Disrupter or builder? Using the correct image for your business

In the quest for your own business, would you describe yourself as a disrupter or a builder? It appears that if you position yourself as the former, you are more likely to inspire people to sign up, either in the form of investment or employment. Disrupter energy excites and inspires people to follow. If you position yourself as a builder, you are more likely to be perceived as harmonious, and cultivating good working relationships; the downside is that you are perceived as stable rather than forward-looking. Research suggest that it may be a good idea a good idea to position yourself as one or the other, depending on the stage of your business.

Starting up? Go for the disrupter model. Secured capital? Position yourself as a builder of teams. Then repeat the cycle over and over again according to the needs of your business.

It may not just be the image of the online business that you could exploit. You could do this with your CV or your LinkedIn profile. In fact, it may be a good idea to even include both elements on a CV, to showcase that you are forward looking but good to work with, then adjust the bias according to the kind of position you are seeking to attain.

The concept of disruptive innovation—the process by which a smaller company with limited resources is able to launch a product or service that displaces established competitors—has been extensively incorporated into startup vernacular. Entrepreneurs often use a version of the phrase when launching products, raising funds, unveiling strategies, hiring teams, and engaging partners.

Yet we do not know much about how entrepreneurs are integrating the concept into their identities and what consequences this has for their startups.

Research has previously shown that “entrepreneurial identity,” or how one defines and identifies with his or her entrepreneurial role, affects a startup’s ability to amass key resources. So we aimed to characterize entrepreneurs’ identities according to whether or not they referred to themselves and their startups using the language of disruption, and then we looked at how this affected their ability to attract and retain two types of critical resources: financial and human capital.

It turns out that the phrases entrepreneurs use to describe themselves and to position their startups on sites like LinkedIn function as a useful window into their entrepreneurial identities.

When examining the LinkedIn profiles for the presence of the root “disrupt_,” we noticed something interesting: those entrepreneurs who did not mention disruption tended to instead embrace the language of building by favoring the root “buil_,” with minimal overlap between the two groups. The entrepreneurs in these categories did not markedly differ in terms of age, gender, or years of experience, but disrupters were significantly more likely than builders to be serial entrepreneurs.

Entrepreneurs who used the root “disrupt_” in their profiles identified themselves as “disrupters” and their startups as being “disruptive,” associated with “disruptive technologies,” or involved in “disruption,” though few used the term “disruptive innovation” in its entirety.

One example of a LinkedIn profile for a disrupter reads as:

Passionate data-driven disrupter and innovator who loves helping fast-growing companies excel. I create the greatest value when leading or advising an organization through an inflection point where there is a need to disrupt existing solutions to achieve growth and value.

Linguistic analysis revealed that these same entrepreneurs were also significantly more likely than non-disrupters to use the following words in their profiles: break, dare, first, free, imagine, innovate, play, risk, shift, start, threaten, and turn.

In contrast, other entrepreneurs used words based on the root “buil_,” such as build, builder, building, and built, to describe themselves, their roles, and their startups. These same individuals were also more likely to incorporate words into their profiles that describe values related to working together (e.g. agree, collaborate, commit) and iterating on existing ideas (e.g. adapt, amplify, compile, configure).

An example of a LinkedIn builder profile announces,

I am a builder of things. My purpose is to build systems and tools that allow for things to be done with greater intelligence, with less friction, and that were before difficult to accomplish. I surround myself with like-minded people who see the possibilities and find a way to make them a reality.

 

These two distinct entrepreneurial archetypes were associated with divergent outcomes for their respective startups in terms of the ability to attract and retain resources.

Although data revealed that builder-led startups were nearly ten times more common than disrupter-led ones, “disrupter” startups received 1.7 times more funding, on average, than “builder” startups. In fact, the degree to which a startup team valued disruption (which we based on its average composition of “disrupter” vs. “builder” team members) significantly predicted the amount of funds that the startup raised. Controlling for startup age, industry, operating status, and other factors that can affect funding amounts (like entrepreneur age, gender, degree of work experience, and whether or not they are serial entrepreneurs), an increase in team disruptiveness predicted an additional $38.3 million in aggregate funding raised by the startup.

In order to further understand how disrupters and builders differ when it comes to attracting resources, an online experiment was conducted on 100 Amazon Mechanical Turk participants (81.5% with previous startup and/or investing experience). They read a company description that featured either disrupter or builder language, holding all other company information constant. Then these individuals discussed much hypothetical funding they would invest in each startup and found that they allocated nearly twice as much funding to the disrupt condition ($58,018) as they did to the build condition ($29,545). Participants were asked to imagine themselves as prospective new hires and to evaluate how the company made them feel. The description of the disrupter startup made them feel significantly more excited, energized, independent, and inspired than the builder startup.

Perhaps by enticing others with their exciting ideas, those who value disrupting things can attract certain resources more effectively than those who value building things. But it appears they are unable to retain those resources as readily. Although disrupters and builders in our Crunchbase sample averaged comparable FTE counts, they had significantly different employee tenure rates. Controlling for business category, founding date, team size, and operating status, average employee tenure at builders’ startups was 8 months longer than average tenure at disrupters’ startups, which can make a world of difference when it comes to young companies. While investors allocate significantly more money to disrupters, that capital is potentially being deployed less efficiently due to heightened costs associated with recruiting, onboarding, training and severance.

Taken together, the results uncovered two distinct types of people who are attracted to startups—those who value breaking vs. building—and different consequences for their respective startups. Disrupters’ flashy ideas may energize and inspire others, but that might not be enough to keep them. Disrupters may also move on to the next disruptive idea once the one they are working on reaches a point of stability, given they display a higher incidence of serial entrepreneurship than builders. Conversely, those who value building something may experience more difficulty in attracting capital (both financial and human), but they tend to stick with the startup for the longer term and seem to influence others to do so as well.

It may be beneficial to associate both entrepreneurial identities with one’s startup at various stages in the product lifecycle. For instance, startups may want to enlist disrupters to develop and sell an MVP (minimum viable product) and builders to nurture subsequent product releases.

Understanding that disrupter versus builder orientations are linked to both positive and negative consequences can inform entrepreneurs’ decisions around attracting as well as retaining resources. And beyond the startup realm, more established companies may also benefit from recognizing whether the impulse to break or build makes their employees tick so they can match them to the right teams and projects.

A subscription-based service gets you returning customers

A subscription-based service is a good way to create sales for an online outlet. As a case study, you need to look no further than Amazon itself.

Amazon has come a long way since its days of just hawking cheap books online. Of course, you can still buy books on the site, but today’s Amazon will sell you everything from diapers to laundry detergent. Increasingly, it is digging deeper into our pockets through the subscription service called Amazon Prime. Amazon Prime subscribers pay Amazon $99 a year in return for goodies like free streaming of thousands of movies and TV shows and free two-day shipping on most Amazon purchases. According to a 2013 report released by Consumer Intelligence Research Partners, there are now approximately 16 million subscribers to Amazon Prime. As I write this, the folks at Morningstar estimate, since Amazon does not release the data publicly, that membership in Amazon Prime could swell to 25 million by 2017.

If you were to carve out Amazon Prime as a stand-alone business, it would already be a billion-dollar subscription company, but that severely underestimates the value of Prime to Amazon. Like many subscription models, Amazon Prime is a Trojan horse that is expanding the list of products consumers are willing to buy from Amazon and giving the eggheads in Seattle a mountain of customer data to sift through.

“It was never about the $79,” said Vijay Ravindran, who worked on the team that launched Prime at its original price of $79 per year. “It was really about changing people’s mentality so they wouldn’t shop anywhere else.”

According to Morningstar, the average Prime member now spends $1,224 on Amazon purchases each year, compared with $505 for non-Prime customers.2 We cannot say Prime members spend that much more just because they are members, since presumably a lot of Amazon’s best customers would have been attracted to the free shipping offer. However, this data seems to suggest that once someone becomes a Prime subscriber, they become even more loyal to Amazon. Further, Morningstar figures that after factoring in costs incurred for shipping and streaming content, the average Prime member yields Amazon $78 more per year in profits than the typical customer.

Given the positive impact Prime seems to have on customers’ buying behavior, some analysts have argued that Amazon should drop the fee for subscribing to Prime in order to grow the program even faster. But that thinking misses a key element of Amazon’s strategy. When you pay $99 per year to become a member, you want to “get your money’s worth.” Suddenly you start checking Amazon’s pricing on all sorts of products, from paper towels to sneakers, with hopes of “making back” what you invested in the membership.

Given Amazon’s aggressive pricing and seemingly endless product selection, you can almost always find what you’re looking for at a price that’s lower than what you could find elsewhere. When you factor in free shipping, it becomes an easy decision to buy from Amazon. Robbie Schwietzer, vice president of Amazon Prime from 2008 to 2013, summarized: “In all my years here, I don’t remember anything that has been as successful at getting customers to shop in new product lines.”

Through Prime, Amazon is competing head-to-head with the likes of Walmart and Target. Why should you care if three heavyweights are pounding it out for market supremacy? Because as customers buy a broader and broader collection of items from Amazon, Prime is cannibalizing the business of smaller companies too.

The other day I bought a pair of New Balance running shoes from Amazon. I’ve never thought to use Amazon for buying sneakers, but since I am now a Prime member, and therefore get free shipping on shoes, I chose Amazon instead of walking down the street to my local Running Room store. The Running Room is a small company compared to Amazon, with 100 or so locations scattered around North America. Most people would not consider Amazon a direct competitor. Yet the Running Room is now losing my shoe-buying business because of a little $99-per-year Prime subscription I bought.

Amazon, having learned a lot about the subscription business through Prime, is now applying the subscription model to other areas of its business. AmazonFresh is a grocery delivery business Amazon has been experimenting with in its hometown of Seattle since 2007. Amazon Fresh didn’t start out as a subscription business; instead, it was open to anyone willing to pay the delivery fee of $8 to $10 to have milk, veggies, and meat brought to their door in a one- to three-hour delivery window.

You can see how creating a subscription-based service works – everyone starts looking to you as the go-to shop for all their needs. They pay a subscription, then keep buying for you to make the subscription worthwhile. It is a clever commerce scheme if you wish to set up an online marketplace.