The biggest challenge facing entrepreneurs is how to find new market opportunities and spaces.
In the recent post Entrepreneurs How Much Should You Earn I argued that the true premium for entrepreneurship was on the ability to find new ideas for creating customer value and having the courage to implement those ideas.
Everything else can be outsourced or delegated to a team of employees.
Today I will share a way for entrepreneurs to find the business ideas to make their fortune based on "Creating New Market Space", a Harvard Business Review article by W. Chan Kim and Renee Maubourgne which was included in their excellent Blue Ocean Strategy book. This fits very nicely into my current thinking and campaign for customer focused entrepreneurs.
The Scenario For Blue Ocean Thinking
Competing head-to-head in existing markets is tough and the effort to return ratio is poor.
It would be much better if there was a systematic process for exploring opportunities and possibilities for creating new markets in uncontested areas.
The Routes To Find New Markets
- Looking across substitute industries - how do customers make decisions and trade-offs between products which meet the same basic need but in a different way? Eg Home Depot was based on finding a new market between the professional contractors and the DIY hardware stores.
- Looking across strategic groups within industries - a strategic group is the name for businesses who approach a market in the same way and are often concentrated around a price/value point. For example mid priced 4 door saloon cars could be considered a strategic group with offerings from Ford, Vauxhall (General Motors), BMW and Audi offering similar products around the £20k level. A value innovator would look at the factors which would encourage a customer to trade up or down between groups.
- Looking across the chain of buyers - this recognises that for many purchases the person who chooses is different from the person who pays and the person who uses the product or service. Industry custom often focuses attention on one main buyer. The article gives the example of the Reuters online financial information service which was bought by IT departments and dominated the market until Bloomberg came along and gave the dealers a strong reason to prefer their solution based on ease of use and the ability to make better trading decisions.
- Looking across complementary products - a product or service is rarely bought in isolation so what is bought before, during or after which can help redefine the market and open it up to people who previously felt constrained? For example, the difficulty of finding baby sitters restricts the opportunities for young parents to go out in the evenings.
- Looking across functional or emotional appeal - some markets are dominated by emotional marketing messages while others stress the functional, practical benefits of the product but decisions are often made emotionally and justified logically so shaking up the marketing mix can create new opportunities. This is how Starbucks changed the idea of coffee from a low cost hot convenience drink to a fashionable and social drink. It worked in reverse for the Body Shop which took away the expensive frills from cosmetics and replaced it with an environmentally friendly message.
- Looking across time - This route to new market space is based on anticipating trends and how customer values will change.
The article is excellent but so is the book. It provides a systematic approach to trying to look at new ways to focus on the customer, their experience and their benefits.
How Do You Exploit New Market Space?
Mentioned briefly in the "Creating New Market Space" article and covered more extensively in other W. Chan Kim and Renee Mauborgne articles and the book is the next stage - how you design your new value curve or customer value proposition.
First let me give you a quick resume of customer value.
Any product that is purchased has a number of attributes which have helped convince the customer to buy. Price is always a factor but we know that to get value for money, there are many of factors which create the benefit or reassurance the customer needs.
Generally speaking the higher the price, the more components of value there are and the better the performance.
So if we use a car as an easy example to understand, expensive cars are usually faster, more comfortable, have more clever extras and offer more status. The downside is that they cost more to buy and maintain.
Since the objective is not to design products that just move up the value curve and need to be premium priced to cover their costs, W. Chan Kim and Renee Mauborgne have created a four question framework to help you to reconfigure these factors of customer value:
- What factors should be reduced to well below the industry standard?
- What factors should be eliminated because they are taken for granted but not wanted?
- What factors should be raised well above current industry standards?
- What new factors should be introduced which have never been offered before?
Your Turn Now - Find Your Business Idea
This is a powerful process which can help you to find new opportunities but it does require inspiration.
I recommend that you get yourself a blank piece of paper and some quiet time and start listing the main reasons why people buy current products and work through the new market space framework.