Disruptive Innovations and culture

Roopen Roy

(Views expressed are personal)

If I told you at the beginning of 2012 that a start-up company barely 16 months old with only 13 employees will be sold for $1 billion, you would have thought I was smoking something. Not really, we are talking about Instagram. It was founded in October 2010 by two enterprising individuals in San Francisco –Kevin Systrom and Mike Kreiger. The company was acquired on 12th April by Facebook for $1 billion (mostly with Facebook stock and some cash).

Instagram is a free photo-sharing program but very different from others. It allows subscribers to take a photograph and then apply digital filters to it and share it on Instagram’s own site as well as various social networking platforms. Instagram has some eerily old- world looks but it uses cutting edge technology. The photos are square shaped similar to the formats used by Polaroid and Kodak. Instamatic.

But alas Polaroid has since perished. And Eastman Kodak is hobbling in a bankruptcy court. Digital photographs taken on almost all smart phones are not square but have a 4:3 aspect ratio. So Instagram is like the new Beetle or the Mini Cooper. The look is old and familiar. But the engine and parts are manufactured with brand new technology. It is like new wine in an old, familiar bottle.

Instagram never came from the world of Nikons, Canons and Leicas and adapted itself to the mobile platform as a way of survival. It was born in the mobile platform ecology and started life with pictures taken on i-Phones. But it was not born of Apple nor was it born of Google. Only, as recently as April 2012, Instagram began offering an Android version .

Because Instagram was the first mover it began signing up subscribers at lightning speed. Within 3 months of launch, the company signed up 1 million subscribers. In June 2011 it had 5 million subscribers, in September 2011 it doubled this number to 10 million and in April 2012 it announced it has crossed 30 million subscribers with customers multiplying almost at a viral rate. In the first 12hours of the Android version becoming available Instagram reported 1 million downloads.

It is important to realize that it had 13 employees only. In an IT services company which charges-by-the-hour, much of the value is derived from the size of its employees. In a products company like Instagram, number of employees is not what drives value. When you sign up 30 million subscribers, you cross the tipping point and wipe out other players in your space. Now it is just winner takes all.

But why was Instagram imagineered by a couple of start-up guys and not by Apple which lives by innovation and creativity . Why not Google or Microsoft both of which have some of the best talent and a vast chest of research dollars? And the billion dollar question is why Facebook did not invent Instagram?

To answer these questions we have to understand the start-up culture of a disruptive innovator like Instagram. It is clearly a pioneer in disruptive business model which fills the need of " a fast, beautiful and fun way to share your photos with friends and family.”

Usually the seeds of disruption lie in the imagination of the inventor or founder and not in business plans or research strategies. It germinates within the rich soil of a unique culture of dreams, innovation and creativity that has a single-minded focus of creating an exquisite product that is really easy and intuitive to use.

But why is it so hard to create and difficult to copy? The answer is mostly in the cultural underpinnings. Let us look at a familiar example.

Everyone knows that that secret of Germany’s economic prowess is in its Mittelstand-the medium –sized, family owned enterprises. The Mittelstand thrives inside a web of unique culture, business practices and vocational training infrastructure. All these elements are hard to import and reverse engineer. And culture is the most difficult ingredient to copy or create and the easiest to destroy.

A large multi-national company recently acquired a creative shop producing mobile apps. As part of the post-acquisition integration process , a team of corporate executives arrived from the headquarters immaculately groomed and in dark suits. They were horrified to find that the small company they had acquired at a large price had a hippie-like culture. Everyone was young. Some of them had scraggy beards, others pony-tails and some dyed their hair purple. They came in bright T-shirts, jeans, Bermuda shorts and sneakers.

The “suits” wanted the “hippies” to conform to the corporate norms of dressing, grooming and behaving as part of the cultural assimilation process. The farsighted CEO intervened. He knew that the quickest way of destroying value in the acquired company was to force the creative people to go to a tailor or a barber. Remember Samson and Delilah? Samson’s secret of power and strength came from his long hair. He could be weakened and vanquished only after they could shave his seven locks of long hair.

Mark Zuckerberg is not going to make the same mistake. In the case of Instagram he has publicly declared, “We're committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.”

In the next few years we will see disruptive innovation spawning more and more valuable companies and the key challenge will be to promote a salad bowl of diverse cultures in the portfolio and not insisting on a melting pot approach.