“Disruptive innovation” is one of those phrases that you hear a lot, but few people seem to know its true meaning. I’m guilty of this myself. Disruptive innovation is a theory by Clay Christensen, a professor at Harvard Business School, that was popularized in his book Innovator’s Dilemma . It explains why time and time again, incumbents in a market with considerable resources and intellectual leaders fail to catch on to disruptive market shifts. This theory is poignant today as the legal industry is embroiled in fierce competition. To understand why companies fail, you must understand why they succeed. For this article, we will consider law firms as companies. Successful companies beat their competition by mastering client service. They create value for groups of consumers who in turn, pay them money. As companies find continued success, they increase their revenue by going upmarket, where they can find higher margins, by creating more sophisticated services and goods for their biggest customers. However, while rationally attending to their most prized-customers, these companies begin to neglect consumers who cannot afford their service; or over-serve their customers who would prefer a cheaper, more basic one. This creates an opening for new entrants into the market. “Disruptive innovations,” under Christensen’s definition, make services more accessible to a wider audience. Such innovations are typically inferior by most measures, but they do the job, and their price is right for the neglected consumers. Entrants use these consumers as a foothold into the market. Here is where incumbents make their first mistake: they ignore the entrant’s arrival because the newcomers’ usually have lower margins and are in smaller markets. This creates a vacuum for entrants to go upmarket and chase higher margins, by honing their services on what is called a “disruptive trajectory.” Eventually, this path leads the entrants to the door steps of the incumbent’s customers, waking the sleeping giants. The now-alert incumbents try to retaliate, but it is too late. The entrants have too much momentum and improved services, and the incumbents are doomed. Xerox was a quintessential example of a sleeping giant. As the once-dominant player in the photocopier market, Xerox sold large, expensive photocopiers to businesses. Xerox, over time, developed new, more expensive copiers that could print a high amount of pages per second and cost less per page to print. However, these copiers were not practical for individual consumers. A gap in the market formed. Canon seized upon this market opportunity by launching a low-price, personal photocopier that printed fewer pages per [...]