Q&A with Matthew Christensen (Disruptive Innovation Part 1)

Matthew Christensen Introduction

Mr. Christensen is one of the leading practitioners of disruptive innovation. His father, Clayton Christensen, coined the phrase in his famed NYT bestseller, The Innovators Dilemma, which has developed a worldwide audience as the forward thought on business model strategy. Matt has used the term, disruptive innovation, to break the mold of traditional investment strategies. As a founder of Rose Park Advisors, a Boston based hedge fund; Matt uses his expertise in identifying and applying disruptive innovation frameworks to encompass the foundation of Rose Park's investment strategy. In summary, Rose Park Advisors has one simple criterion for investing: Is the company disruptive or not?

Additional accolades:
Matthew Christensen attended Duke University, receiving a BSc in economics and a BSE in civil engineering. During his tenure at Duke, Matt was part of the 2001 National Championship team under the leadership of Coach Mike Krzyzewski. After graduating Duke, Matt received his MBA from Harvard Business School. Post Harvard; Matt is a former Senior Associate at Innosight, LLC, leading engagements in biotech, enterprise software, grocery, and financial services industries. Before Innosight, Mr. Christensen worked at the Boston Consulting Group, working on projects in various industries, including specialty chemicals, telecom, technology, and industrial goods.

Matt, can you give us a brief description of how you use disruptive innovation as an investment strategy?

Basically, we're looking for companies that have unique business model advantages, these companies are creating new markets, and they are able to find the low end or the unattractive parts of existing markets.

So in terms of existing markets, are there any industries that you feel are on the brink of disruption?

It depends on how you define an industry. If you take the S&P sectors: technology, consumer discretionary, industrial goods, healthcare; those are the industries where you see a lot of innovation. So, we tend to be very active in those sorts of areas. That being said, there are other industries or sectors where you don't see as much; you see consumer staples, real estate, transportation, utilities, natural resource owners...not the guys who make steel but the guys who own the stuff in the ground...those we are a lot less involved in. Then there are a couple who are kind of in the middle and the biggest of those would be the financials.

So most of your investment strategy revolves around technological innovation of these industries?

Yes, this is somewhat theoretical, but things that are sort of opposite of what investor's like Buffett would prefer. In industries where barriers to entry are lower, the industries tend to be more dynamic, these are areas where regulations do not cripple innovation, where the product life cycles are faster; those sorts of things; those are what we look for.

I read that you guys [at Rose Park Advisors] receive 4-5 business plans a day from companies who say they are disruptive. How do you separate the true disruptors?

Well it's not easy and it's getting a little harder because we really don't have a way that we can just automate the process or use algorithms to separate the disruptors. So we end up looking at a lot of bad ideas basically. But, you know consequently we also have the luxury of being really strict about what we are willing to do and what we aren't, which enables us to focus on what we are good at. I think if we had fewer opportunities, then we might have to lower the bar. But our main issue is that a lot of people misunderstand what disruption is. So, I think that that probably is the root of the majority of things that we pass on; where somebody believes they're disruptive when they really are misunderstanding the meaning. I find that the majority of the time people have defined it improperly; with the research that my dad has done I definitely think the definitions are pretty clear and unambiguous about what it means, but the vast majority of people throw the term around and haven't actually read anything that he's written. So, they will think disruption is a synonym for radical, big change, breakthrough type of thing, but that's not necessarily the case.

Check back next week for Part 2 of the Matt Christensen Q&A.

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