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