Assume the Disruptor Is Right
During an existential threat, assume the disruptor is playing an optimal game and respond with overreaction
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 4
- Confidence
- 90%
A mental model for incumbents facing a disruptor with a seemingly worse business model (e.g. negative-margin). Rather than assuming the upstart is structurally unprofitable and will collapse, assume they are right and will find a way to make it work — and overreact accordingly, often by acquiring them early.
Origin
Casey Winters' takeaway from watching DoorDash, Postmates and Uber Eats disrupt GrubHub, invoking Nassim Taleb's line that the only rational reaction to an existential threat is overreaction.
Core principles
- 01Network effects are the best defensibility but not immunity to disruption
- 02Cross-side marketplaces are disrupted when a rival dramatically expands selection
- 03If the market rewards a model, the market will probably find a way to make it profitable
- 04During existential threats, the only rational reaction is overreaction
How to run it
- 1
Spot the selection-expanding disruptor
Watch for entrants that dramatically expand selection in your cross-side marketplace — even via a structurally different, more expensive model (e.g. building their own delivery network in underserved suburbs, serving restaurants that never did delivery).
Watch out Don't dismiss them because their model looks negative-margin or operationally heavy — that's the trap.
- 2
Assume they're playing an optimal game
Unless you have a real, viable reason to assume otherwise, assume the disruptor is right and base your strategy on them executing optimally — not on them running out of subsidy and disappearing.
Pro tip Winters: 'you've got to assume the disruptor is right and base your strategy on them playing an optimal game.'
Watch out GrubHub assumed the disruptors were structurally unprofitable and that VCs would stop funding them — that assumption was wrong; they kept raising billions.
- 3
Overreact — often by acquiring early
Match the threat with disproportionate response. When copying is impossible (it would destroy your margins and stock, and lies outside your core competency), the play is to buy the disruptor as early as possible and let their culture run.
Pro tip Winters' 'Netflix moment' analogy: bet it all early, as Netflix bet on streaming — 'buy DoorDash as early as possible and let DoorDash and their operationally heavy culture eat GrubHub from the inside out.'
Watch out Copying a negative-margin, operations-heavy model after IPO-ing on a high-margin promise can be a death sentence: raising debt to compete could crater the stock ~90% and vaporize employee equity.
- 4
When you can't copy it, own it
When a rival finds a more efficient network effect on the demand side, copy it as soon as possible; if you can't copy it, buy it.
Pro tip Rover copied Wag's more frequent use case as soon as possible and it worked out for them, unlike GrubHub.
In the wild
GrubHub was a high-margin, asset-light marketplace where restaurants did their own delivery. DoorDash, Postmates and Uber Eats built negative-margin managed delivery networks in less-dense suburbs, serving restaurants that never delivered — dramatically expanding selection. GrubHub assumed the upstarts were unprofitable and would fade; instead they raised billions, locked national-chain deals, and when the pandemic flipped their margins positive, took the market.
→ DoorDash took the market GrubHub built; GrubHub later copied the model it had publicly called stupid. Winters argues buying DoorDash early was the only real play.
Common mistakes
Assuming the disruptor is structurally doomed
Betting that a negative-margin upstart can't survive and that investors will stop subsidizing it — when the market rewarding the model means capital and eventual profitability tend to follow.
Copying an operations-heavy model too late and half-heartedly
Trying to replicate a delivery-network model after IPO-ing on high-margin promises, outside your core competency and after the rival has scale, forces your hand on terrible terms.
Is it for you?
Best for
Incumbent operators and boards facing a fast-scaling, seemingly-unprofitable disruptor expanding selection in their market
Not ideal for
Reacting to every low-margin entrant indiscriminately — the rule is for genuine existential, selection-expanding threats, not routine competition
From the transcript
“the main way this happens with cross-site network effects that we typically talk about for marketplaces is when a disrupter dramatically expands selection”
“the only rational reaction is overreaction unless you have a real viable reason to assume otherwise you've got to assume the disruptor is right uh…”
“the only play here was to buy doordash as early as possible and let doordash and they're operationally heavy culture eat GrubHub from the inside…”
“if you can't copy it own it right like buy it”
From the episode
Thinking beyond frameworks
Casey Winters (Pinterest, Eventbrite, Airbnb, Tinder, Canva,