Friday, 17 January 2014 | By Rose Powell

Andy Sheats’ two-year-old, private health insurance start-up, health.com.au, has over 40,000 customers and is turning over $46 million each year. After cutting his entrepreneurial teeth at realestate.com.au, the start-up that transformed the property market, disrupting has become a tactic and a way of life.

Sheats spoke to StartupSmart about his top tips to disrupt industries in useful and profitable ways.

Disruption will always be volatile, so embrace it

Likening industry disruption to the French Revolution, Sheats says start-ups need to embrace the power shifts and volatility of creating change.

“What does industry disruption have in common with the French Revolution? The rich and comfortable get what’s coming to them when the people who are the foundation of their success realise they’ve been treated with contempt and act on it,” Sheats says.

For start-ups, the monarchy and upper class to be disrupted are high-margin industries resting on their laurels, who according to Sheats, need to be toppled.

“Why? Because complacency means they are not continually adjusting their products and services to meet the evolving requirements of their customers. Here’s news: this complacency plants the seed that will become a disruptor, and when it blooms those customers will leave.”

Use being little to your advantage

Describing disruption as “business model judo”, Sheats says start-ups need to pick their battles and make the most of their capacity to be nimble and responsive.

“Use the strength and power of a challenger against them – to turn a complacent business’s size, fat margins and momentum into a liability. An industry experiences disruption when this judo results in complacent businesses unable to economically respond due to their revenue or cost-structure,” Sheats says.

Large companies can struggle to change their products, services or processes as trends change and customer expectations evolve. Those who dominate less competitive industries are the most precariously placed for a smart start-up to take market share away from.

“An industry where there’s healthy competition and a lot of change and innovation is not flat enough to disrupt. Disruption only works because the incumbent is inadequate and enough customers are dissatisfied to switch to the new player, who offers something different,” he says.

Focus on the issue or gap, not the hefty competitor

As the virtue of disruption is better outcomes for customers, start-ups need to be smart about getting personal. By focusing on the people they want to serve, not the companies they’re trying to take them from, you’ll find the energy to keep going.

“A disruptor is a new player that identifies areas where current players really let customers down and finds a way to turn these chinks in the armour to their advantage,” Sheats says, adding sometimes what needs to be disrupted is people’s expectations about what’s possible.

“Use a new approach that unlocks untapped customer sentiment to reshape the industry in your favour. How you do that is by changing the status quo and continuing to challenge the status quo, even when you are the incumbent,” Sheats says, adding doing a thorough investigation of what your big competitor doesn’t do that your future customers want is a great starting point.

“We started by identifying what the incumbent insurers weren’t doing: with health.com.au, it was making health insurance more transparent and easier to understand and allowing customers to manage their policy online,” he says.

Below are Sheats’ five ways to do business like a disruptor:

1. Question everything: The ‘it has always been done that way’ mentality should be a red rag to a disruptor. Don’t be afraid to probe and find out why. You can change ‘that way’.
2. Focus on the customer: The people who switch from the incumbent to you do so because you serve their needs better, they are central to your continuing success.
3. Do different things, and do them differently: Having a very clear unique selling proposition immediately becomes a hook that helps customers in their decision to switch to you.
4. Fight on your ground: You’ll never win against the incumbent if you fight by their rules; they’re established and they have deep pockets. Change the rules by using their strengths against them, and then fight the battle in a context where you have the advantage.
5. Keep innovating: As a disruptor you need to move faster, learn faster, and change faster than the incumbent. Your ability to continue to meet the needs of your customers this way is key.