Long read: Blind to Disruption – The CEOs Who Missed the Future

No other technology in history came close to being the most broad-based disruptive threat for so many industries as much as AI. Hence, this essay from Steve Blank is a timely reminder for company managements and investors alike. Blank uses Clayton Christensen’s disruption model, beautifully illustrated in his brilliant book “Innovator’s Dilemma” to take us through the experience of the horse carriage industry disrupted out of sight by automobiles in the early 20^th century. Blank draws analogies along the way with the AI threat of today.

“When early automobiles began appearing in the 1890’s — first steam-powered, then electric, then gasoline –most carriage and wagon makers dismissed them. Why wouldn’t they? The first cars were:

Early autos were worse on most key dimensions that mattered to customers. Clayton Christensen’s “Innovator’s Dilemma” described this perfectly – disruption begins with inferior products that incumbents don’t take seriously. But beneath that dismissiveness was something deeper: identity and hubris. Carriage manufacturers saw themselves not as transportation companies, but as craftsmen of elegant, horse-drawn vehicles. Cars weren’t an evolution—they were heresy. And so, they waited. And watched. And went out of business slowly and then all of a sudden.”

That last sentence is where most management teams get caught – every threat seems distant enough to induce complacency only to take them surprise.

“For the first 15 years carriage makers, teamsters, and stable owners saw no immediate threat. Like AI today: autos were powerful, new, buggy, unreliable and not yet mainstream.

…Even with evidence staring them in the face, carriage companies still did not pivot, assuming cars were a fad. For carriage companies this was the “denial and drift” phase of disruption.”

Then the tipping point came with the Ford Model T:

“The Ford Model T introduced in 1908 was affordable ($825 to as little as $260 by the 1920s), durable and easy to repair, and made using assembly line mass production. Within 15 years tens of millions of Americans owned cars. Horse-related businesses — not only the carriage makers, but the entire ecosystem of blacksmiths, stables, and feed suppliers — began collapsing. Cities banned horses from downtown areas due to waste, disease, and congestion.  This was like the arrival of Google, the iPhone or ChatGPT: a phase shift.”

Of the 4000 carriage companies that operated in 1900, all but one perished by 1925. How was Studebaker, the only one that survived, different?

“Studebaker understood two things the other 4,000 carriage companies ignored:

Whilst no other carriage maker survived, Blank talks about Durant-Dort’s founder Billy Durant, who separately went on to participate in the disruptive force of automobiles:

“Durant used the fortune he made in carriages to invest in the burgeoning auto industry. He founded Buick in 1904 and in 1908 set up General Motors. Acting like one of Silicon Valley’s crazy entrepreneurs, he rapidly acquired Oldsmobile, Cadillac, and 11 other car companies and 10 parts/accessory companies, creating the first auto conglomerate. (In 1910 Durant would be fired by his board. Undeterred, Durant founded Chevrolet, took it public and in 1916 did a hostile takeover of GM and fired the board.”

So, where did the others fail?

As a conclusion and takeaways for today’s management teams, Blank writes:

“Carriage company Presidents were tied to sales and increasing revenue. The threat to their business from cars seemed far in the future. That was true for two decades until the bottom dropped out of their market with the rapid adoption of autos, with the introduction of the Ford Model T. Today, CEO compensation is tied to quarterly earnings, not long-term reinvention. Most boards are packed with risk-averse fiduciaries, not builders or technologists. They reward share buybacks, not AI moonshots. The real problem isn’t that companies can’t see the future. It’s that they are structurally disincentivized to act on it. Meanwhile, disruption doesn’t wait for board approval.”