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