Diffusion of Innovations Theory and Entrepreneurship
Diffusion of Innovations: How Ideas Spread (and Why Startups Fail)
The diffusion of innovations has been studied by many scholars over the ages, but most notably from 1970 onward by American sociologist Everett Rogers.
Dr. Rogers developed this theory while studying the agricultural sector. He was fascinated by a simple question: Why did some farmers adopt productive new equipment immediately, while others abstained despite the obvious benefits?
The 5 Categories of Adopters
Rogers discovered that the adoption of any new product follows a specific statistical distribution. He categorized consumers into five distinct groups, each with different psychological drivers:
- Innovators (2.5%): Risk-takers who want the newest technology simply because it is new.
- Early Adopters (13.5%): Visionaries who adopt early to gain a strategic advantage.
- Early Majority (34%): Pragmatists who wait for proof of concept.
- Late Majority (34%): Skeptics who adopt only when necessary.
- Laggards (16%): Traditionalists who resist change until the bitter end.
Barriers to Entry
Rogers noted a critical reality for entrepreneurs: It is not always the best technology that gets adopted; it is often the most convenient.
The diffusion of innovations is a stochastic (random) process, but entrepreneurs can influence the odds by lowering barriers. To cause an innovation to spread, an entrepreneur must help the customer surmount specific costs:
- Sunk Costs: Money already spent on old tech.
- Switching Costs: The hassle of changing systems.
- Learning Costs: The time required to learn the new product.
Crossing the Chasm
In 1999, Moore and McKenna clarified the implications of the diffusion curve for high-tech startups with the concept of "Crossing the Chasm."
The "Chasm" refers to the massive gap between Early Adopters (Visionaries) and the Early Majority (Pragmatists). These two groups buy based on completely different metrics:
- Early Adopters want a change agent and are willing to patch together a partial solution.
- The Early Majority wants a reliable improvement and a complete solution.
Moore argues that most entrepreneurs die in this chasm. To cross it, an entrepreneur must stop trying to be everything to everyone and select one viable niche to dominate. They must offer the "Whole Product"—a 100% complete solution catered specifically to that target segment.
Other Drivers: Policy and Education
Diffusion isn't just about marketing; it can be driven by necessity or policy.
- Sanitation Entrepreneurs: Ramani et al. (2012) suggest that in developing markets, entrepreneurs must use a "market-making strategy" of education to ensure the adoption of toilets, filling a void in knowledge before selling the product.
- Policy Entrepreneurs: Mintrom (1997) suggests that some founders actively influence government policy to mandate the adoption of their technologies, bypassing market forces entirely.
If you like this theory, you might also be interested in Disruptive Innovation Theory and McLuhan's Media Theory.
Video: Diffusion of Innovations Explained
References
Mintrom, M. (1997). Policy entrepreneurs and the diffusion of innovation. American Journal of Political Science, 41(3), 738-770.
Moore, G. A., & McKenna, R. (1999). Crossing the Chasm. PerfectBound.
Ramani, S. V., SadreGhazi, S., & Duysters, G. (2012). On the diffusion of toilets as bottom of the pyramid innovation: Lessons from sanitation entrepreneurs. Technological Forecasting and Social Change, 79(4), 676-687.
Rogers, E. M. (2010). Diffusion of Innovations. Simon and Schuster.
