I have written that the only way to grow, with rare exceptions, is to create breakthrough offerings with a “must have” that defines a new subcategory and then to manage that subcategory so that your brand is the most relevant option. A “must have” is some offering association, such as a higher purpose, a program or benefit that customers will insist on. If you look at virtually any product arena over decades two things become clear.
Growth spurts within the marketplace are driven by substantial or transformation innovation from whole new subcategories, and they are remarkably rare. Despite that reality, it turns out that most brands focus on incremental innovation. Most companies seem to be happy for singles – they don’t try for home runs very often. Why? One reason is that it is hard to come up with “must have” options. It requires a combination of a market need, enabling technology, and a favorable competitive landscape.
The opportunity will not come often. And even if it does, it may go undetected, especially when executives are busy running an established business with existing offerings. And there’s another problem. Even if a high potential, viable idea has been uncovered, there is a risk that it will not get funded or if it does, will get its funding cut-off. Because such decisions are often hidden, it is hard to know the extent of the loss. What kills innovative concepts with the potential to make a real impact in the marketplace? Many are terminated due to a gloomy picture bias that takes on several forms:
Pessimism About Technological Advances
GM killed the EV1, a battery operated car, in 1998 just before a breakthrough in battery technology occurred in what the GM CEO Rick Wagner opined in 2005 was GM’s biggest strategic blunder. Synthetic detergent was under development at P&G for five years when the firm killed the project. Luckily, a P&G scientist pursued the effort without permission or funding, and five years later Tide was born. Had the firm enforced their decision, P&G would still be a soap company. In contrast, Toyota charged their product team to come up with the Prius despite the fact that at the outset the technology was inadequate. There was a commitment to find or create the necessary technology.
Market Size Estimates are Based on Existing Flawed Products
Digital readers, termed e-readers, were around for a decade but had never gotten traction in part because accessing books was difficult and the units were clunky. Then in November of 2007, Amazon launched the Kindle. With its fast download system, a 30 hours battery life, a book-like reading experience, and a market buzz, the Kindle sold over 1 million units in just over a year.
Belief that Offering Limitations are Fatal
Mint.com, the personal finance service, had trouble getting funding because the judgment was made that no one would provide personal financial information online. However, they were able to argue that their read-only system was not vulnerable to moving money around, they had a hack-free track record, and their use of third party brands such as VeriSign and Hackersafe ensured safe communication.
The Right Application is Not Identified
During the development of the 80286 microprocessor that begin in 1978, Intel came up with fifty possible applications. The personal computer, the ultimate application that became the basis for the Intel business for decades, did not make that list. This failure was in part due to an understandable inability to forecast the development of a host of supporting technologies and software programs that made the PC a runaway success. A powerful technological breakthrough with the right creative effort will find an application.
The Wrong Market is Targeted
Joint Juice is a firm founded by an orthopedic surgeon who had the breakthrough idea of making glucosamine, effective in reducing joint pain, available in a liquid form. The initial target market, young to middle-aged athletes, disappointed. But a refocus on an older demographic, people who wanted lower-calorie, less-expensive products, resulted in a thriving health business. At the early stages, a variety of markets should be on the table.
A Niche Market Cannot be Scaled
The ultimate reason to kill a potential offering is that the market is too small. For that reason Coca-Cola avoided the water market for decades, a decision that in retrospect was a strategic disaster. The reality is that niche markets can grow and can go mainstream. Nike, Starbucks and SoBe are examples of brands that have successfully scaled their value proposition.
So what does this mean? First, be sure to make assumptions and judgments with some depth of analysis. Beware of snap judgments based on instinct or superficial metaphors. Second, be willing to accept some risk. The future is hard to forecast and the upside of the creation of a new category or subcategory can justify the risk. It can provide a business platform for the future and a profit flow that can support strategic growth. A firm needs to take care that the gloomy picture bias does not too quickly result in the wrong decision.
I am reminded of the Google statement of purpose written in their 2004 prospectus: “We will not shy away from high-risk, high-reward projects because of short-term earning pressure….Because we recognize the pursuit of such projects as the key to our long-term success, we will continue to seek them out.” Few companies have that mindset – more should adopt it.