path: Salt Lake City, Brigham Young, Rhodes Scholar, Harvard Business School, then professor.
  • (“He had the most basic business school life trajectory I’ve ever seen.” – Robert, 06:21)
• Unassuming Disruptor:
  • Launched a modest tech company (Ceramics Process Systems) with academic colleagues—and unexpectedly beat industry giants like DuPont and Alcoa.
  • Rather than attribute success to personal genius, Christensen investigated why big, smart companies lose to upstarts.

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2. The Innovator’s Dilemma: Theory of Disruption

Why do great companies fail?

• Core Idea:

  • Businesses don't fail because they’re incompetent; they fail because they do everything right—until the “game” changes.
  • “They fail not because they’re bad at business. They fail because they are too good at business... and then the game changes.” (Robert, 04:52)

• Key Insight:

  • “There’s something about the way decisions get made in successful organizations that sows the seeds of eventual failure.” (Jacob quoting Christensen, 09:05)
  • The habits that lead to success prevent adaptation to new, disruptive tech.

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3. Sustaining vs. Disruptive Innovation

• Sustaining Technology:

  • Incremental improvements for existing customers.
  • “Every company gets better all the time... the big companies stay big.” (Robert, 12:11)

• Disruptive Technology:

  • New, simpler (often initially ‘worse’) products aimed at overlooked or new markets.
  • “The company making what in many ways is a worse product is the disruptor.” (Jacob, 13:00)

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4. Case Studies & Storytelling Highlights

a. Disk Drives (“Fruit Flies of Business”)

• The rapid turnover in the 1980s-90s disk drive industry served as Christensen’s “petri dish.”
• Disruptors made cheaper, smaller drives for new markets, ignored by incumbents.
• “If you want to understand why something happens in business, study the disk drive industry. Those companies are the closest things to fruit flies that the business world will ever see.” (Jacob reading Christensen, 10:23)

b. Mike Mulligan and the Steam Shovel (Children’s Book Parallel)

• Technological progression:
  1. Steam to gasoline engines (sustaining)
  2. Gasoline to hydraulics (disruptive)
• Big firms ignored hydraulic tech as “too weak” for existing customers, so upstarts took new customers and, as the tech matured, toppled the giants.
• “They failed because hydraulics didn’t make sense until it was too late.” (Jacob reading Christensen, 18:17)

c. Steel Mills and the Rise of Mini Mills

• Electric arc furnace mini mills (like Nucor) could only make low-quality, low-margin rebar—at first.
• “The big steel mills, they had been making rebar but it was such a low profit margin, it was like 7%... So when Nucor and these small mini mills came around, the big companies were like, thank God we don’t have to be in this dog-eat-dog commodity business any more.” (Robert, 31:04)
• Mini mills kept improving, moved up the quality ladder, and eventually dethroned the giants.

Memorable moment: The hosts riff on a real children’s book about a unicorn visiting a Nucor mill (28:09–29:09).

• “Nucor, hero of our children’s book, is the biggest steel company in the United States. Classic. Checkmate. People in business love these stories. I kind of felt it as I was reading Clay Christensen’s book. It’s like a horror film for executives.” (Robert, 32:16)

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5. Why Do Big Companies Struggle to Respond?

• Customer Focus:
  • Large firms listen closely to customers—who usually ask for better versions of what they already have, not risky new things.
  • “Don’t ask your customers what they want. They don’t know.” (Robert, 19:40)
• Profit Margins:
  • Startups can survive on tiny margins, but incumbents (and investors) demand high returns.
  • “Disruptive technology isn’t just worse than old technology. It usually has lower profit margins at first.” (Robert, 26:02)

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6. How to Survive the Innovator’s Dilemma? (Christensen’s Prescriptions)

After his horror-story book, Christensen wrote several “antidote” sequels. (“Chicken Soup for the CEO’s Soul.” – Robert, 34:02)

• Three Paths for Incumbents:
  1. Wait Until Tech Matures & Move Fast
     • Rarely works—startups too far ahead by then.
     • Apple’s launch of iPhone at the right moment is a rare example. (38:30)
  2. Buy the Disruptors
     • Tech giants now routinely buy potential disruptors—Facebook/Instagram, Google/Android, Apple/Siri.
     • “He bought Instagram for a billion dollars. Like a billion dollars. Zero revenue, 13 employees. The disruption was averted, at least for Facebook.” (Robert, 41:19)
  3. Incubate Disruption Internally
     • Create an autonomous team/division to build the disruptive product—even if it hurts your main business and margins.
     • Example: HP created its inkjet printer team in a separate office to attack its own highly profitable laser printer business.
     • “You can’t just put a conference room aside and say, ‘You’re the disruptors.’” (Robert, 42:19)
     • “If it works, the disruptors should put most of your company sort of out of business.” (Jacob, 42:26)
     • Few companies manage this—sometimes the “antibodies” kill the innovation.

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7. Critiques and Limitations

• Not a Law of Nature:
  • The theory is powerful, but not universally predictive.
  • “It’s true in a business school sort of way... But it’s not a law of nature, and I think Clayton admits to this too, that he picks companies to profile that fit his thesis.” (Robert, 45:00)
• Overlooks Factors:
  • Historian Jill Lepore and others note that Christensen sometimes omits complicating realities (e.g., unions, labor conditions).
• Failed Venture Fund:
  • Christensen’s fund betting on disruptors lost money—highlighting that predicting the future isn’t as easy as explaining the past.

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8. Disruption as a Meme

• Today, every tech company—big or small—wants to be a “disruptor.”
• “Casper Mattresses said it was disrupting the sleep industry, which kind of was.” (Robert, 46:37)
• “The panic that the Innovator’s Dilemma put in every business person’s soul.” (Robert, 47:22)
• The idea of disruption shapes how companies behave—even leading tech giants like Microsoft, Meta, and Google to desperately try to disrupt themselves before someone else does (AI race as current example).

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Notable Quotes & Moments

• "The way successful organizations make decisions is what screws them."
  Jacob Goldstein, 09:05

• "They fail because they are too good at business, too good at the game. And then the game changes."
  Robert Smith, 04:52

• “The company making what in many ways is a worse product is the disruptor.”
  Jacob Goldstein, 13:00

• "Successful companies routinely give their customers more and better versions of what they want. But products that do not appear to be useful today may squarely address their needs tomorrow."
  Jacob Goldstein, quoting Christensen, 19:25

• "It’s like a horror film for executives … the key to a horror film is you see the evil thing coming, you know it’s coming somewhere, you just don’t know when they’re going to jump out at you with the knife."
  Robert Smith, 32:16

• "The need to be a profit maximizer, the need to listen to your customers. And that is the sort of inevitable undoing of the incumbent, of the hero."
  Jacob Goldstein, 33:03

• "Everyone wants to be a disruptor. Even the largest companies on Earth call themselves disruptors."
  Robert Smith, 46:21

• “The panic that the Innovator’s Dilemma put in every business person’s soul.”
  Robert Smith, 47:22

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Engaging & Memorable Moments

• Playful readings from children's books (about steam shovels, cranes, and even a unicorn at a steel mill) to illustrate complicated business theory in delightfully simple terms. (14:12, 28:09)
• The horror movie analogy for Christensen’s theory (32:16).
• Self-aware jabs at the business book industry, with the proliferation of Christensen sequels (34:00).
• Meta-analysis of disruption as a psychological business force—how even the largest companies fear becoming case studies in the next “Innovator’s” book.

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Timestamps for Key Segments

• 03:18 – Episode premise: American genius series, leading to Christensen and “disruption”
• 05:25 – Introduction of The Innovator’s Dilemma’s key question
• 09:05 – Core insight: why great firms sow their own destruction
• 10:23 – Disk drives & “fruit fly” analogy
• 13:00–15:00 – Steam shovels, sustaining vs disruptive innovation explained with Mike Mulligan
• 18:17 – Core quote: “They failed because hydraulics didn’t make sense until it was too late.”
• 23:46 – Publication of The Innovator’s Dilemma, dotcom boom influence
• 24:52 – Jeff Bezos and the “destroy our own business” Kindle approach
• 31:04 – Steel mills, profit margins, and the rise of mini mills
• 32:16 – The “horror film” for executives analogy
• 37:49 – Christensen’s later work on meaning and happiness
• 38:30 – The three ways to fight disruption
• 42:16 – Incubating a disruptor within your own company (HP example)
• 45:00 – “To be fair” section: theory limits & Jill Lepore critique
• 47:22 – The psychological hangover of disruption in modern business

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Conclusion

This episode brings Christensen’s ideas alive in a funny, accessible, yet insightful way, cementing why “disruption” is the defining anxiety and motivation of modern business. His theory is both a cautionary tale and a playbook. Whether it’s tech giants buying up every possible threat, building “skunkworks” inside, or nervously watching the fruit flies at the periphery, everyone is now searching for that delicate balance: how not to be the next case study.

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For listeners and readers, this episode delivers both a business education and an entertaining narrative—placing disruption at the very heart of how we think about business survival and change in the 21st century.

Transcript

[Jacob Goldstein]

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[Robert Smith]

Pushkin. Too quick.

[Jacob Goldstein]

No, it was perfect.

[Robert Smith]

Push. Kit.

[Jacob Goldstein]

Stop. You got it. This episode is presented by Odoo.

[Robert Smith]

Jacob. Today is episode number three in our series on American genius. Genius writers that changed the way we do business in this country. We had Benjamin Franklin, who created hustle culture in the mid-1700s. Right? Ida Tarbell, the reporter who gave businesses a conscience. Early 1900s and today, Clayton M. Christensen.

[Jacob Goldstein]

Christensen.

[Robert Smith]

Christensen.

[Jacob Goldstein]

Okay.

[Robert Smith]

Not a household name, but you've probably seen his book for sale in airports all around the country. The Innovators Dilemma. Now, Clayton, after he wrote this, he didn't get his face on the money. There are no statues of him. And frankly, I think he would be embarrassed to be on this list of American geniuses. He was a humble business school professor, if such a thing exists. And yet we live today in Clayton M. Christensen's world because he was the one who popularized the word disruption. Everybody wants to be a disruptor now. The book Innovator's Dilemma influenced Steve Jobs. He recommended it. Jeff Bezos encouraged his managers to read it. Michael Bloomberg, Mark Cuban. It's on all of their reading lists. But beyond popularizing the word disruption, Clay Christensen developed a theory of disruption. Why? Business history is strewn with the carcasses of failed businesses. Businesses that used to be on top and then were disrupted into oblivion. We've done them here on the show Sears. Exactly.

[Jacob Goldstein]

Sears, Number one, biggest building in the world. Where are they today?

[Robert Smith]

And there's this question you ask that we probably asked. How did Sears not see the challenge of Walmart or online shopping? You know, were they stupid? Had they lost their touch? Clayton says no. In the Innovator's Dilemma, he argues they were not stupid. There is something in the nature of technological change that makes it nearly impossible for big companies like Sears to adapt. They fail not because they're bad at business. They fail because they are too good at business, too good at the game. And then the game changes.

[Jacob Goldstein]

I'm Jacob Goldstein.

[Robert Smith]

I'm Robert Smith. And this is Business History, a show

[Jacob Goldstein]

about the history business.

[Robert Smith]

The Innovator's Dilemma isn't about how big companies can't innovate because they totally can. They have money, they have personnel. They have the means to do it. They just choose not. Not to do it or to do it in a different way for very smart and sensible economic reasons. And then those companies die.

[Jacob Goldstein]

That's the dilemma.

[Robert Smith]

That is the dilemma which we will illustrate today by reading A children's book.

[Jacob Goldstein]

I'm going to be the LeVar Burton

[Robert Smith]

of business history reading Rainbow

[Sponsor Announcer]

Ding.

[Robert Smith]

We love to start the show with a swashbuckling profile of an entrepreneur or thinker. And. And unfortunately, Clayton Magleby Christensen did not ride the rails with hobos.

[Jacob Goldstein]

Did he work as a telegraph operator at age 13?

[Robert Smith]

Did not. He didn't get kidnapped by pirates.

[Jacob Goldstein]

No time on a ship.

[Robert Smith]

No time on a ship. Clayton Christensen had the most basic business school life trajectory I've ever seen. He was born in Salt Lake City, second of eight children, went to Brigham Young University, Rhodes Scholar, Harvard Business School, Boston Consulting Group. It's kind of like going to sea with pirates.

[Jacob Goldstein]

No, it isn't.

[Robert Smith]

He was a literal, boring pirate. He was a literal pirates in techies.

[Jacob Goldstein]

I bet he was an Eagle Scout.

[Robert Smith]

He was an Eagle Scout, and then he spent 25 years as a scout master, den leader, troop chairman. I mean, true Boy Scout. And even his foray into business was weirdly undramatic. He teamed up with a bunch of professors at MIT when he was at Harvard, and he helped start Ceramics Process Systems Corporation.

[Jacob Goldstein]

That's a lot of boring words together. I feel like, do you need process and systems?

[Robert Smith]

I don't know if they made the process or the ceramics or the systems. But something happened with this company that gave Clayton pause, and that was his tiny company succeeded. It succeeded wildly. Ceramics Process Systems was competing with. With some of the biggest, smartest companies in the world. Dupont, Alcoa, and Clayton's company beat them all. Now, a less humble professor would have said, well, of course I'm a genius. I went to Harvard Business School. But then he thinks, you know, is that really it? Like, dupont and Alcoa have people from Harvard Business School, hundreds of them. They have MIT scientists. There must be another way to.

[Jacob Goldstein]

They have money. They know their markets. They should win.

[Robert Smith]

They should win.

[Jacob Goldstein]

This is very admirable that he. That he rethinks this. Right.

[Robert Smith]

Well, this is the moment I sort of fell in love with Clayton because he decided to actually devote a research project to study why he and his startup company were not special, were not extraordinary. There must be something in the water of business that makes this happen.

[Jacob Goldstein]

And when is this? Like, what, mid-90s?

[Robert Smith]

Yes.

[Jacob Goldstein]

You know, now it is less surprising to us when some new company comes along and topples in a. Because this is the world we're living in. But I think back to the General Motors show where I looked at the biggest companies in America in the mid-90s, and they were all 100 years old. It was AT&T and Philip Morris. And this idea that a little company could beat a big company was not in the air the way it is now. And this is part of the world that sort of Clayton Christensen is helping to bring about.

[Sponsor Announcer]

Right?

[Robert Smith]

Yeah. And his hypothesis was that this David and Goliath dynamic affects all sorts of industries, as he later wrote. Why don't you give me this quote here?

[Jacob Goldstein]

There's something about the way decisions get made in successful organizations that sows the seeds of eventual failure. I just want to say that again, it's a little bit wordy. Right. But what he's saying is the way successful organizations make decisions is what screws them.

[Robert Smith]

Exactly.

[Jacob Goldstein]

It doesn't sound right on its face.

[Robert Smith]

Right.

[Jacob Goldstein]

Because presumably they're successful because they have made good decisions and they'll continue to be successful.

[Robert Smith]

And Clayton comes up with this idea with actual data. He studies the disk drive industry for computers.

[Jacob Goldstein]

Now, I feel like our audience remembers disk drives.

[Robert Smith]

Okay.

[Jacob Goldstein]

I remember the big actual floppy ones and the little hard ones that were still called floppy ones.

[Robert Smith]

Well, there was this whole competition then for putting more and more information on your disk drive. Obviously, in computers, you wanted more and more memory, but at the same time, computers were getting smaller from the big mainframe one. So you wanted your disk drive to get smaller and smaller. And he had a specific reason, Clayton did, for studying disk drives. He wrote about how biologists study fruit flies because they're born, reproduce, and die within a single day.

[Jacob Goldstein]

So you get a lot of evolution in a small amount of time.

[Robert Smith]

Exactly. Jacob, give us this light reading from clay.

[Jacob Goldstein]

If you want to understand why something happens in business, study the disk drive industry. Those companies are the closest things to fruit flies that the business world will ever see.

[Robert Smith]

Because the technology was evolving so fast in the 1980s and 1990s that companies could launch in one year, be top of the charts in the next year, and then be gone in the year after that. So Clayton starts collecting all the data for the industry. And when I say all the data, Such an eagle scout. I mean all of the data, month by month sales, new products, year after year after year. And he sort of maps the genome, if you will, of the disk drive industry. And there are so many technological innovations, he finds that sometimes the innovations make everyone better. He can see how all the companies adopt a new technology. And, you know, they can put more information on the disk drive. Sure.

[Jacob Goldstein]

So this is not sort of IP protected for whatever reason. Some professor figures something out. Everybody can do something at the same time.

[Sponsor Announcer]

More or less.

[Robert Smith]

Yeah, it's all one small industry. They're learning from each other. But then sometimes an innovation comes along and boom, the whole market changes. Companies flourish out of this, or they go out of business. And so Christensen asks himself, like, what is happening here? And this is his thesis. This is the thesis of the whole innovators dilemma he's about to write. And that is that there are two kinds of technological innovation. There's two ways to leap forward. Number one is what he calls sustaining technologies. Sustaining technologies are the things that companies do all the time to get better. Every company gets better all the time. You know, maybe who have different magnetic film that holds more information. Everyone shares this information. Every company gets better. The big companies stay big, small companies stay small. So that's sustaining technologies. But the second kind of technology Christensen calls disruptive technology, here it is, which sounds cooler and is cooler, and it works in this much wonkier way. So every year, some new company will come up with a disk drive that is smaller and simpler and frankly, worse than the old disk drives. Doesn't hold as much information. But it's smaller, right? And the old disk drive companies will ignore it. They'll just be like, that's not going

[Sponsor Announcer]

to be the thing.

[Jacob Goldstein]

It's a worse product. It's supposed to hold information, and it holds less information.

[Robert Smith]

And then, whoosh, next thing you know, the small company is eating away market share from the big disc drive manufacturer, and all of a sudden, someone else is on top again and again in the disk drive industry.

[Jacob Goldstein]

This is surprising, right? This is his fundamental insight. And we'll unpack it more. But I just want to underline the surprise here, which is the company making what in many ways is a worse product is the disruptor. I would tend to think naively, oh, somebody in a garage figures out a better way to do something. But Clayton Christensen is saying, no, it's not that. Weirdly, it's somebody doing something worse, but cheaper.

[Robert Smith]

And we will go through this in detail. I'll explain how this works, but not about disk drives, because I read Clayton's research on disk drives, and it's so dense. And there's a lot of like, five and a half beats eight, and eight beats three and a half. It's really hard to figure out what's happening. But luckily, he wrote about something that's a little bit more in our wheelhouse for business history. He wrote about cranes, steam shovels.

[Jacob Goldstein]

Oh, steam shovels. Very good.

[Robert Smith]

And I have to admit, I was like, oh, steam shovels. And I didn't know. I was so excited. And then I thought there was a children's book I had when I was a kid called. I have it here. Mike Mulligan and the Steam Shovel.

[Jacob Goldstein]

How old are you, Robert?

[Robert Smith]

Very old. This was even after steam shovels had gone away. But here, I want you to read some of Mike Mulligan and the steam shovel.

[Jacob Goldstein]

Mike Mulligan had a steam shovel. A beautiful red steam shovel. Her name was Maryann.

[Robert Smith]

Yes. Do I keep going? Yeah.

[Jacob Goldstein]

Okay. It was Mike Mulligan and Marianne and some others who dug the great canals. You didn't tell me there were going to be canals. We gotta do a canal show for the big boats to sail through.

[Robert Smith]

Yes.

[Jacob Goldstein]

Do I keep going?

[Robert Smith]

Yeah, you're going to like this one.

[Jacob Goldstein]

And it was Mike Mulligan and Marianne and some others who dug the deep holes for the deep cellars of the tall skyscrapers in the big cities.

[Robert Smith]

Classic children's writing. Beautiful.

[Jacob Goldstein]

Then along came the new gasoline shovels and the new electric shovels and the new diesel motor shovels. Disruptive innovation and took all the jobs away from the steam shovels. Mike Mulligan and Marianne were very sad.

[Robert Smith]

I'm gonna interrupt you here. Cliffhanger on the steam shovel. But I wanted to explain the technological innovation in this book. Did not know it as a child. I know it now.

[Jacob Goldstein]

So now we're pivoting away from the book to the actual history of steam shovels as described by American genius Clay Christensen.

[Robert Smith]

That's exactly right.

[Jacob Goldstein]

Okay.

[Robert Smith]

So steam shovels used to have a single steam engine that pulled cables. You may have seen steamships.

[Jacob Goldstein]

You're in it. We're in steam shovels.

[Robert Smith]

So they pulled cables to make the giant poop claw pick up dirt.

[Jacob Goldstein]

Okay.

[Robert Smith]

And then along came the gasoline shovels, the gas engine. But they used the same cables. They just installed a different engine. They had cables.

[Jacob Goldstein]

Is this sustaining innovation?

[Robert Smith]

Am I tracking correctly? The children's book doesn't tell you this, but it was actually fine for the steam shovel companies, bad for Marianne, fine for the companies. 23 of the 25 largest steam shovel companies survived this innovation.

[Jacob Goldstein]

So they just switch over. Everybody switches over.

[Robert Smith]

Yeah. And then everybody has a gas engine. But the same companies are on top of. Now, the twist in the story. They don't get into it. In the children's book. This is the. We should write that version, the disruptive one of Mike Mulligan. Yeah, absolutely. And that was hydraulic excavators in the late 1940s. Now, if you see an excavator today, you'll see there's little pistons at each of the joints. That's what makes the claw move. But this was a new technology and this would turn out to be the disruptive one because the hydraulic technology kind of sucked.

[Jacob Goldstein]

Huh. Like it was weaker or slower or what?

[Robert Smith]

They were smaller. You just couldn't run a giant Marianne sized digger. You had a tiny digger. And the big earth moving companies, they knew about this technology and they looked into it and they talked to their customers. And their customers were like, we're digging the big canals and the deep holes. For the sellers of the tall skyscrapers, we need a really big steam or gasoline engine. This hydraulic thing would take forever.

[Jacob Goldstein]

Yeah.

[Robert Smith]

And so the big companies who care about their customers, yeah, they're doing what

[Jacob Goldstein]

they're supposed to do. They're close to the customer. They're listening to what the customers want, they're serving the customer.

[Robert Smith]

There is no market for this. And so there were a few companies, J.C. bamford, Henry Company, they started to make hydraulic versions of this and they sold it to a different set of people, like farmers, landscapers, Smaller, basically.

[Jacob Goldstein]

People doing smaller projects.

[Robert Smith]

Yeah, because if you think about it, if you had to dig an outhouse, you're not going to like bring in Marianne, the giant steam shovel. But this all of a sudden gave you a chance to, you know, move a little tree or bury a cable. And it was good enough for the job. Right. But then the hydraulics got better.

[Jacob Goldstein]

So this is the twist.

[Robert Smith]

Yes. And then eventually the new technology could move as much dirt as the old technology. And then people realized, oh, they're actually more reliable and they're safer cause there's not a big cable going through it. And then suddenly those tiny companies making the hydraulic shovels were on top. They became the big companies. Everyone moved over to hydraulics. And that's what you see to this day here. Clay Christensen wrote about these companies.

[Jacob Goldstein]

These companies did not fail because the technology wasn't available. They did not fail because they lacked information about hydraulics or how to use it. They did not fail because management was sleepy or arrogant. They failed because hydraulics didn't make sense until it was too late.

[Robert Smith]

I love that you assume that management made a mistake, but in this case, the. The goal of a business is to serve its customers and you can't abandon them to try a new market that you don't even know if it exists. Like you would be fired.

[Jacob Goldstein]

You know, I like this because it's more interesting in the world when everybody is kind of smart, like, oh, dumb people make dumb decisions and they lose, and smart people make smart decisions and they win isn't a very interesting theory of the world, but a theory of the world that takes into account sort of complex dynamics and what's going on at different institutions and looks at all these people. It's like everybody is acting rationally in their own context. But in some of these instances, acting rationally or what seems to be rationally leads you to destroy your business.

[Robert Smith]

Give me a Clay Christensen quote, okay?

[Jacob Goldstein]

Successful companies routinely give their customers more and better versions of what they the customers say they want. But products that do not appear to be useful today may squarely address their needs tomorrow.

[Robert Smith]

Don't ask your customers what they want. They don't know is what he's saying here. And even if you could tell customers you're wrong, you're going to want this in the future. There's another big force holding incumbent companies back, and that is money and investors. After the break,

[Jacob Goldstein]

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[Robert Smith]

And we are back. Clay Christensen took all his research on disk drives and steam shovels and he put them into book form in 1997.

[Jacob Goldstein]

Was it a children's book?

[Robert Smith]

No, it was the Innovator's Dilemma. It sold over a million copies, as the sticker I'm sure said on the front of it. And it won all the big business book awards. And the timing was really perfect 1997 because it came during the rise of the Internet, the dot com bubble and the dot com crash. Like all of a sudden it seemed like disruptive innovation was everywhere. It was picking up at fruit fly speed. Big companies were vulnerable. Everyone wanted to be the the flashy new startup. After reading the book, Jeff Bezos of Amazon.com said, if you want to give

[Jacob Goldstein]

us this, my mother in law calls it Amazon.com Jeff Bezos said, As a company, one of our greatest cultural strengths is accepting the fact that it if you're going to invent, you're going to disrupt a lot of entrenched interests are not going to like it. And can I just mention, I'm just going to do a little Jeff Bezos aside here because there's this story of him when they created the Kindle. I'm a fan of the Kindle. He created this Kindle group and said to them, your job is to destroy our book business. Right. Like he understood the implication and what it meant.

[Robert Smith]

I feel like at this point, if you're an entrepreneur writing any sort of press release, there's a little thing that pops up and says, do you want to use the word disrupt? You should use the word disrupt. There's a conference called Disrupt, literally called Disrupt.

[Jacob Goldstein]

Somebody should start a cheaper conference that everybody goes to instead. That's a little bit worse at the beginning.

[Robert Smith]

Now that's a natural thing. But I'm more interested in the poor middle manager of a giant company. They're in an Airport in 1999. They're looking through the innovator's dilemma. And if you read the whole book, you start to realize there is not a lot you can do to stop disruptive innovation. To stop Jeff Bezos. The thesis of the book is that big companies have such a strong incentive to keep doing what they're doing. And we talked about the pressure from customers to keep serving the same products. You know, maybe slightly better. Right. But there's also pressure from investors. Jacob, if you're an investor in a company, which I know you are, what do you want it to do?

[Jacob Goldstein]

You want it to make money.

[Robert Smith]

Exactly.

[Jacob Goldstein]

That's the whole point.

[Robert Smith]

If you give a dollar to a company, you want it to spend that dollar on the thing that makes the most profit.

[Jacob Goldstein]

Yes, profit maximizing, that is the term of art.

[Robert Smith]

And every business is resource constrained. So if you spend money on one thing, it means you're not spending it on another. And so you want the business to focus on the thing with the highest return. Clayton argued that disruptive technology isn't just worse than old technology. It usually has lower profit margins at first.

[Jacob Goldstein]

Profit margins are a huge deal for businesses and investors. Serious investors want those margins to go up and they certainly don't want them to go down.

[Robert Smith]

Clayton illustrates this profit margin incentive with a story about steel mills.

[Jacob Goldstein]

Steel mills, okay, that seems up your alley.

[Robert Smith]

I know. These are all 12 year old boy examples.

[Jacob Goldstein]

Have you been to a steel mill?

[Robert Smith]

Oh, of course I've been to a steel mill. Both abandoned and actual working steel mill. And the thing that's amazing about them is the integrated steel mills. The big steel mills are huge acres and acres and Acres. And they got train tracks coming in for iron ore and coal. And you know, the buildings are enormous and there's lava looking stuff pouring out. So amazing. And it's also so expensive. You know, we're talking billions of dollars to. To build the plant. Billion dollars to operate it every year. This is the classic big business.

[Jacob Goldstein]

Heavy industry. Yeah, the heaviest.

[Robert Smith]

So if you have a very expensive industry, Jacob, if you're a salesman for the steel company, what do you want to do with your steel?

[Jacob Goldstein]

I want to sell it for as much as I can. Yeah.

[Robert Smith]

So you look for the richest people you can sell steel to. So car companies who want gleaming steel for their cars.

[Jacob Goldstein]

Planes.

[Robert Smith]

Planes. Absolutely. GE turbine systems.

[Justin Richmond]

Turbines, yes.

[Robert Smith]

The industrial appliance makers. Like that is where you make your profit margin because it's so expensive to make steel now, you know, the disruptions coming here, but it's always surprising when it happens.

[Jacob Goldstein]

Tell me the story.

[Robert Smith]

Do better than tell you the story. I found another children's book. So it features a unicorn on the front and a steel mill. So what's it called, Robert? It's called A Recycling Adventure to the Steel Mill.

[Jacob Goldstein]

Is that a real book?

[Robert Smith]

It is a real book, but this essentially tells the story of the disruptive innovator in the steel industry and of unicorns too.

[Jacob Goldstein]

You're saying unicorn, you don't mean a billion dollar startup. You mean a horse with a horn on its head.

[Robert Smith]

That's how you make it interesting. Yes.

[Jacob Goldstein]

Okay. Today you'll see how scrap metal gets turned into brand new steel using something called an electric arc furnace. And then there's somebody else pointing and they say, that's ferrous metal. It's magnetic because it contains iron.

[Robert Smith]

Yes, yes.

[Jacob Goldstein]

Should we point out that there's a building that says Nucor on top? That seems quite important from what I know of this book.

[Robert Smith]

They are one of the disruptors. Yes. And probably paid for this book.

[Jacob Goldstein]

It has that look. Okay, do I keep going?

[Robert Smith]

Yeah, one more page.

[Jacob Goldstein]

First we pick up the scrap metal with an electromagnet. Next, the metal is dropped into an electric arc furnace. Then comes the biggest fireworks display you've ever seen.

[Justin Richmond]

Woo.

[Robert Smith]

So Nucor, the company featured in the book in the late 1960s, it actually says Nucor on the COVID I know.

[Jacob Goldstein]

I don't think this book is on the up and up, Robert.

[Robert Smith]

So before they got in the publishing industry, Nucor is the largest steel mill and children's bookmaker in the country. The combination. So in the late 1960s they opened what is called a mini Mill, which is just a kind of a tiny steel plant. And instead of using coal to have a giant furnace, they use electricity.

[Jacob Goldstein]

And just to be clear, most of the time they're like a startup doing this.

[Robert Smith]

So no, they are a large company that's been around for a long time, but they have a division that's providing steel to another one of the divisions.

[Jacob Goldstein]

Got it.

[Robert Smith]

So they designed this thing, this mini mill. It's about tenth the size of the big steel mills and a tenth of the cost. They use the recycled steel and they were a classic disruptor because they were cheaper, they were smaller, they required less labor and they made kind of crappy steel.

[Jacob Goldstein]

Huh.

[Robert Smith]

It was weaker steel, it was bumpy, it was ugly. Like no car company is going to want mini mill steel. But Nucor and these other companies knew that there was a market that didn't care about shiny, nice looking steel. And that was. Get excited. Rebar.

[Jacob Goldstein]

Oh, I love rebar.

[Robert Smith]

Yeah. Rebar is the stuff you put in concrete to make it tougher.

[Jacob Goldstein]

That's like a breakthrough, right? Like when you're building a building. The rebar concrete combo was like a huge innovation of its own. When you go to the developing world for whatever reason, it's like ubiquitous. Right. The building where there's like they built two stories and you can tell they're planning on building a third because there's the rebar sticking out the top.

[Robert Smith]

And you know, if you want the rebar, you don't really care what it looks like, you just want the cheapest rebar.

[Jacob Goldstein]

You're not going to see it.

[Robert Smith]

Now this is key. The big steel mills, they had been making rebar but it was such a low profit margin, it was like 7% profit margin. Much lower than selling steel to GE. Yeah. So when Nucor and these small mini mills came around, the big companies were like, thank God we don't have to be in this dog eat dog commodity business anymore.

[Jacob Goldstein]

And getting out of that business presumably would mean their margins go up, which is what they want. Right. You get out of the low margin business, your overall margin is going to go up.

[Robert Smith]

This is exactly right. And the big steel mills, they were suffering from, you know, foreign competition in the 70s and the 80s and they really needed this high profit steel to look good to investors. And for a while it worked. It worked great. Until, until of course, Nucor. In the mini mills they get better, they get better at making steel and they expand into angle iron. Oh, that's fine. I don't know, it is either. It's like Iron and angle and bars. They make corrugated steel, you know, for Quonset huts, you know, but they're moving

[Jacob Goldstein]

up the quality ladder, Quonset hut business look out.

[Robert Smith]

And eventually they make the massive structural beams that are, that are good enough. And then they make rolled up steel, which is the nice fancy steel. And Nucor has vacuumed up the customers from the bottom up. And the next thing you know, Nucor, hero of our children's book, is the biggest steel company in the United States. Classic. Checkmate. People in business love these stories. I kind of felt it as I was reading Clay Christensen's books. It's like a horror film for executives. Like, and the key to a horror film is you see, you see the evil thing coming, you know it's coming somewhere. You just don't know when they're going to jump out at you with the knife.

[Jacob Goldstein]

I mean, also, maybe I don't want to go too far here, but it's a little like a classical tragedy, right? Like the Greek tragedy where, like, there's this tragic flaw, right? The need to be a profit maximizer, the need to listen to your customers. And that is the sort of inevitable undoing of the incumbent, of the hero.

[Robert Smith]

So I imagine the executives of these companies, they read the Innovator's Dilemma and they're terrified. They're properly scared. And remember, Clayton M. Christensen is a Harvard Business school professor. So he knows what to do next. He's going to sell the antidote to this poison. In 2003, he publishes the Innovator's Solution.

[Jacob Goldstein]

Come on.

[Robert Smith]

In 2009, he publishes the Innovator's Prescription.

[Jacob Goldstein]

No, in 2011, this is the horror movie.

[Robert Smith]

In 2011, he put out the Innovator's DNA.

[Jacob Goldstein]

No, he didn't.

[Robert Smith]

He did.

[Jacob Goldstein]

I'm a little disappointed in Clay Christensen, Eagle Scout.

[Robert Smith]

Oh, he had to make the money. There was a delay.

[Jacob Goldstein]

No, it's totally fair. Serving the customers. Chicken soup for the CEO's soul.

[Robert Smith]

They love business books. So the good news for corporations, there is a way to fight off the disruption. The bad news is you have to start to act like a disruptor after the break.

[Jacob Goldstein]

If your business runs on five different apps, 12 browser tabs, and one spreadsheet that everyone's afraid to touch, it's probably time for Odoo. Odoo is an all in one business management software that connects every part of your business into one powerful, easy to use platform. So instead of wasting time switching between disconnected systems, your entire business works together in real time. Your team moves faster, your data stays accurate and you can actually focus on growing your business. Let one unified system run your entire business, from the first opportunity to the final payment. Everything works together in one place. Whether you're a small business or managing a large operation, Odoo gives you one flexible platform built to grow with you. Try for free [e-mail] iheartradio that that's o d o o.com iheartradio did you ever notice how you spend hours shopping online only to pause right before you hit buy? Now that tiny hesitation, the one where you wonder if it's trustworthy, can make or break the sale. Now, with AI changing the way we discover and compare things, that split second, trust question matters more than ever. That's where PayPal comes in. For more than 25 years, PayPal has been a leader in online payments, and now they're at the forefront of agentic commerce, making it work for businesses, letting them maintain control of their brand and their customer relationships. So even as the way we shop changes, the moment that matters most still feels familiar and deeply dependable. Built for payments, growth and agentic PayPal open built for all businesses. Visit PayPalOpen.com to get started.

[Sponsor Announcer]

This is Justin Richmond from Broken Record. Embrace the haze with Hazy Little Thing from Sierra Nevada. If you saw the headliner when they played at the bar or stopped your friends mid festival to look at the stars. If you're up for whatever the night brings, then embrace the haze with Hazy Little Thing. Hazy, citrusy, smooth, juicy but not sweet, hoppy but not bitter, Bursting with fruit flavor and aroma. There's a reason it's America's best selling hazy ipa. Sierra Nevada brews Hazy Little Thing with the purest ingredients for finest quality in every sip. Velvety smooth and handcrafted with citra and Mosaic hops. Because when you're living in the moments that matter, it matters which beer. Embrace the haze with Hazy Little Thing by Sierra Nevada. Enjoy responsibly.

[Robert Smith]

We are back. Clayton M. Christensen did pretty well for himself. After the success of his many Innovators books, he started his own consulting firm, but he stayed a professor at Harvard for 28 years, writing case study after case study on failing companies. He was a Mormon, and he moved up the ranks of leadership roles in the church. And near the end of his life, he started to write more books about personal meaning and finding your way in relationships. And just like in the Innovator's Dilemma, happiness, he says, is a matter of resource allocation. Why don't you give a little life lesson from Clayton, the secret to happiness

[Jacob Goldstein]

is having strong, loving relationships and intentionally investing time in them. Seems reasonable.

[Robert Smith]

We're now a happiness podcast.

[Jacob Goldstein]

I mean, I'm not out on that. I basically agree with that.

[Robert Smith]

Yeah, no, it's good. It's so simple. But in terms of fixing your company. Well, Clayton had sort of a more complicated prescription. He basically said there are three solutions for a big company facing disruptive innovation. Number one, a list. Wait it out. Wait it out. When the new technology is mature enough and profitable enough, then you have all the money and you can just move into the industry and blow away the little guys.

[Jacob Goldstein]

Okay. Right. So. So you see the disruption coming, but when it's still really cheap and crappy, you don't get involved. You wait till the, the new technology, the disruptive innovation is big enough and then you move in.

[Robert Smith]

Rarely works, he says. Rarely works because at that point the disruptors are better at doing the thing right there.

[Jacob Goldstein]

It's their whole business. They've been learning it.

[Robert Smith]

Yeah. And they're. And they have different techniques and they're smaller and they're more nimble, all of this sort of stuff. But it does happen occasionally. I think about Apple used to be Apple computers. Right. It's hard to think about anything that Apple was first to. There were smartphones before the iPhone, but they were kludgy, low bandwidth, low profit, exactly who you expect to be. The disruptor was the BlackBerry.

[Jacob Goldstein]

Those things. It was a BlackBerry.

[Robert Smith]

It had a little thing. It was definitely, I mean, I mean

[Jacob Goldstein]

I have the low bandwidth.

[Robert Smith]

I mean I tried to navigate on a little map on my BlackBerry and it was super hard.

[Jacob Goldstein]

It was basically for email. It was basically good for email.

[Robert Smith]

Yeah. Apple moved in with the iPhone at just the perfect time, just as mobile Internet was getting better, getting faster. And you know, it made the phone beautiful and intuitive. So it pulled this off. But it's very hard to do. So Clayton has solution number two. Buy your competitors.

[Jacob Goldstein]

That's the one they're all doing now.

[Justin Richmond]

Right.

[Jacob Goldstein]

That's when all the one tech incumbents are doing. Buying everybody.

[Robert Smith]

Yeah. And you know, old steel and steam shovel companies probably didn't have $1 billion laying around, like literally laying around, literally laying around Apple's cash to buy their competitors. But the Internet economy, companies do, and founders these days have such control that I think that they don't care as much about their investors and about maybe even their customers. Like they are more willing and have more control of their company. And they've read the innovators, they've internalized It.

[Justin Richmond]

Right.

[Jacob Goldstein]

They understand, like, it is more fruit fly, like now. Right. We are not in that 1995 era where the biggest companies in the world have been around for a hundred years. The biggest companies in the world now are largely run by the people who found them, who were themselves disruptors. So they are. They are built to be afraid of being disrupted.

[Robert Smith]

Yeah. Facebook, right. Huge disruptor. But by 2012, Facebook is the big social media company. Their investors were thrilled, their customers were thrilled. Everybody loved the Facebook. Right. But inside the company, Mark Zuckerberg was noticing more people using mobile phones, and he knew that Facebook was big on the desktop computer, that maybe the demographics were getting a little bit older than he liked. And he notices a company called Instagram. Zero revenue, 13 employees, 30 million users. So very good. But Facebook had a billion users. And Mark Zuckerberg, you know, sure, he read the Innovator's Dilemma, and he did something that seemed sort of insane at the time, which was he bought Instagram for a billion dollars. Like a billion dollars. Zero revenue, 13 employees. Took him three or four years to get ads on there. Right. But the disruption was averted, you know, at least for Facebook.

[Jacob Goldstein]

Yes. And then they did it again with WhatsApp a few years later.

[Robert Smith]

Right, exactly. When they saw that internationally, they needed something that people could message on. And, you know, Google bought Android, Apple bought Siri, Salesforce bought Slack. Good luck to them. But it doesn't always work. You know, Yahoo bought Tumblr. Don't know which one's in worse shape now. Okay, so first two ways to avoid disruption. Have the timing genius of Steve Jobs or the spare cash Mark Zuckerberg. And then there's the third way, which I find really interesting. Create a small disruptor within your company.

[Jacob Goldstein]

Culturally, that one is super interesting.

[Robert Smith]

Yeah. And it's hard to do because you can't fake it. You can't just put a conference room aside and say you're the disruptors.

[Jacob Goldstein]

Because what it really means is if it works, the disruptors should put most of your company sort of out of business. Right. As a company, it'll still work. But the people who've been spending their lives selling the incumbent thing aren't going to like the disruptor. They're going to think it's bad.

[Robert Smith]

So the companies that have succeeded at this, Hewlett Packard hp, maker of printers and many other things, they had in the 1980s, this amazing new product called the laser printer, shoots out printed copies of things. I don't know why I'm explaining what a printer is. I'M so used to.

[Jacob Goldstein]

Wait a minute, you're saying, you're saying you took a white piece of paper

[Robert Smith]

and it comes out. Not white, with symbols on. I know, I know. So Hewlett Packard is number one in laser printers. And there's this new technology called inkjet printers. It's a smaller printer, it has these little buckets of ink in there and it's kind of blurry and doesn't work that well. It's slower. Hp, Hewlett Packard sees that this could disrupt their big laser printer business. And so what they do is their printer division's in Boise, Idaho. They send a bunch of people to Vancouver, Washington, whole new office, give them their own budget, their own decision making power, and essentially say, put us out of business. Like, do the best inkjet printing you can. And this is the essential thing. You don't have to be as profitable as the rest of the company.

[Jacob Goldstein]

Right? The margin. They are solving the margin problem.

[Robert Smith]

You just need to make enough money to make more inkjet printers and come up with a solution. And eventually the HP inkjet printer becomes big because everyone wants a small, cheaper thing that they could put next to their laptop computers.

[Jacob Goldstein]

It's cheaper until you have to buy more ink.

[Robert Smith]

That's the other thing is once they figured out that you could make the printer that only accepts HP ink, then you could sell them ink forever.

[Jacob Goldstein]

If you think about it, that one seems really hard to do because the fundamental thing they're doing is agreeing to lower their margins. Right? To whatever extent they're putting capital into this little, you know, inkjet division, they're accepting that their overall margins are gonna come down, which is antithetical to what executives wanna do.

[Sponsor Announcer]

Right.

[Jacob Goldstein]

That's why that one seems hard, very hard.

[Robert Smith]

And few people do it. But if you could pull it off, then you get to be the disruptor and the incumbent company at the same time.

[Jacob Goldstein]

Woo.

[Robert Smith]

It didn't cost you a billion dollars, Jacob. It's time for the to be fair section to be fair.

[Jacob Goldstein]

None of this is true.

[Robert Smith]

It's true in a business school sort of way, which is it is a smart and a useful theory that you see everywhere these days. But it's not a law of nature, and I think Clayton admits to this too, that he picks companies to profile that fit his thesis. There's lots of companies that don't work this way. Like lots of times the big company is fine. The disruptors all fail.

[Jacob Goldstein]

Yeah.

[Robert Smith]

Pushkin's own, very own Jill Lepore used

[Jacob Goldstein]

to host a show called the Last

[Robert Smith]

Archive about A decade ago, she was writing for the New Yorker. She pointed out that Clayton often doesn't include complicating factors. For instance, she pointed out the fact that the big steel industry had unionized labor and a lot of the mini mills did not. So it is easier for them to be nimble and profitable if they don't have to deal with legacy union contracts. She also pointed out that Clayton started an investment firm to invest in disruptors. He had this big idea, why not make money off of it? And it ended up losing money, and he shut it down because, like, prediction's harder than describing the past. But despite all this, like, I think it's fair to pick Clayton as our third American genius because his ideas are so core to how we think about business today, even just psychologically. Everyone wants to be a disruptor. You know, even the largest companies on Earth call themselves disruptors. And you can't launch a business without putting out a press release saying you're disrupting something. Right? So Casper Mattresses said it was disrupting the sleep industry, which kind of was. Kind of was, yeah.

[Jacob Goldstein]

I'm sure the people selling mattresses at the time said, those mattresses are terrible. Like, I don't even know. But I'm sure that it happened.

[Justin Richmond]

Right?

[Robert Smith]

That's what you can't even lay on them before they ship it to your house.

[Jacob Goldstein]

Who's going to want that?

[Robert Smith]

Rubicon, the Uber of trash. What says they're disrupting waste management?

[Jacob Goldstein]

I don't know about for trash.

[Robert Smith]

The founder of Nature Commode Toilet Company, a composting porta Potty, says, this is a quote. We're looking to disrupt an industry that is ripe for disruption.

[Jacob Goldstein]

Well, that's the place to disrupt two

[Robert Smith]

disruptions in one sentence.

[Jacob Goldstein]

Ripe is a good word in the toilet business.

[Robert Smith]

And I've been most fascinated by what we've seen over the past two years in the AI world. The largest corporations, literally the largest corporations in the world, are panicking and trying to disrupt themselves by spending billions, maybe totals trillions. We look at all the companies to innovate in the business that they're in. So I think before Clayton Christensen, Microsoft might have thought, we're Microsoft, like, we're an invincible software company. Why do we need to be an AI company? Same with Meta X, Google. They're the top of their businesses. Why spend this enormous amount of money on AI? Because I think they now feel this panic that the innovator's dilemma put in every business person's soul. You don't read the book and say like, yeah, it was a good run. Being in an incumbent company, you look at it and say, I want to do that.

[Jacob Goldstein]

Yeah, I want to not die.

[Robert Smith]

I want to not die. And now if someone were to tell you that there's a chance that Anthropic, an AI company with 4,000 people could unseat the largest corporations in the world, we're like, yeah, that could totally happen. We don't question it at all anymore. And this is the power of the idea that Clayton unleashed. It's terrifying, it's motivating. And no one wants to be the case study in whatever the next sequel is. The Innovator Strikes Back.

[Jacob Goldstein]

The Last Innovator.

[Robert Smith]

The Last Innovator. You should write that.

[Jacob Goldstein]

Tae show was produced by Gabriel Hunter Chang, engineered by Sarah Bruguerre. Our video editor is Matt Nielsen. We're on YouTube. Our showrunner and editor and best friend in the UK is Ryan Dilley. My name is Jacob Goldstein.

[Robert Smith]

My name is Robert Smith. Thank you for listening to our show.

[Jacob Goldstein]

Business History. A show about the history of business. Email us businesshistoryushkin fm we read em all. Running a business shouldn't feel like surviving a software group project. One app for accounting, another for inventory, another for sales, and somehow none of them talk to each other. That's where Odoo comes in. An all in one business management software that brings every part of your business together from sales and accounting to inventory and marketing, all in one powerful platform. No messy integrations, no bouncing between tabs, and best of all, no spreadsheets. Stop managing software and start managing your business with one unified system. Try for free today at odoo.com iheartradio that's O D O O.com iheartradio we

[Justin Richmond]

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[Jacob Goldstein]

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[Robert Smith]

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