Overstating Disruptive Threats

Some entrants present existential, disruptive threats to incumbents, but many do not. Entrants often fail to generate meaningful profits and move upmarket, allowing incumbents to wait them out -- albeit with a temporary sales loss. The incumbent eventually regains the sales -- it just takes time for entrants with unprofitable business models to start exiting the market. 

A strong balance sheet makes it easier for incumbents to wait out competition from unprofitable entrants. If the entrant has a disruptive model that's profitable, and is therefore a true long term threat, an incumbent with a strong balance sheet can either: (1) alter its business model to compete with the entrant (often difficult to do, for reasons explained by Christensen), or (2) shed assets and serve a smaller share of the total market. A leveraged incumbent may find downsizing difficult or impossible, since it must generate revenues/profits sufficient to service debt.

A lot of investors assume every entrant poses an existential, disruptive threat to incumbents without considering whether the entrant's model is profitable/sustainable or whether the incumbent can survive through business model changes or downsizing.