Commercializing Like an
Entrepreneur
Taking products and services to market requires
patience and detailed planning
• The most common problems in the way of commercialization are:
(1) a failure to understand a market completely and (2) a reversion
to core company processes
– Companies often follow preexisting paths to launch, careless to
consider the true market, how fast it is growing, and the right channel
and time for entry
• If you approach commercialization like an entrepreneur, you are
better positioned to understand the dynamics of the marketplace,
and therefore to introduce your offering most strategically
Source: New Markets analysis
Copyright 2013 New Markets Advisors
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1. Assess the true market for your offering
•
Determine who is already playing in the field
– Established companies vs. startups?
– High volume of acquisitions / partnerships?
– Existing companies are profitable?
•
Expand the field
– Determine whether other companies, products,
services, and processes are solving the underlying
jobs that consumers are looking to accomplish
Example: Automobile manufacturer
Target consumers’ latent needs:
• Express myself
• Park in tight spaces
• Show my ecological sense
• Have fun
Competition?
– Look beyond traditional actors in the field
•
Assess your organization’s competencies and
weaknesses
– Determine what portion of the market your
organization can realistically play in
– Instead of looking at competitors in static terms,
look at them in terms of flexibility and motivations
Source: New Markets analysis
Copyright 2013 New Markets Advisors
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2. Find market size estimates and test the
market’s state of readiness
•
Find market size estimates
– Review industry publications to
generate a range of market potential
– Carefully consider how each
estimate defines the market
– Determine how broad / narrow your
target market is in comparison to
estimated markets
•
Test the market’s state of readiness
– Assess the success / failure of similar
launches
– Interview early adopters
– Consider mini pilot launches and
concept tests
– Look at hype cycle projections
Source: New Markets analysis; Gartner, Inc.
Copyright 2013 New Markets Advisors
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3. Review the assumptions checklist to catch
dangerous assumptions before they hurt you
•
•
•
•
Assumptions about the business model
•
Assumptions about manufacturing and production
–
Cost, assets, profit model, and timing
–
Ability to control product costs and quality
–
Major obstacles and feasibility of breaking through them
–
Service requirements and cost
–
Ability to produce at required scale
–
Availability of people with required knowledge and
skills
Assumptions about the market
–
Who will buy and why – quantity, continuity, and
frequency
–
How different market segments will behave
–
Market growth rate
–
Development time and cost
–
Cost and time to achieve target volume or share
–
Cash required to reach cash breakeven
–
Distribution channels and access to them
–
Daily, weekly, monthly breakeven
–
Price, product, functionality, service, marketing strategy
–
Breakdown of the numbers into actionable pieces
–
Investment required for profit-and-loss breakeven, to
reach profit objectives
–
Gross and net margins
–
Time required to achieve the above
–
Costs, profit and loss, at varying volume levels
Assumptions about developing the product / service
–
Development time and cost
–
Functional characteristics related to market need
Assumptions about competition
–
Advantage compared with competitive products
–
Duration of product advantages
–
Type of competition that will be faced
–
Likely competitive response
Source: Rita Gunther McGrath and Ian C. MacMillan. Discovery-Driven Growth – A
Breakthrough Process to Reduce Risk and Seize Opportunity, 2009
Copyright 2013 New Markets Advisors
•
Financial assumptions
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4. Judge how fast the market can grow – drivers
of fast market growth
Few dependencies
•
Business
infrastructure –
reliance on partners
may cause delay
•
Physical
infrastructure –
reliance on physical
assets (e.g.,
pharmacies with
rooms for detailed
patient consults) can
cause slow roll-out
•
Few decision makers
– agreement from too
many people can slow
progress
Relative advantage
•
•
Need and
performance –
new offerings
should excel over
competitors along
important
dimensions
Little behavior
change –
overcoming social
norms is a timeconsuming
endeavor
Source: Stephen Wunker. Capturing New Markets -- How Smart Companies Create
Opportunities Others Don't, 2011
Copyright 2013 New Markets Advisors
Low perceived risk
•
Speedy sales and
use – customers
should be able to
trial quickly and
see benefits in
action
•
Low switching cost
– there should be
low barriers to
customer adoption
•
Low cost of failure
– the potential
benefits should
outweigh the risk
of failure
Took centuries to
catch on
Caught on within 5
years
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5. Choose between two channels to market
vs.
Superhighway
• If a company is going to wellestablished destinations, selling
recognized products to easily
identifiable customers with a
business model that makes sense
to the channel, then this is the
best option
Country Road
• For many new markets, the shape
of the industry is unclear, there is
no ecosystem of firms to provide
the full range of services needed,
and sales channels have not yet
figured out how to profit from the
innovation
Source: Wunker, 2011
Copyright 2013 New Markets Advisors
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Examples – channel strategies
•
•
•
•
•
When Walgreens wanted to use its
thousands of pharmacists and nurse
practitioners to provide face-to-face
counseling diabetics, it did not sell the
service directly to afflicted patients
Health insurers had much to gain from
helping people improve diet, exercise, and
medication adherence, and people expected
to be covered by insurance
Walgreens had well-established relationships
with insurers
Walgreens partnered with UnitedHealthcare
to pilot the program
The offering created a new market, but
everyone understood the customers,
stakeholders, and business model
•
•
Flytxt created a technology to hold automated
“conversations” via text messaging, generating
ideas for marketing campaigns, procuring text
messages at bulk rates from cell phone
networks, and selling its services directly to
companies with brands to build
Because Flytxyt did just about everything in
this industry’s nascent “value chain,” it had the
flexibility to adjust its strategy rapidly
-
•
•
Example: As demand took off from radio
stations wanting to provide their listeners with
a way to text their requests, it could create an
interface for DJs to view messages
The company had no critical business partners
to alienate with these fast shifts
It did not need to negotiate to make offerings
possible
Source: Wunker, 2011
Copyright 2013 New Markets Advisors
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Choosing the right channel
Circumstance
Favoring Superhighway
Favoring Country Road
Customer
Need
A specific buyer both recognizes the need
and has the responsibility for addressing it
The marketplace requires education about its
need or the buyer’s identity is unclear initially
Business
Ecosystem
A ready-made network of firms exists to
service the new market and provide
complementary offerings
Few partners exist to complement the firm in
providing a full solution for customers’ needs
Rate of Market If the market is unlikely to change rapidly, a
Change
superhighway can allow fast scaling of the
business
If the market is likely to remain in flux, a
country road can provide more flexibility for
changing the route
Advantages to
Scale
In industries with high fixed costs and large
advantages to scale, a superhighway can be
the fastest route to growth
In industries with fewer scale economies,
country roads allow firms to find the right
formula for success before they start to
accelerate growth
Exit Strategy
For a venture capital-backed startup or
other companies seeking to sell themselves
relatively quickly, superhighways can plug
the company into a network of firms that
might be motivated to buy the company to
complement existing offerings
For companies with longer time horizons,
country roads can provide the flexibility to find
the right market niche and the ability to
develop a range of assets (e.g. technology,
sales force) that might prove interesting to
buyers
Source: Stephen Wunker. “Achieving Growth by Setting New Strategies for New Markets.” Ivey
Business Journal, Dec. 2011
Copyright 2013 New Markets Advisors
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6. Consider whether or not targeting footholds
is the best way to enter the market
• Initially small footholds (customer segments that are well-defined, easy to
please, and able to introduce a product to a larger population) can yield
large, highly profitable markets after unique offerings gain traction
• You must consider to whom the attributes of your product or service
appeal, and if this crowd will enable its popularization and adoption by a
larger pool of customers
• Gatorade got its start as a solution to fluid and
electrolyte loss by football players (the “Gators”) at
the University of Florida
• Supposedly, after the Gators started winning more
games, even winning the Orange Bowl in 1966,
football coaches across the country demanded the
drink for their players
• A few years later, Gatorade was introduced in the NFL
• Almost 50 years later, we now recognize Gatorade as a
mainstream sports drink
Source: Stephen Wunker. “A Foothold Market – In Rickshaws.” Forbes, Jan. 2012
Copyright 2013 New Markets Advisors
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The value of footholds
Speed
Footholds enable
rapid decision
making,
accelerate early
sales, and focus
resources
Scalability
The benefits of scale
can be recognized
quickly in new
markets by attaining
scale within a narrow
group of consumers
Reference
Customers
Competitor
Signaling
The diffusion of
innovation is
dependent on
reference customers –
the early adopters
who spread the
virtues of a new
offering to the larger
population
Becoming known for
something in a
foothold market sends
a strong signal to
competitors to “back
off,” at least with
respect to that
segment
Source: Stephen Wunker.“Getting Big by Targeting Small.” Ivey Business Journal, 2012
Copyright 2013 New Markets Advisors
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7. Don’t be too hasty to launch – evaluate the
right time to enter the market
It is better to be an early mover when a company can:
It is better to be an fast follower when a company can:
•
•
Tightly focus on a poorly-served market
•
Follow a different path than an early mover
•
Leverage a distinct, preexisting network to use the
offering and spread the word
Preserve an early market lead stemming from
barriers that later entrants will face
•
Avoid becoming locked into inappropriate
technologies or business models before the
market is deeply understood
•
Avoid incurring large upfront costs because it is
early to market
Sometimes it pays to be an early mover…
Source: Stephen Wunker. “Better Growth Decisions: Early Mover, Fast Follower, or Late
Follower?” Strategy & Leadership, 2012
Copyright 2013 New Markets Advisors
…and sometimes it is better to be a fast follower
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Funding initiatives – expect variability
• In well-established businesses, spreadsheets rule decisions about funding
– the potential profitability of investments determines where the money
flows
• New markets should be treated differently, but often are not
– You cannot budget a venture with speculative revenue the same way as
predictable estimates for holdings a company has owned for years
• An effective method to evaluate necessary funding should reflect how an
asset manager would evaluate high-risk holdings
– Have a plan for how much will be allocated to the assets each year and a
targeted rate of return on those investments
– However, know that any one investment will deviate significantly from the
target
• Key: have enough investments so that variability is neutralized
• Because this method budgets based on real costs instead of fictional
revenues, it does not overfund ventures
Source: New Markets analysis
Copyright 2013 New Markets Advisors
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Funding – expect variability (cont.)
• A VC will ask how much is needed to finance the company until its next
funding round, which is usually associated with a major milestone in the
company’s development (such as its first customer)
• This approach concentrates the company on that milestone, avoiding
distraction from other actions the company will need to undertake, but
which matter little when it comes to meeting the immediate goal
• Keeps investments manageably small so that it can spread its bets
• It is also key to plan funding looking at steady-state innovation pipeline
– Many initiatives obtain funding in the short term, subsequently lacking human
resources and budget in the longer term
•
Shell GameChanger funding
- $25,000 for testing of initial ideas
- $100,000-$500,000 for ideas in development
- (Not responsible for implementation funds)
Source: New Markets analysis; Company interviews
Copyright 2013 New Markets Advisors
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Ultimately, be prepared to reevaluate and adapt
your approach based on market signals
• Responsiveness to signals of change differentiates
successful companies from unsuccessful ones
• The best ways to stay flexible:
–
–
–
–
–
–
–
–
–
–
Define markets broadly
Create demand before eliminating competitors
Leverage the power of platforms to enable innovations
Keep pricing flexible – avoid being too transparent
Invest in scenarios, not plans
Keep fixed costs low
Focus on small footholds
Consider “country roads” as well as the “superhighway”
Base strategy on timing
Sequence risks
Source: Stephen Wunker. Capturing New Markets -- How Smart Companies Create
Opportunities Others Don't, 2011
Copyright 2013 New Markets Advisors
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Relevant services from New Markets
Light-touch counsel on strategy-shaping process
Deeper involvement in strategy and solution
creation
Structuring of primary research and
interpretation of results
Business plan creation
Guidance through paths to commercialization
Copyright 2013 New Markets Advisors
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Who is New Markets?
• Experts in
reframing
market space
and generating
growth
• Senior
experience
• Creative and
pragmatic
• First-class
consultants,
thought
leaders, and
entrepreneurs
Copyright 2013 New Markets Advisors
Recent Clients
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Our team’s publications have appeared in:
Copyright 2013 New Markets Advisors
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Contact
Stephen Wunker
Managing Director
New Markets Advisors
245 First Street, 18th Floor
Cambridge, MA 02142 USA
Tel. +1 617 337 3060
Fax +1 617 337 3070
swunker@newmarketsadvisors.com
Copyright 2013 New Markets Advisors
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