The Disruption Readiness Test
Spot vulnerable industries by comparing price growth with innovation
- Difficulty
- Easy
- Time to result
- ~days to results
- Steps
- 5
- Confidence
- 97%
The Disruption Readiness Test compares an industry's pricing trajectory with the rate at which its customer proposition improves. Begin by determining whether prices have risen faster than inflation. Then examine whether those increases correspond to meaningful gains in quality, convenience, reach, or efficiency. An industry that repeatedly charges more while delivering little innovation is vulnerable because a new entrant can offer a clearly superior value equation. Conversely, a company that improves its product while reducing effective prices becomes difficult to displace. Galloway applies this logic to media: traditional television raised prices while viewership declined, whereas Google continually improved advertising performance while lowering cost per click. The output is a relative assessment of where disruption is likely and which incumbents possess defensible momentum.
Origin
Scott Galloway articulated the test while contrasting traditional media economics with Google's improving and increasingly affordable advertising product.
Core principles
- 01Prices should reflect improvements in customer value
- 02Rising prices without innovation signal structural vulnerability
- 03Falling prices alongside improving performance create a defensive moat
- 04Analyze customer outcomes rather than technological novelty alone
How to run it
- 1
Track Real Price Growth
Measure how quickly the industry's prices have changed relative to inflation. Use the customer's effective total cost rather than a promotional headline price.
Pro tip Include fees, time costs, and required add-ons when calculating the effective price.
Watch out Nominal price increases alone do not establish vulnerability.
- 2
Inventory Meaningful Innovation
List improvements that customers can actually experience, such as better outcomes, faster delivery, or lower friction. Exclude cosmetic changes that do not alter value.
Pro tip Interview customers to distinguish valued improvements from features nobody uses.
Watch out Do not mistake increased complexity for innovation.
- 3
Compare Price With Value
Determine whether customer value has improved faster or slower than the effective price. Industries with widening price-value gaps deserve scrutiny.
Pro tip Plot price and customer-value indicators over several years to expose the direction of travel.
Watch out A single unusual year can produce a misleading result.
- 4
Map Competitive Alternatives
Find entrants capable of delivering the same outcome with a better price-value relationship. Assess whether technology, distribution, or a new business model enables their advantage.
Pro tip Look beyond conventional competitors to substitutes solving the underlying customer job.
Watch out An attractive alternative is not disruptive if switching barriers remain prohibitive.
- 5
Classify the Opportunity
Rate the market from defensible to highly vulnerable and state the mechanism behind the rating. Use the result to guide investment, entry, or defensive action.
Pro tip Reassess the classification as prices, regulation, and customer behavior change.
Watch out Treat the rating as a decision aid, not a precise forecast.
In the wild
Traditional television increased prices faster than inflation even as viewership declined. Google, by contrast, improved targeting and expanded advertising revenue while lowering its cost per click. The comparison indicates that television's price-value gap invites disruption while Google's improving economics make it comparatively difficult to displace.
→ The test classifies traditional television as vulnerable and Google search advertising as defensible.
A founder studies a service category whose hourly rates have doubled while turnaround times and customer satisfaction remain flat. She finds that automation can deliver the core outcome faster at one-third of the cost, then validates that customers can switch without regulatory obstacles.
→ The founder identifies a credible entry opportunity based on a widening price-value gap.
Common mistakes
Treating Every Expensive Market as Vulnerable
High prices can be justified by better outcomes, scarcity, regulation, or high switching costs. The relevant signal is price growth without corresponding innovation.
Measuring Features Instead of Value
A long feature list does not demonstrate progress unless customers receive a better outcome or experience.
Ignoring Effective Switching Costs
A superior alternative may fail to disrupt when contracts, habits, data migration, or regulation prevent adoption.
Is it for you?
Best for
It is best for strategists, founders, and investors evaluating where a new entrant can create disproportionate value.
Not ideal for
It is not ideal for regulated markets where prices are detached from innovation or customer choice.
From the transcript
“How do you know if an industry is right to be disrupted? They raised their prices faster than inflation when they'll underlying increase in innovation.”
“Google is probably the least disruptible business right now in media because every year it gets substantially better, and they keep loaning their prices.”
From the episode
Interview With Scott Galloway: Masters in Business (Audio)