Tuesday, October 31, 2006

Three Questions for Finding New Markets

What can we learn from all the talk about innovation?

In sum, it appears that new markets emerge when the rank ordering of current product features is upended or extended to focus on new priorities.

This may take the form of 'breaking the rules', i.e. relaxing an assumption that prevails in an industry -- like NetFlix did with late fees or iPod did with the assumption that it was about technology.

It may take the form of extending the feature set to add new items of value -- like Cirque Du Soleil did with multiple productions and artistic dominance. Kim and Mauborgne's Blue Ocean Strategy uses this approach in the creation of a visual strategy canvas.

Customers typically ask for more of the feature that you market -- sell based on capacity, they'll ask for more capacity. Sell on speed (not a very defensible proposition), they'll ask for faster. In short, current customers are conditioned to respond pretty much in the way they are sold. So asking them what they want is risky from an innovation point of view. This is pretty much the argument in Innovator's Dilemma, Clayton Christensen's work on understanding why firms fail.

This suggests that there are three questions one must ask when looking for new markets:
1. What are all the possible features we could include in a product?
2. What markets emerge if we change the rank ordering of currently available features?
- portability is more important than capacity
3. What markets emerge if we swap new features for current offerings?
- theme and story replace animals

The final point is understanding the attractiveness of a market; as is well proven that depends on where you sit. Innovative, particularly disruptive, markets have the benefit of being pure upside with no base to protect. So most innovation appears to come from small, upstart companies with 'nothing to lose.'

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