Profiles in Doing Both: How Dyson Blew Away the Vacuum Market

When upstart engineer James Dyson entered the U.S. vacuum cleaner market in 2002, the competition bristled at the soft-spoken Englishman with a quirky passion for suction. Just three years later, it was clear why: Dyson's cyclonic wind technology had reshaped the market landscape as though a tornado ripped through it.

By then, Dyson's products had become the market leaders in the U.S. And the competition? They were literally eating Dyson's dust. Several were scrambling to come up with similar designs, while others were adjusting their business models to better compete.

There are few better case studies on the power of transformative innovation than Dyson's. What makes his saga all the more compelling is how his company leverages both disruptive and sustaining innovation to capture market share and then hold on to it. For a better understanding of how Dyson does this, let's go back a few years and examine the vacuum market at the dawn of the new Millennium.

Prior to 2002, the total size of the vacuum cleaner market in the U.S. was around $4 billion. Household penetration was above 80 percent and consumers tended to buy new vacuums only after their existing ones broke. That resulted in single-digit market growth for most manufacturers.

At the time, market leaders, including Hoover, Electrolux and Oreck, relied on a classic razor and blade business model. They made modest money on the sale of their basic units, which typically sold between $75 and $125, and substantially more on the sale of the vacuum-cleaner bags. In many ways, the vacuum cleaning market was stagnant -- ideal for Dyson to shake up with his remarkable cyclonic wind technology.

Dyson spent 20 years in the late 20th century tirelessly working to solve what he considered to be the number one problem with existing vacuum designs -- loss of suction. After more than 5,000 attempts, he perfected new, centrifugal vacuum technology that sucked dirt from the air instead of trapping it against filters and bags.

Not only did the disruptive innovation improve cleaning power, but it also eliminated the need for after-market bags, too. Initially, Dyson thought his disruptive innovation would be compelling to existing manufacturers looking for a clean-sweep advantage over their competition. But none were interested in shaking up the status quo.

So Dyson created his own company. Instead of price or gimmicks, he designed his business around tangible innovation that consumers could see and appreciate.

Now, conventional wisdom says that anytime an upstart takes on entrenched market leaders who have better-known brands, broader distribution and more familiar products, it should attack them on price. Dyson, however, defied conventional wisdom and entered the U.S. market with products that were 2-3 times more expensive that traditional units.

Consumers vacuumed them up. Tired of buying replacement bags, they warmed to Dyson's homespun pitch, which promised technological superiority and cleaning efficiency.

His timing was brilliant. With an economy on the rise, consumers were buying bigger homes and filling them with chic products. That included technologies as revolutionary as the iPod and as upscale as a Viking stove. Dyson's highly designed and elegantly styled vacuums fit right in.

His rivals, not surprisingly, responded to Dyson's disruptive technology with new ideas of their own. To stay ahead of the pack, Dyson updated his original design with sustaining enhancements. He added a unique, swivel ball to improve maneuverability. He introduced a hand-held device that leveraged the same technology as the initial, upright designs. And then he unveiled "City" vacuum specially designed for people living in small, urban apartments.

By bringing disruptive innovation and sustained enhancements to home cleaning products, Dyson transformed a once-stagnant business into a flourishing market. Not only did his products rise to the No. 1 market position, but they forever changed the economics of the industry. Instead of $125, Dyson convinced consumers to invest $300, $400 and more into vacuums. As a result, the market is now $1 billion larger than when he entered it.

Dyson's story illustrates the power of doing both. It proves that disruptive innovation can help an entrepreneur upend a mature market, and reveals how sustaining innovation can help an upstart hold onto the gains it achieves.

Today, Dyson's disruptive and sustaining innovations are each making the other better. The air technology that Dyson so ingeniously applied to vacuums, for example, has been reapplied to industrial hand-dryers and household fans. If history is any guide, he will enhance his initial market forays with cleverly designed follow-up innovations that will help the company sustain itself for years to come.

Not bad for an entrepreneur who set out to change the world with something that truly sucked.

Inder Sidhu is the Senior Vice President of Strategy & Planning for Worldwide Operations at Cisco, and the author of Doing Both: How Cisco Captures Today's Profits and Drives Tomorrow's Growth. Follow Inder on Twitter at @indersidhu.