The Truth About Disruptive Innovation

"Disruptive innovation" sounds so dramatic and exciting. And the used car business was a space primed to be disrupted.

Vroom and Carvana were the upstarts tasked with changing the face of used car buying and selling.

However, mere industry disruption is often not enough.

Vroom and Carvana are good examples for entrepreneurs of what's critical for success while disrupting a legacy industry.

Trouble

Recent stories about Vroom and Carvana reveal that the two companies have struggled mightily.

Headlines have been filled with layoffs, state bans, stock price fluctuations, customer service issues, and stakeholders distancing themselves.

One nightmarish scenario after another. “How do I sue Vroom?” was one example.

The US Better Business Bureau (BBB) site summarized the issues.

Vroom has a BBB rating of “F," with over 6,500 complaints in the past three years.

Curiously, Carvana doesn't currently have a BBB rating. Very unusual for such a visible national brand.

So, in an age of celebrating disruptive entrepreneurs, and after years of hate and vitriol being heaped upon the auto sales process, what's happening to online used car retailers?

Used Cars

The used car business was stereotyped as slick, aggressive, unscrupulous, misogynist, and high-pressure. Aggressive, dishonest salespeople peddling sketchy cars to unsuspecting buyers.

Those not mechanically inclined or well-versed in automobiles were a particular target.

Studies have consistently shown that around 85% of people hate shopping for cars, especially used ones with all their potential pitfalls. A low-pressure, online tech solution to used car buying seemed easy.

The Bling's Not the Thing

Vroom and Carvana offered a no-haggle, transparent alternative with a broad selection of vehicles, tons of pictures, and the allure of a like-it-or-leave-it money-back guarantee.

Buyers could also have their vehicles delivered to their doorstep in many cases.

Except they didn’t deliver on what many people complained about most in the used car business: honest customer service.

These companies tried to overwhelm people with flashy hardware, like car vending machines and smart-looking delivery trucks.

And they underwhelmed customers with their soft side.

They tried to convince people that the disruption—buying a car online—was enough.

Customer Issues

Analyzing the BBB complaints reveals the apparent problems. In some cases, it took months for customers to receive their vehicles.

Some claim the automobiles were not what they purchased. Many were not as described.

There were financing issues, and people’s credit was harmed.

And the return process could be a disaster. Getting out of a bad deal was challenging, leaving customers down payments in limbo.

Not the easy-peasy, no questions asked, no hassles, "like it or your money back" experience they touted in their pricey television ads.

So, is too much expected from disruptive innovations?

Perhaps.

However, disruption doesn’t have to mean tossing a hand grenade into an entire industry. And especially the automobile business.

What Disruption Looks Like

In 2021, a customer interviewed for this story bought a used Toyota pickup for personal and commercial use. The vehicle was purchased from a traditional brick-and-mortar automobile dealer.

Disruption number one, however, was that the customer used online marketplaces like Autotrader and True Car to find it.

They never accessed a dealer’s site directly, disrupting the business model's search process and customer channels.

Disruption number two was the most profound.

The customer made the entire deal, including the negotiation, one hundred percent online without calling the dealer.

Everything happened via email and text message.

They visited the dealership once to pick up the vehicle. They test-drove the truck, signed some paperwork, handed over a check, and were out the door in under an hour.

No surprises, no hassles. The entire process was streamlined and may not have happened even 10 years ago.

The dealer employed a young woman dedicated to online sales. She never set foot on the car lot to make a sale and was knowledgeable, straightforward, and efficient.

Most importantly, what the customer saw was what they got. They didn't show up to the dealer, only to be hit with hidden fees, upsells, and aggressive behavior.

And this did not involve dropping a bomb on the used car business. The disruption was incremental but no-less impactful

Meaningful iterations, changing the way business had been done for decades.

Challenging the Status Quo

One could argue that, at least, some of what that used car buyer experienced wouldn’t have happened without companies like Vroom and Carvana challenging the status quo.

Fair enough.

However, the disruptions that made that experience great did not tear down the original car dealer structure. It just changed some critical and often annoying components of it.

At the heart of the experience was good old-fashioned customer service, something Carvana and Vroom sorely lacked.

And there will be people who purchased used vehicles from either of these companies and had an enjoyable experience.

Those customers either caught the firms on a good day or were so beaten down by the typical used car buying experience that anything was considered an improvement.

Or the novelty of purchasing a car completely online was enough to hide the mistakes. Either way, the negative evidence was overwhelming.

Conclusion: Today's Disruption

Back in the nineties, the hype of disruption was enough for many consumers.

Connecting boring personal computers to the brand-new internet, for example, was exciting. Too bad it didn’t work very well at first.

It was a revolution when Steve Jobs and Apple introduced the iPhone in 2007.

Alas, much of the world still experienced sketchy cell services limiting the usability of smartphones.

Mobile boarding passes were an air travel utopia. Until travelers arrived at the airport and were met with terrible WIFI, a dead phone battery, scanners that didn't work, and impatient TSA agents.

Society is over it. All the disruption without the necessary support to back it up.

Alternatives are coming at us from all directions.

And old, tired industries, like automobile dealers, are finally responding, making doing business in that space less painful.

Remember, Webvan crashed and burned in 2001, now online grocery delivery is the rule, not the exception.

There will be more online tech startups working to fix the car business. And one day, a handful of them will get it right.

Entrepreneurship must continue working diligently to identify industry inefficiencies. To find the pain points.

Which cogs in the wheel could be better machined to make it spin smoother and more efficiently?

The car business was designed for its time. The overall industry is not necessarily what’s broken, it’s essential elements that need refining.

Often, that’s where the disruption lies.

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Immersed in a life of entrepreneurship, Tom Clement offers LinkedIn readers the insights of an entrepreneur, academic, contractor, author, venture coach, and consultant. Clement is an assistant professor at Minnesota State University, Mankato. He specializes in the “how” and “why” questions that help entrepreneurs discover their customers, business models, and passion.