Many Fortune 500 companies became such because their leadership teams pushed the envelope and explored new, innovative business processes and models. This enabled them to upend the status quo, move upmarket or create new markets, and maintain a strong market share.

It’s this same approach that smaller companies — notably, early-stage startups — are using to overtake these established businesses and create sizable market disruption in a variety of industries: from agriculture and energy, to healthcare and retail. In other words? They’re engaging in disruptive innovation.

What is disruptive innovation?

Disruptive innovation is the business theory that creating new, novel products or services geared to underserved audiences with unmet needs have the ability to transform an entire industry. Through disruptive innovation, insurgents (small companies) can fill a known or perceived market gap by developing a new offering in an attempt to overtake established incumbents (large companies).

‍Clayton Christensen, co-founder of Rose Park Advisors and Innosight and Harvard Business School professor, introduced the theory of disruption innovation all the way back in 1995 in a Harvard Business Review (HBR) article.

‍"The reason why it is so difficult for existing firms to capitalize on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption," Clayton wrote in his book, "The Innovator's Dilemma."

Examples of disruptive innovation

Countless corporations have ascribed to Clayton's theory, since he introduced it 30 years ago.

But many of these firms have also failed to shift away from a focus on sustaining innovations (i.e., existing product or service upgrades) to truly disrupt their existing market or attempt to create an entirely new market segment.

"The mistake many companies make is in thinking that business model innovation must boost revenue or profitability in the near term," High Alpha Innovation CEO Elliott Parker wrote in his book, "The Illusion of Innovation."

"Disruptive innovation always looks financially unattractive to incumbents."

This focus on profit margins and 'mainstream' customers is what prevents scaled businesses across sectors from shifting their mindsets and priorities to explore new, potentially industry-altering tech and solutions.

Without this mindset shift, we would never have seen well-known disruptors such as:

Amazon: Changing the way people shop

The notion that anybody could buy anything on the internet was beyond comprehension for the general public in the '90s. But Jeff Bezos had a vision for a commerce company that would offer a new purchase path for consumers: the online 'everything' store, where items of all kinds could be bought with a single click.

Having already cemented itself as the go-to digital storefront where 20+ million items are sold daily, Amazon continues to explore disruption innovation opportunities, such as those tied to healthcare, travel, media, and grocery shopping, to expand its business footprint and transform even more industries.

Uber: Offering on-demand ride services

Garrett Camp and Travis Kalanick wanted to make it easier for everyday people to access cheap, on-demand car rides instead of having to hail a taxi or hire a private driving service. (It was the latter issue the pair experienced on a New Year's Eve prior to founding Uber, in which they spent around $800 on travel).

Taxis remain prevalent globally. But Uber completely transformed the way in which the world travels daily. Even with the prospect of facing 'surge' charges during high-traffic times, many consumers are willing to pay a premium for an Uber (or Lyft or a similar, insurgent competitor) for the convenience.

Since taking over the ride-hail space, Uber has entered into other travel-related ventures, including Uber Eats, its food-delivery platform, and acquired a number of other businesses to augment core business operations.

Benefits of disruptive innovation

"The promise of disruption is immense," three Innosight leaders wrote for HBR. "But a great strategy isn't enough."

Corporations must address "practical challenges of execution that are linked to culture, organization, and market development" to ensure their companies are fully bought into the disruptive innovation approach. Only then can they execute on innovation initiatives quickly and efficiently, the trio continued.

Once enterprises have secured this buy-in, though, the rewards they can reap by disrupting their space are many.

Create a better solution for your customer base

It's easy to zero in on how to best serve the most profitable customers, whether you're a B2C brand aiming to keep, cross-sell, and upsell buyers and subscribers or a B2B business looking to keep your biggest clients satisfied.

But, too often, these enterprises neglect other customers they serve at the bottom of the market. These customers may not account for a big share of revenue growth today. But addressing their wants, needs, and pain points through disruptive innovation can boost these customers' loyalty.

Example: Netflix lowered the barrier to entry for its streaming service to enable customers with limited budgets to save money on monthly subscriptions. Once 'in the door,' Netflix's algorithmic updates provide more relevant, highly personalized content tailored to these subscribers, which helps it maintain their business.

Solve big, societal problems facing the world

There are plenty of pressing problems facing society at large that can be solved through disruptive innovation. Thankfully, there are many businesses small and large aiming to address noteworthy issues including poverty, climate change, education disparities, food insecurity, and health equity, among many others.

Example: Co-created by High Alpha Innovation in partnership with Elanco Animal Health, Athian is the world's first carbon marketplace for the livestock industry. The novel platform benchmarks, validates, and certifies greenhouse gas reductions, carbon capture, and clean-energy production. Growers who make systemic, on-farm changes that are confirmed via Athian get 'bonus' revenue to sustain operations.

Gain an edge in highly competitive industries

Finding ways to stand out from other companies in their space (or a space they wish to enter) is at the heart of disruptive innovation. Embracing the approach helps insurgents ID areas in or adjacent to a given industry in which they can potentially make waves and solve Jobs to Be Done for a specific audience.

"I've never seen a theory or an idea change organizations or industries more effectively than the Jobs to Be Done theory, when it's appropriately applied," Elliott shared in a recent interview with FIRMSconsulting.

‍Example: Airbnb decided to address consumer frustration with the hospitality industry, which, prior to its launch, was boiling over. High pricing, poor customer experience and service, and billing errors were just some common issues. Almost immediately after going to market, Airbnb began cannibalizing business from hotels and gaining a sizable market share by offering more affordable, private lodging options for travelers.

Creating disruptive technologies and solutions with an outside venture builder

As much as disruptive innovation is a benefit for insurgents who want to build new, transformative business models that change an industry for the better, the strategy also affords many advantages for incumbents.

"Incumbents also deserve a right to win, a right to beat the innovator's dilemma," said High Alpha Innovation General Manager Matt Brady. "Building their very own startups is one way they can win today and tomorrow."

Whereas low-end disruption enables insurgents to offer cheaper and simpler products to an audience and new-market disruption helps them gain a foothold in competitive industries, venture building is an increasingly popular innovation lever for incumbents who also want to disrupt 'the way things are done.'

In fact, disruptive innovation doesn't just apply to large enterprises but also other types of scaled organizations:

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• Corporations. Catalyst by Wellstar, a healthcare innovation company and venture fund backed by Wellstar Health System, is focused on creating solutions to problems facing health professionals and patients. Working with High Alpha Innovation, Catalyst co-created vflok, a first-of-its-kind platform to streamline nurse shift scheduling and automate change-management workflows for healthcare providers.

• Universities. DIAL Ventures, a venture studio operated out of Purdue University, is creating agriculture-themed startups and new AgTech solutions for members of the AgriFood value chain. To date, DIAL and High Alpha Innovation have launched five disruptive ag-focused companies that help farmers more easily hire farm labor, provide producers with secondary income, and solve other big ag problems.

• Public sector. The state of Arkansas partnered with our team to build Fieldbook Studio, a venture studio based right in the region that aims to create disruptive startups tied to the state's 'right-to-win' industry, retail. The first advantaged startup incubated by Fieldbook, Triive, aims to help retail sales teams better manage relationships and broker deals with consumer packaged goods companies.

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Disruptive innovation can come in many forms. But venture building is a unique form of the approach that can be executed by established private- and public-sector organizations to bring tangible, meaningful change to the world and generate new insights that can drive their organizations forward.