A Final Lesson From Clayton Christensen
‘Decide what you stand for. And then stand for it all the time.’
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Most know Professor Christensen for his business academic work — in particular, his ground-breaking work on the theory of disruptive innovation. Getting to be his student, and the co-author of How Will You Measure Your Life?, I had the privilege of getting to know another side of him: a deeply principled man, committed to his religion, and to the people in his life. While many people view professional, personal, and spiritual as distinct parts of life, Clay was the same person in each. It was just the way his mind worked.
The following excerpt reflects that beautifully — how he could effortlessly move from generating insight in the business world, to helping to frame decisions in your personal life.
He was an incredible man, with an incredible mind, deeply committed to doing good in the world. He will be missed tremendously. — James Allworth
In 1997, when a little company called Netflix came on the scene offering DVD rentals in the mail, it was David going up against the Goliath of the movie rental industry: Blockbuster. By 2002, the upstart was showing signs of potential, with $150 million in revenues and a 36% profit margin. Nervous Blockbuster investors pressured the incumbent to look more closely at the market.
When Blockbuster compared Netflix’s numbers to its own, Blockbuster’s management concluded that Netflix was pursuing a smaller market, and Netflix’s profit margins were substantially smaller than what Blockbuster’s. If Blockbuster did decide to attack Netflix with its own postal DVD offering, those efforts would cannibalize sales from Blockbuster’s very profitable stores.
Netflix, on the other hand, didn’t need to compare their market to an existing and profitable business: Its baseline was no profit and no business at all. Compared to that, Netflix was very happy with their relatively low margins and their “niche market.”
So, who was right?
By 2011, Netflix had almost 24 million customers. And Blockbuster had declared bankruptcy the year before.
Blockbuster followed a principle that is taught in every fundamental course in finance and…
