Clayton Christensen at the Technology Alliance annual luncheon in downtown Seattle.

Clayton Christensen literally wrote the book on innovation, publishing The Innovator's Dilemma in 1997. The award winning book brought Christensen's economic theories on disruptive technologies to the masses, establishing the Harvard Business School professor as one of the leading business thinkers on the planet.

Given that background, Christensen certainly had a captive audience today as the keynote speaker at the Technology Alliance's annual luncheon in downtown Seattle. In addressing more than 800 entrepreneurs, investors, executives and other members of the Seattle technology community, Christensen touched on a number of industries which had either benefited or succumbed to his economic theories. Those ranged from health care and steel to computers and education. He even applied his economic analysis to some of the challenges facing the venture capital industry.

Christensen started his talk by discussing how the computer industry moved from complicated technologies such as mainframes to mini-computers to the personal computers to laptops to smartphones.

"In the history of the computing industry, as with most, the advent of sophisticated technology typically drives the centralization of the industry because the first manifestation is so complicated and expensive that only people with a lot of money and skill can own it and use it," explained Christensen.

But as computers evolved and became much faster, prices dropped to the point where the technologies became more accessible to more people. Pretty soon, he said, the newer technologies became so powerful that they made the pre-existing technologies obsolete. "So, the process of innovation originally drives a centralization, and then that initiates a reciprocal process of decentralization," he said.

This process creates challenges and opportunities for new and older companies alike. "The companies that ensconce themselves in the middle at the beginning have a very hard time staying on top of the industry as it moves through these sequential steps of decentralization," he said. But, he added, there are also instances where the larger competitors can successfully defend their turf.

To illustrate his point, Christensen spent a good portion of his talk discussing the steel industry. From the 1970s to the 1990s, Christensen said new innovative mini mills ate away at the much larger and more profitable integrated steel companies.

They did this by starting at the bottom of the food chain in the steel business, manufacturing rebar at a lower cost. By doing so, the bigger integrated steel companies couldn't compete and decided to get out of that business line. This pattern continued as the mini mills continued to innovate and moved up the chain with new types of products, each time with the bigger rivals pulling out to focus on their most profitable units.

That trend continued through the 80s and 90s until the mini mills controlled 60 percent of the steel market and most of the big integrated steel companies were forced into bankruptcy, he said.

His point? If you're an innovator, it might be best to start at the bottom.

"If you leap ahead of the giant on that top trajectory that we call the sustaining innovations -- I mean better products that can be sold for better profits to the best customers of the giant, the giant will always kill you," he said. "But if you pick off a piece of real estate at the bottom of the market where the giant is actually motivated to flee rather than fight you, that's where I think the odds so heavily favor entrant companies."

That trend has played out in other industries as well, including automobiles in which Korean car companies such as Hyundai Kia have started to eat away at the market share of Toyota on the lower-end vehicles.

Those companies that can get in front of disruptive trends often see their stock prices skyrocket.

Amazon.com, for example, has benefited from what Christensen described as three waves of disruption.

The first was its disruption of the book selling business, with the other two being the introduction of the Kindle and its Web Services platform. "You can see Amazon's share price get off the plateau and begin to take off again as a result of their ability now to over and over again to keep surprising investors," he said.

Christensen also used his theories of disruption to describe the current state of the venture capital industry.

"In investing, the size of the deal is what is profitable. Little deals generate less money than big deals," he said. "And so venture capitalists, who typically start on the horizontal access with early-stage deals in small investments, as they become successful, the fund grows and that means in order to be ... profitable they have to keep deploying that capital in bigger and bigger deals. And if they manage it right, they then have to evolve from an early-stage investor to a late-stage investor."

That is creating an imbalance in the market. "You have just this odd sense that there's too much capital at the big, late-stage end of the business chasing too few deals ... and a paucity of capital at the bottom," said Christensen, adding that new innovative models are forming in the angel and early-stage sectors as a result.