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- They follow the basic pattern of disruptive innovation, transforming existing markets or creating new ones by making the complex simple or the expensive affordable.
- They have enjoyed enough early success that it they are likely to withstand a crisis.
- They have not yet reached $1 billion in revenue.
Historically, on-the-brink disruptors have outperformed similarly sized companies during recessions. They have included Intel, Home Depot and Southwest Airlines in the 1980-1982 U.S. recession, Best Buy and Cisco Systems in 1990, and Google and Research-in-Motion in 2001. Our research showed that in the three major recessions in the U.S. between 1980 and 2001, revenues of 44 on-the-brink disruptors grew by close to 30 percent per year, significantly outpacing similarly sized companies over the period.
Replicating research first done in 2009 (see sidebar), we have identified eight on-the-brink global disruptors poised to power through the COVID-19 recession:
- BYJU’S, a digital educational content provider.
- Duolingo, a language-learning platform.
- Grab Financial Group, the fintech subsidiary of Grab, a leading Asian transport and food delivery app.
- KaiOS Technologies, a mobile phone operating system provider.
- Palantir Technologies, a data analytics company.
- Paytm, a digital payments company.
- Square Capital, the small and medium business loan provider subsidiary of Square, a payments processing company.
- Thrive Earlier Detection, a healthcare and cancer diagnostics company.
Conducting the Research
To identify these disruptors, Innosight first created a long-list of more than 100 potential disruptors by scanning industry journals and most-innovative company lists. In parallel, we researched how COVID-19 is affecting trends that were already in progress. Systematically assessing an internal database of more than 300 in-progress trends that Innosight has assembled through consulting projects around the globe highlighted three big shifts:
- Accelerated digital migration. An unplanned mass experiment has demonstrated a surprising ability to handle remote work at scale, and organizations globally have accelerated their digital transformation agendas. Additionally, consumers have been quick to adopt digital solutions amid stay-home orders to communicate with loved ones and maintain a modicum of normalcy in the midst of the pandemic.
- More comprehensive healthcare transformation. The pandemic has pushed boundaries in terms of approaches to vaccine development and acquiring medical supplies. Social distancing has hastened the adoption of telemedicine as a viable means of patient care. Furthermore, COVID-19 is likely to accelerate forces that were already pushing healthcare to less centralized settings and shifting emphasis from treatment to prevention.
- Increased socioeconomic fragmentation. Current estimates suggest that COVID-19 could significantly rollback considerable global progress on poverty over the past decade, with research published by the World Bank estimating that COVID-19 could push 49 million people into extreme poverty in 2020. Additionally, COVID-19 looks to accelerate recent trends for companies and policymakers to reduce their dependence on global suppliers and instead nearshore or onshore to enable resilient manufacturing. Of course, the longer COVID-19 persists, the greater the risk of lasting socioeconomic fragmentation.
Then an Innosight team looked at the degree to which each of our long-list companies fit the general pattern of disruptive innovation, connected to these shifts, and had shown recent momentum. Once we narrowed the list to 18, we enlisted a panel of experts in disruptive innovation to rank their top choices (see below for the judges and the judging methodology). The top eight on-the-brink disputors, as ranked by our judges, are described in more depth, and the 10 other finalists appear in the “Shortlisted Companies” sidebar.
Eight On-the-Brink Disruptors
Bangalore-based BYJU’S is a children’s education app that provides educational content and trains students for examinations in India and international examinations such as GRE and GMAT. Founded in 2011 by schoolteacher turned entrepreneur Byju Raveendran, BYJU’S grew at a phenomenal rate, becoming the most valuable EdTech startup in the world with a valuation of $10.8 billion as of Sept. 2020. The company counts names such as Sequoia Capital, Tencent and the Chan-Zuckerberg Initiative as investors, and has raised a new round on Sept. 22nd from BlackRock, Sands Capital, and Alkeon Capital.
BYJU’S online subscription platform provides more equitable access to tutors – BYJU’S reports to have 70 million users overall, 4.5 million annual paid subscribers, and an annual retention rate of about 85%. More than 25 million new students joined the platform when India entered lockdown in March 2020.
Paytm is India’s largest payment gateway. Its payment services for customers and merchants aim to bring banking and financial services to a vast population of unbanked Indian consumers. It offers mobile recharges, utility bill payments, travel, movies and events bookings as well as QR code-based in-store payments. Paytm also has verticals in banking, lending, wealth management, e-commerce, gaming, and just launched a mini app store competing with Google. Paytm has witnessed a huge growth in digital transactions since India’s lockdown, especially in smaller towns in India.
#3: Square Capital
A wholly owned subsidiary of Square Inc., the payments processor co-founded by Twitter co-founder Jack Dorsey, Square Capital facilitates loans to qualified sellers. Square Capital eliminates the lengthy (and often unsuccessful) loan application process for the seller, while facilitating prudent risk management.
The terms are straightforward for sellers, and once approved, they get their funds quickly – often the next business day. Square Capital follows a classically disruptive strategy. By utilizing unique point-of-sale data from its core credit card processing business, it can effectively extend credit to traditionally overlooked small businesses in a simple and affordable way. Since its public launch in 2014, Square Capital has facilitated more than 650,000 loans and advances, representing $4 billion in aggregate value. It gained a boost from being a processor of Small Business Administration’s Paycheck Protection Program (PPP) loans during COVID-19. The company said the program attracted 140,000 applicants, of which 60% never received a Square Capital loan before.
#4: Palantir Technologies
Co-founder Peter Thiel aptly named his data analytics company Palantir after a magical sphere in J. R. R. Tolkien’s Lord of the Rings that helps characters communicate over large distances and see current or past events in other parts of the world. Palantir takes a company’s structured and unstructured data and transforms it into actionable insights in the forms of maps, graphs and other modules. For example, the CDC of the U.S. and the NHS of U.K. have been using Palantir software to visualize the spread of the coronavirus and anticipate hospital needs.
Palantir, worth close to $20 billion after its IPO in September 2020, serves a diverse set of organizations ranging from the military to insurance companies. Its Foundry and Gotham software systems simplify its services, further amplify its disruptive potential. For example, the commercial platform Foundry encodes Palantir’s experience with data management and analysis, and smoothly integrates often complicated and siloed datasets into knowledge and insights available to anyone in the organization.
#5: KaiOS Technologies
KaiOS Technologies’ flagship product is KaiOS, a mobile phone operating system targeted at emerging markets. Developed from Mozilla’s Firefox OS, it powers what it calls the “smart feature phone.” Devices running on KaiOS start at just $10 from manufacturers including HMD Global (Nokia), Alcatel, and Reliance Jio. They have far fewer features than Apple’s iOS or Android, but run essential apps such as YouTube, Google Maps, Facebook and WhatsApp, with more available from the KaiOS app store. Since hitting the market in year 2017, KaiOS now powers more than 100 million devices globally in more than 100 markets. KaiOS has found particular success in emerging markets such as India, Indonesia, Rwanda and Nigeria and has the potential to make a real impact in the lives of millions.
#6: Grab Financial Group
Southeast Asia’s first decacorn (a privately held startup valued at more than $10 billion), Grab known for ride-hailing and food delivery, established Grab Financial Group, its fintech unit, in 2018. The unit develops and offers digital payments, rewards, SME lending and micro-insurance. Grab uses its data to assess the creditworthiness of small businesses that often lack sufficient data or sophistication to apply for a traditional bank loan. Grab is teaming up with Singtel, Southeast Asia’s largest telecommunications company, to apply for a digital banking license. In August 2020, it launched consumer products including micro-investments, loans, health insurance, and buy-now-pay-later program, significantly expanding beyond original focus of entrepreneurs and small businesses. Grab, now valued at $14 billion, considers its financial services a key revenue and growth driver in the future. If successful, Grab Financial Group will be able to advance its goal of being the largest fintech ecosystem in South East Asia.
Duolingo is a language-learning platform, with a valuation of over $1.5 billion. It is the most downloaded education app in the world, with more than 300 million users. The company’s mission is to make education free, fun and accessible to all. Part of its popularity is due to the bite-sized and gamified experience of all Duolingo lessons. Using Duolingo is free, but users have the option of a paid subscription for an ad-free experience (about 3% users pay). Duolingo saw a 148% spike in sign-ups in the United States within the span of just three weeks in March owing to COVID-19 lockdowns, with millions of people taking to Duolingo as a means of self-improvement. Expanding beyond learning a new language, it launched a new app to help children read and write.
#8: Thrive Early Detection
Powered by machine learning, Thrive Early Detection is working to commercialize a liquid biopsy test designed to detect multiple cancer types at earlier stages of disease. The liquid biopsy test has received Breakthrough Device designation from the FDA for detection of genetic mutations and proteins associated with pancreatic and ovarian cancers. Earlier detection of cancer is a promising way to help successfully cure multiple types of cancers and significantly reduce the cost of care. If successful, its approach could disrupt existing cancer treatment paradigms and accelerate the shift towards cancer interception.
What’s Next: “Reverb” Opportunities After COVID-19
History shows that this is likely to be a moment when these on-the-brink disruptors surge. It also suggests opportunity to create innovations that “reverb” off the COVID-19 crisis.
Close to 90 unicorns (companies surpassing $1 billion in valuation while privately held) started in the midst of the great recession of 2007-2009. A number of these high-growth companies “echoed” off fissures surfaced by the global financial crisis that precipitated the great recession.
For example, Airbnb, an online marketplace for “places to stay and things to do,” was founded during the height of the recession in 2008. Its service appealed to thrifty millennials looking for a cheap way to travel, as did the car-sharing model Uber introduced in early 2009. Lingering distrust in traditional finance providers helped to spur novel payments providers such as Kabbage (founded in 2008) and Square (founded in 2009).
All told, unicorns founded between 2007 and 2009 had an aggregate valuation at the beginning of 2020 of almost half a trillion dollars.
COVID-19 creates two obvious sets of reverb opportunities for entrepreneurs or innovators inside established companies.
First, the depth and breadth of the pandemic is likely to lead to lasting shifts in how customers choose between products. In the consumer packaged goods space, for example, there would seem to be ample opportunities for immunity-boosting products that tap into newly important consumer needs.
Second, customer frustration driven by forced experiments with inferior solutions creates innovation opportunity. For example, the schools reopened in Singapore in June 2020. As much as the Anthony family appreciated the hard work by teachers to provide compelling virtual learning experiences, there was no doubt that its four children would return to school. Virtual education clearly trailed in-person experiences. The months, quarters and years ahead would seem to present many opportunities to create compelling hybrid experiences that combine the community and sense of place of in-person experiences with the flexibility and affordability of virtual ones.
There are always opportunities to innovate, no matter how dark the time. Innovators that address the trends affected by COVID and follow the time-tested path of disruption by making the complicated simple or the expensive affordable will be well positioned to drive growth in the years ahead.
About the Voting
Innosight invited the following six panelists to vote for their top on-the-brink disruptors from our 18-company list. Innosight created the final ranking based on the number of votes a company received, and its average position in our panelists’ rankings.
- Clark Gilbert, President of BYU-Pathway Worldwide and Innosight Advisor
- Efosa Ojomo, Global Prosperity Lead at The Clayton Christensen Institute, co-author of The Prosperity Paradox
- Karl Ronn, CEO of First Mile Care, co-author of The Reciprocity Advantage
- Michael Horn, Co-founder and Distinguished Fellow of Christensen Institute, co-author of Choosing College and Disrupting Class
- Michael Putz, Principal of Michael Putz Consulting and Executive Coaching
- Rita McGrath, Professor at Columbia Business School, author of Seeing Around Corners
About the Authors
Rachel Lee is an Associate at the growth strategy consulting firm Innosight.
Jeremy Yan is a Senior Associate at the growth strategy consulting firm Innosight.