Theory of resource dependence

The theory of resource dependence states that it customers and investors - not managers - who control the allocation of resources in an organization. This is so because companies that invest in projects that do not satisfy the needs of the high end / best customers and do not suit the risk structure of their investors 'will not receive the necessary funding over the long Furthermore, companies generally generate most of their profits from their most demanding customers who are willing to pay premium prices for more sophisticated products. At the same time, profit margins from customers in lower segments are much lower. Consequently, innovation efforts tend to resolve around the improvements at the high end.

The market potential for a Disruptive innovation is typically small in the early years, developing a business plan is largely guess work making it difficult for investors.

New entrants want to enter the market and are motivate to move upmarket into more demanding segments in order to increase their margins. On their part, incumbents are motivated to flee upmarket into their most demanding customer segments since that is where their most profitable customers are located. This asymmetric motivation is at the core of the innovator's dilemma.