In Ann Arbor it's all about entrepreneurship and innovation. But do you have what it takes to flourish in the new economy? Consultant Brian Tolle has made a successful career out of coaching local start-ups and companies. He'll be blogging about the methods and mindset necessary to succeed as an entrepreneur.
Brian Tolle - Post 3: Business Dynamics Ripe for Innovation
In yesterday’s blog I talked about the behavioral traits of innovative entrepreneurs that help them spot opportunities. But there are even more ways to uncover opportunities for innovation.
Let’s use the work of Clayton Christensen and his colleagues to help you see business patterns and cycles that are ripe for innovation.
I’ll start with a common business dynamic that can help you see opportunities for innovation. We call it “performance oversupply.” As companies introduce products into the market, these companies are motivated to keep adding enhanced features and functions to attract more customers, particularly customers with high demands who are often willing to pay a premium for products or services that satisfy these high demands. In the process, these mainstream products often start to leave behind a customer group that doesn’t need the additional functionality nor is willing to pay the premium. We call these customers “overshot customers” and they usually represent a great opportunity for what Christensen calls “disruptive innovation.” Here’s why.
It is usually a start-up company that is willing to take a low-cost, exploratory approach to finding the right mix of functionality and price these overshot customers would find appealing. Often these customers are willing to make trade-offs in order to get the particular set of product dimensions they consider most critical to meeting their needs. And in their eyes, offerings that deliver better value along the product dimensions of convenience, affordability, simplicity, or accessibility, are “innovative.” In other words, you don’t necessarily need cutting edge technology for certain customers to see your product or service as innovative.
Once the start-up company gets a foothold in this smaller, but receptive, customer base, it can start to move up its own product enhancement trajectory. The company can attract more and more customers at lower price points but still at acceptable profit margins because of the low cost, low overhead business model they have honed along the way. Disruption occurs when the start-up products start to compete head-to-head with the mainstream products. Often the mainstream products start to lose market share because greater and greater numbers of customers see the start-up product as a better value. At this point, the established company’s only recourse is to try to compete on price, which is a downward spiral because of its higher cost structure.
Bottom line -- you can spot opportunities for innovation by looking “down market” for customers who aren’t willing or able to pay for all the functionality and then offering them something easier, more convenient, or more affordable that meets their needs along key product dimensions. Keep in mind, I’m not talking about low quality. I’m talking about “good enough” performance along specific key product dimensions. Remember, sometimes “good enough” is great.
So think about this, what would be a scaled-down version of a product or service your company offers right now and who might be interested in this “good enough” version? Don’t forget to think about markets in the developing world. They can be very attractive places to get a foothold and then eventually bring the product or service into developed world markets.
Tomorrow…final exam…is it an opportunity for innovation or not?