Now’s the Time to Invent a New Market
Is it a good time to take a flyer and create a new market?
On one hand, there are signs that the economy is improving. Business profits overall are getting better. On the other hand, the economy has changed. It is less predictable, and the problems to be solved are many.
What course of action does this suggest?
For existing markets, this adds up to a good time for caution. Fore new markets, this makes for an opportunity that may never be better. Taking advantage of such times has worked well in the past for organizations. Consider examples from both computer technology companies (such as HP and AOL) and consumer and business product companies (such as GlazoSmithKline, Federal Express and Motorola). However, before any action is taken, another question has to be asked: Why create new markets?
WHY NEW MARKETS?
New markets are desirable because they can be profitable, exciting, and forgiving.
There is profit in new markets. In established, competitive markets, you always face the pressure to reduce prices to match competitors. Someone always seems to be willing to “buy business” by selling at very low margins, and you may be forced there by another vendor’s sense of desperation. But when you create a new market, you are the only vendor. Without competitors, you can focus on the customer’s sense of value as you set prices. When the customer recognizes the value you offer, your margin increases and cash flows. If you are in an expensive price or feature war, the existence of a separate captive market with high margins and good cash flow can represent a very valuable resource for you, funding future growth.
A track record in creating new markets can attract investors. A company that consistently succeeds at new markets (and succeeding half the time is considered consistent) makes for an appealing story with them.
Exhilaration comes from the sheer joy of creating something that did not previously exist. This is an advantage. Work itself can be fun. It is an advantage in recruiting talented people. Given a choice, many of the best people will choose to work for a company that is creating new products and markets over the one that only imitates the actions of others.
You are better positioned. In a troubled economy, competitive markets are exceptionally unforgiving. However, as the only player in a newly created market, you can make mistakes and not lose share to your rivals – you don’t have any rivals. You have room to be creative, to try new ideas and take the time to work more closely with customers.
That tolerance for mistakes also creates a great training ground for managers and executives. You may have people who would benefit from the experience of trying to take an idea from inception to success. The worst outcome is that the company loses some money and discovers that these are not good managers. The best case is that the new market will pan out and subsidize the training of great senior executives.
The forgiving nature of new markets opens the potential to make your own rules. Existing markets have structures that affect all participants. Building a brand-new market allows you to distance your business from the restrictions of history and to create your own vision.
WHAT ARE NEW MARKETS
Just because a market may be new to you does not make it a new market. A new market is one that is new to everyone. And products or technologies do not define a new market. You don’t need those, just new customers with problems that they do not considered solved.
Hewlett Packard made a market out of lo-cost printers. It did not create the hardware, and it wasn’t the first to market. However, the company did initiate the market for inexpensive, desktop color printers where one did not previously exist. HP was the first to package the products so that customers accepted them as a solution. That market remains one of HP’s most profitable businesses.
Guaranteed overnight delivery did not exist as a market until Federal Express created it. Frederick Smith did not create the planes or the idea of spoke-and hub delivery. Still, until the mid-1970’s, no one had combined them to meet this real need. FedEx created a market where none existed before and then went on to dominate that new market. Low-cost printing and overnight delivery addresses problems that customers felt, creating new, lucrative markets.
FOUR COMMON DENOMINATORS OF SUCCESS IN NEW MARKETS
When you look at the companies that have been successful at creating new markets, you can see several common key elements. You will increase your chance of repeated and systematic success by following these principles.
1. Identify problems that need solutions. As interesting as an online grocery delivery service might have been to the founders of Webvan and Peapod, it did not create a substantial market. As much fun as “push” Internet technology might have been to design and bring to market, consumers were not excited enough to keep it going. Home automation still seems to be a solution in search for a problem in the United States.
To reduce the risk you run when you create new markets, locate problems that have real potential. Don’t measure potential by the possible number of users but by the severity of the problem as a specific number of users perceive it. When GlaxoSmithKline looked at the potential for a new migraine remedy, Imitrex, it did not look at the painkiller market. Why? Headache sufferers did not define Imitrex’s potential. Most patients do not need Imitrex to cope with their pain. The exception are migraine patients who will pay ten dollars a pill to relieve their pain. Severity of the need, as your customers perceive it, is what drives the potential volume in your new market.
2. Follow one of two lower risk paths. Netscape created and dominated a new market in the riskiest way. The company’s founders chose to develop a new chose to develop a new product for new prospects. HP broke through at a lower risk, developing a new product (color desktop printing) for prospects of the company knew well. Motorola reduced its risk by taking a known product (analog cell phones) to unknown prospects (users in governments of developing countries). All three strategies worked, but HP and Motorola took a safer path. Since the risk of failure is high, it makes sense to reduce it when you can.
3. Be willing to ignore the siren call of numerous opportunities. Many managers look for opportunities and then jump to take advantage of the new ones that they can reach. It may seem counterintuitive, but jumping to new opportunities can make it difficult to create and dominate new markets. If your market concept was sound last week, it should still be sound this week. Diluting efforts by pursuing too many opportunities will make it harder for any effort to succeed. To win at new markets, stay on one track.
4. Start with cross-functional teams and leadership. One common denominator of success in new markets is a leader who crosses organizational boundaries to manage the effort. No single function can do this work. Marketing is not well suited for the task, nor is engineering or finance. You want the sales team to focus on the quarter’s revenue, but you’ll need their input on the new market. Your role a s a business leader is to span vertical functions as the business focuses on new markets. This role is critical to creating and dominating new markets.
WHAT IS THE POTENTIAL FOR NEW MARKETS?
New markets are not an accidental result of random activity. New markets are the product of someone recognizing potential, finding the right solution and bringing that solution to market in a way that works. It’s difficult and demanding and requires the greatest creativity and marketing and engineering know how. Consider this good news because if new markets were easy, your competition would already be there.
Are there still needs to meet? The reality is that you can find more burning needs than any of us an address in our lifetime. The potential for new markets does not rely on the strength of the need. Look for the strength of the perception of the need. If you want to create a new market successfully, start there.
Products as diverse as FedEx, Imitrex, and AOL were not accidents. You can repeat those successes. When you do, you will be taking advantage of the future, not waiting for it.
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Peter Meyer, principal of The Meyer Group, Scotts Valley, California, is author of Creating and Dominating a New Market and Warp-Speed Growth.
