The Innovator’s Dilemma: How to Turn Risk Into Your Competitive Advantage

Learn how to turn small bets into big wins for your team and business

In this issue:

• Part 1: Understanding The Innovator’s Dilemma

  • What is The Innovator’s Dilemma?

  • How The Innovator’s Dilemma Works

• Part 2: Countering The Innovator’s Dilemma

  • The 4 Lenses of the Dilemma

  • Real-Life Leadership Scenarios

  • The Innovator’s Dilemma Worksheet

• Part 3: Going From Here

  • Common Pitfalls

  • Recommended Resources

  • Final Thoughts

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A few years ago, I was leading a team of software engineers busy crushing our business goals. Every quarter, we shipped new features in our software product, which was used (and dare I say, loved) by millions of customers. What’s more, the customers continued to renew their subscriptions, and revenue continued to flow in.

Amazing place to be, right?

Not quite. I soon realized that while everything looked perfect on the surface, there was a brewing risk underneath.

A small startup had just entered our market, and they released something similar to our product, except it looked… bad. It was clunky, had fewer features, and honestly, I remember laughing at it in our team meetings.

But what we didn’t realize at the time was their advantage. What they had was speed. And they were solving problems in a way we weren’t even thinking about.

Fast forward six months. Their “bad” product got better, and some of our existing customers stopped renewing their subscriptions and started moving to the competitor’s solution. As this customer outflow picked up speed, my team started scrambling to respond.

The game had shifted, and we were late to it.

We’re seeing the same story play out today with AI. Many established software companies dismissed early AI tools like ChatGPT or MidJourney as “toys”- impressive demos, but not serious products. Yet in just a short time, these tools have become good enough to start replacing real workflows: customer support, copywriting, coding, and design. Startups are moving fast, while incumbents are scrambling to add on AI features to their existing products. Once again, disruption looks “bad” at first… until it doesn’t.

The Innovator’s Dilemma shows how smart leaders, even when doing everything right, can still fail. In this article, we’ll unpack what it is, how it works, and how you can turn what looks like risk - a worse product, a smaller market, or a strange new idea - into your competitive advantage.

Let’s dive in. 🚀

Part 1: Understanding The Innovator’s Dilemma

In this section, we will explore the idea and understand how it works.

What is The Innovator’s Dilemma?

Clayton Christensen, a Harvard Business School professor, coined the term “The Innovator’s Dilemma” in the late 1990s. His research revealed a paradox:

Great companies fail not because they make mistakes, but because they do everything “right.”

Remember Kodak? They had the best engineers, the best brand, and literally owned the film market. In fact, Kodak invented the digital camera. But because their customers wanted better film, and because that’s where the money was, Kodak doubled down on film. “Digital”, which started in the 2000s, seemed like a low-quality toy - who would want to pay for such a thing?

We know how that story ended.

The decline in photographic film demand due to digitization

The dilemma is simple:

• When you listen too closely to current customers… you miss future ones.

• When you chase bigger margins… you miss smaller bets.

• When you focus only on sustaining success… you risk being blindsided by disruption.

That is the innovator’s dilemma.

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How The Innovator’s Dilemma Works

Christensen explained that there are two types of innovation:

1. Sustaining Innovation

   • Making your product better for your best customers.

   • Example: iPhone cameras improving every year.

2. Disruptive Innovation

   • Starts worse. Lower quality. Smaller market. Lower margins.

   • But it solves a problem differently, often for customers who are ignored.

   • Over time, it improves, and suddenly it eats the mainstream.

The Innovator’s Dilemma Zone

Think about Netflix in its early days. It mailed DVDs, which was slow and annoying (at the time). Blockbuster, the giant video rental retailer at the time, laughed at it. But Netflix appealed to (the small section of ) customers who hated late fees and trips to the store.

Then broadband arrived and streaming became possible. Netflix doubled down on online delivery through streaming, while Blockbuster was caught flat-footed.

That is disruption in action.

The Dilemma Zone

The Dilemma Zone is the dangerous middle ground where leaders get trapped:

• Not good enough for your core customers. The disruptive product isn’t ready for them yet, so they dismiss it.

• Too small for your business. The new market looks insignificant compared to your current revenue streams.

• Too risky for your process. The numbers don’t add up, so your approval system kills it.

So, leaders get stuck in this zone, not knowing which way to sway.

As leaders, we face this trap in our decisions that can completely turn the direction of our people, our business, and our market, which is why we must know how to spot the disruption early and avoid getting caught in the dilemma zone.

Part 2: Countering The Innovator’s Dilemma

Here’s the part that matters most: how you counter The Innovator’s Dilemma in your role as a leader.

In this section:

• We will start by mastering The 4 Lenses of the Dilemma, a structured approach to spotting disruption early from four unique angles.

• We will then discuss some common real-life leadership scenarios, and how the dilemma plays out in each of those.

• Finally, we will make it real with The Innovator’s Dilemma Worksheet, which you can use to build your muscle and audit your own team to counter the dilemma.

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The 4 Lenses of the Dilemma