Exploring Blue Beaver Ponds

Emerging markets are akin to the holly grail for innovation-minded companies. They represent new and exciting opportunities for growth without the pain and cost associated with “red ocean” markets from which every percentage of market share gained must be taken from existing players. The romantic view is that emerging markets, like undiscovered continents of yesteryear are new lands of untold riches that are ours for the taking. All we need to do is find them and fame and fortune will follow. But such markets are not always the panacea that one imagines. Emerging/blue markets are by definition largely undefined in terms scale or time and it often turns out that the huge blue ocean market you envisioned is nothing more than a stagnant and smelly beaver pond.

Identifying, exploring and ultimately exploiting emerging markets is a hugely difficult and time-consuming process. Perhaps the biggest challenge is quantifying the opportunity. Imagine trying to quantify the Total Addressable Market (TAM) for steam power in the age of horses and sailing ships, or for mobile phones in the 1980s. There is a legend that the folks at IBM once estimated that the global need for computers was only four units! It is easy to laugh at the poor projections of the past, but the truth is that most emerging market estimates are wild ass guesses thinly disguised as sophisticated spreadsheet models. You cannot map and quantify an emerging market, because … well … by definition it doesn’t exist yet. Back to the explorer analogy: you cannot accurately map that newly discovered continent/market until it has been explored. Unfortunately, your financers may not be thrilled with such a prospect, and they’ll want some sort of defendable business plan to justify their investment.

It is the paradox of emerging markets: we crave the riches of new opportunities they potentially offer, but we are terrified by their uncertainty. Have we discovered an ocean or a beaver pond? Is there opportunity ripe for the taking, or do we have to develop the market for 10 years before we can begin to harvest. These are unknowns that no amount of cubicle-based research will uncover. Like the explorers of yesteryear, the only way to is to discover what lies beyond is to go out and explore.

While we all like execution-centric business plans focused on market exploitation and hockey stick growth, a certain amount of patience is necessary when truly nascent markets are involved. The first phase of an emerging market business plan needs to be a discover phase wherein the dynamics of the market and the business model can be tested, honed and ultimately translated into that defendable forecast your financiers want. Everything from the pricing and collateral, to the packaging and delivery should be tried with ‘real live’ early adopters. These early customers are not always your ideal long-term targets, but during the discovery phase they play an invaluable role. Think of them as guides and interpreters that can help you map out this new land of opportunity. Who actually buys the product? How are they solving the problem today? Who and what factors influence the market? What regulatory agencies are involved or might get involved? Are there political aspects to the market? Do buyers already have applicable budgets or does this represent a new line item?

Throughout the process, it is wise to remain cognizant that not all voyages of discovery are successful. There are more ponds than oceans out there, and the wise explorer is prepared for a few nights out in the cold as they deal with the inevitable dead ends, setbacks and delays. The key is to not bet the farm until you know you really have an ocean. While it is tempting to be “all in” as soon as possible, it is wiser to take many mini-expeditions (small bets that you can afford to lose) until you have figured out the lay of the land. Such a systematic approach to market discovery takes patience and discipline, but is essential to long-term success. Once your wild ass guesses have evolved into reliable forecasts, you will be ready to set sail on that blue ocean.

Ty Shattuck
The Idea Whisperer
@tyshattuck

Innovation's Second Battle Front

History is replete with the perils of two-front wars. A second front necessitates dividing resources, balancing agendas, and having multiple strategies simultaneously at play. It also means having to win on both fronts to achieve final victory. The worst type of second front is the one that suddenly and surprisingly opens in the last moments of a battle. This surprise second battlefront is effectively what happens to many companies trying to launch new products.

I spend a lot of my time working with organizations developing strategies to commercialize nascent technologies or launch new products. Victory, or the metric of success, is obviously sales and tremendous effort is put into communicating the merits and value of the product. The underlying premise seems to be that if our target customers see the value of our product and technology, sales will result. The battle lines are thus our product versus their product, so we develop messaging and collateral with finely tuned value propositions that leverage our product supremacy. And then we march to battle only to find that few are willing to buy our amazing new product.

Why? Well it turns out that customer-buying decisions are not as simple as comparing two products and picking the one with better performance. Value in the eyes of customers has many dimensions, and is not always as ‘rational’ as engineering minds would like. We all remember the legendary whipping that VHS gave to the superior Betamax in the days of videotapes (or at least us older folks do). The reality is that who you buy from is as, if not more, important than what you buy. Becoming an organization worthy of buying from is the second front in the battle to achieve market traction.

How do you become worthy of buying from? Branding is an obvious tactic. Brands can convey competence and trustworthiness to buyers; even if the product itself is unproven. Another is to hire known players and leverage their personal credibility or brand. But those are just marketing tactics that can obscure the bigger issue: demonstrating alignment and fit between the parties.

Recently I was working with a software analytics company. Their product is amazing – truly remarkable, but they lacked sales traction so I was helping them craft their story and develop a channel strategy. I used my network to find a potential channel partner. It seemed a perfect fit. They were a hungry and innovative mid-sized integrator with an installed base comprised of ideal prospects, and our product significantly enhanced their existing offering. Everybody would win, or at least it seemed that way until their CEO shifted the conversation from the product to the company itself, and asked about our exit strategy. Just out of investor meetings, I had an exit strategy on the ready and explained how the plan was to build up credibility toward an exit to a large strategic player within 2-3 years. It was very compelling and an investor would have eaten it up, but not so with the potential channel partner CEO. Instead, he frowned and explained how it would be silly for him to invest his time, money and reputation into a product (a great product nonetheless) that would likely be owned by a competitor within a few years. He loved the product, but could not afford to be just a stepping-stone toward our exit ambitions. He was right. While I had sold him on the merits of our product, I had failed to convince him we were aligned business partners.

There is an old saying “that nobody ever got fired for hiring IBM.” There have been many a day I have bemoaned this mindset in customers for its ability to hinder innovation, but there is logic to the philosophy that must be addressed. Put yourself in the position of a purchaser in a potential customer organization that is contemplating a new supplier with a novel offering versus a trusted source with something proven. Certainly, the buyer must consider whether the product meets the basic need of the organization. Keep in mind however that buyers sometimes do not have the technical background to differentiate between the nuances of two product offerings. So what do they do? They bias towards what worked last time, even if it is less compelling.

Buyers must also consider the supplier’s reputation. Will they deliver? Are they likely to hit schedule and budget targets? And even more subtly, will the new supplier make them look bad? Yes, I mean them as individuals. Buyers have careers and ambitions too. The buyer must balance the personal risk and reward of taking chances with new suppliers. Purchasing personnel rarely get credited for wins, but are often hanged for suppliers gone awry. This is especially true in very large organizations where accountability can become a synonym for scapegoat. A wise buyer will be wary about taking innovative risks that are all downside from his or her vantage point.

I recall working with another software company that had a very unique and compelling security application. It was a small team and they didn’t have any customers yet, but it was easy to envision how virtually any medium to large firm would derive huge value from their product. They thus embarked upon a sales strategy of going directly to Fortune 500 companies (why waste time with lesser known beta customers?) All they needed was access to the corporations’ data stores so their analytic engine could do its thing, and all would be amazed. It was a brilliant plan. Well, maybe not. They were disheartened to learn that these giant corporations were reluctant to provide them with unfettered access to their most sensitive data without references or industry-recognized credentials behind them. They were deemed unworthy. Strange, I know.

The battle to sell new products is about far more than the product itself. You might have the best product since sliced bread, but without the trust, confidence and alignment with the purchaser, you’re toast. Organizations need to sell themselves as the right organization to do business with – of being worthy to do business with. Winning that battle necessitates understanding the customer organization, and how it views and manages risk. It is about culture, and relationships and all that ‘soft’ stuff that technology-centric people usually abhor. Regardless, it is a battle that must be fought.

Ty Shattuck
The Idea Whisperer
@tyshattuck

The Fuzzy Front-End of Innovation

Within the innovation space there is much talk about the eureka moment - that magical moment when an idea crystalizes into something coherent - something that can be articulated, shared and built upon. We often think of the eureka moment as the start (time = 0) point in in the innovation process, not dissimilar to the big bang start of the universe. But alas, the eureka moment is far from the beginning.

Long before things converge into a eureka moment, there must exist the raw ingredients of an idea – a primordial mix of pains, problems, brilliance, dreams, passion, creativity and imagination. Somewhere and somehow within our subconscious, these raw ingredients come together over time, and eventually focalize into a conscious spark of brilliance that we call an idea. This pre-eureka phase - the so-called fuzzy front-end of innovation - is the source of all ideas and obviously vitally important to the innovation discussion. But it is also a topic that most of us are ill-equipped for. As we step back in process time, we transition from the post-eureka domain of engineers and entrepreneurs to the unexplored pre-eureka jungles of neuroscience. While neuroscience is making tremendous strides (especially with the latest functional MRIs (fMRI) research), for us laypeople the pre-eureka phase remains mostly a mystery – a troubling concept given that it is the source of the seeds of our businesses.

It is hard to accept that so much of the value we create is the result of a process beyond our control somewhere within the dark recesses of our minds. But that is indeed what neuroscience is teaching us. And while there is much talk about the environmental factors that enable creativity and innovation, the truth is that hard science usually doesn’t support these theories. I still think they are worthy conversations to have, but we must remain humble about how much we really know and understand … and we really don’t know that much. We can be troubled by this reality or we can see it as a brave new frontier.

Ty Shattuck
The Idea Whisperer
@tyshattuck

The Physics of Commercialization

Mr. Spears was my high school physics teacher. The course opened my mind to how the world works. I am particularly thankful to him for introducing me to the concept of potential and how an elevated ball’s energy is converted from potential energy to kinetic energy as it accelerates down a hill. I have been fascinated by the concept of potential, and its measurement, ever since.

The concept of measuring the ‘potential’ of a thing (idea, person, business, etc.) is fascinating as it involves seeing beyond the here and now. In business, when we evaluate a nascent opportunity, we must look beyond what it is, to what it can be. In other worlds, we are measuring its potential value in the future as opposed to its actual value today. It strikes me that this envisioning of how the future may unfold is essentially the same problem that Mr. Spears challenged us with back in high school physics: how much of the ball’s potential energy can be converted to kinetic energy by taking into account the height of the hill and the friction (usually assumed to be zero) along the ball’s path.

These days, my problem space doesn’t generally involve elevated balls or frictionless paths. My challenge instead is to determine the value of a new business idea by taking into account the magnitude of the idea (akin to the mass), the market dimensions (akin to the height), the need it addresses (akin to gravity) and the obstacles (akin to the friction) along the envisioned commercialization path. While not a perfect model, I think this potential energy model is useful enough to demonstrate the key variables in the ‘physics’ of commercialization. But more importantly, it highlights the predictive nature of the commercialization business. The value of an idea lies not in where it sits today, but rather in how much market ‘velocity’ it can attain. Unfortunately there are few people that have the ability or training to see the potential of things and fewer still that have the initiative and/or courage to get the ball rolling.

Ty Shattuck
The Idea Whisperer
@tyshattuck

Double Thinking Gladiators

In his famous book “1984”, George Orwell introduced the concept of Doublethink – the act of “holding two contradictory beliefs in one's mind simultaneously, and accepting both of them.” It seems to me that one of the success criteria for an entrepreneur is their mastery of doublethink. Being an entrepreneur necessitates an awareness of the brutal reality of the risks associated with starting a company (e.g., 99.9% of ideas never realize their market potential) combined with the absolute and unwavering belief that they will somehow prevail. An ordinary person couldn’t reconcile these two contradictory ideas … but then again, entrepreneurs are far from ordinary.



It is said that innovation is a contact sport and that players must be prepared for a few bruises and cuts along the way. Most ideas never see the light of day, most new business ventures fail, and most entrepreneurs lose their shirt. The only positive thing is that losers in this modern version of survival of the fittest generally do not get eaten. Is it any wonder that so many wannabe entrepreneurs are advised by their parents and friends to “just get a real job?” Yet despite (or perhaps because of) the brutality of the game, the modern entrepreneur is celebrated as the savior to our economic woes. And like the gladiators of yesteryear, spectators enjoy cheering on their favorite competitor … but failing that, it is also jolly good fun to watch them be torn apart. Don’t believe me? Think of how quickly Canadians switched from having pride in Canadian tech success story RIM to taking macabre delight in watching its downfall. The brutal truth is that people love heroes that fight against all odds, love to celebrate their success, and love tearing them apart even more.

The entrepreneur is a modern gladiator whose goliath is the multinational that controls their market of interest. One important difference however is that these modern gladiators are educated and understand their odds. Yet somehow they embark upon their futile quest. Are they crazy? Certainly some are, but in my experience it is more likely that they are simply able to push aside their statistical knowledge and live in a private world where failure is inconceivable. Yes, I said inconceivable. The entrepreneur doesn’t just weigh the odds and rationally accept the risks. Rather, they redefine reality itself such that they are somehow immune its sting. It’s what fans of Steve Jobs have come to know as a ‘reality distortion field’ and what Jim Collins calls the Stockdale paradox in ‘Good to Great.’ It's the ability to have absolute faith in your success while simultaneously recognizing the futility of the cause. It doesn’t make rational sense but it’s critical to success. Doublethink.

Ty
The Idea Whisperer
@tyshattuck

My Obsession with Complexity

I have come to realize that I have an obsession with complexity. I love complex problems, people, environments and situations. It is not so much the complexity itself, but rather the thrill of working my way through the complexity. I do however wonder sometimes if it is healthy. I see others make a lot of money addressing simple problems while I keep chasing big, hard nasty problems and I cannot help wondering if I have some sort of fatal flaw in that regard.

Consider my friend David who owns a lighting company. While I am off trying to figure out how to design, build, and launch complicated sensors made from the rarest of earth elements and integrate them into complicated satellites and submersibles, David sells lights. Yup, lights. Nothing crazy, nothing complicated. Just lights. He imports them from China and sells them here. There is no emerging value proposition, elevator pitch or disruptive use case. It’s a light. Duh, you use it when it’s dark. It’s simple, elegant, profitable and apparently not for the likes of me.

I am not entirely sure why I gravitate to the complex. Maybe it’s the Engineer in me? Maybe it’s the same reason I like Sudoku – the exhilaration of finding an elegant solution to a monstrous problem. Or maybe I’m just odd that way. Whatever the reason, I am drawn to complexity like a moth to a flame. Sometimes I get too close and get burned by a problem too big for me to solve. But mostly, I like it this way. I don’t think I would be happy selling light bulbs.

Ty
The Idea Whisperer
@tyshattuck

Management By Wishful Thinking (MBWT)

Having a positive attitude is extraordinarily important for those in leadership positions. But positivism must be tempered by reality. The key is to strike a balance between an honest assessment of challenges in our way, and the necessity to envision and articulate a viable path through them. In previous blogs I have shared my disdain for Chicken Little. There is nothing more demoralizing than somebody constantly crying about the sky falling. But on the opposite end of the attitude spectrum sits Mr. Magoo. Mr. Magoo is unable, or unwilling, to see the peril in his path and blissfully walks into the landmine festered fields without a second thought. It’s funny to watch in the cartoons (especially when slapstick luck steps in to save the day), but it is hugely irresponsible in the real world.

It is one thing to have and espouse a positive attitude, but it is quite another to cover your eyes and ears in the face of real and imminent peril. Despite the new-age mantra of books like “The Secret”, one simply cannot wish away problems. The practice of Management By Wishful Thinking (MBWT) and the world of Mr. Magoo might seem like a happier place than the Land of Chicken Little, but it is ultimately just as toxic to an organization.

As the old saying goes, “the first step is admitting you have a problem.” It takes courage to admit a problem and it takes true leadership and cunning to take it on. There is no courage in denial, and there is nothing compelling about being oblivious. Unfortunately too many leaders, especially the entrepreneurial type, seem to do exactly that. Perhaps they confuse the courage associated with taking risks, with the delusional state of denying risks exist. Whatever the reason, it is dangerous and we leaders must be just as wary of becoming a Mr. Magoo as succumbing to a Chicken Little. Compelling leadership necessitates being soundly grounded in the reality of today without becoming snared by it. Unfortunately wishful thinking just doesn’t cut it.