August 31, 2006
One of the challenges startups (and their boards) frequently face is how to strike the balance between, on the one hand, thinking big, and on the other hand charting a path to market and then growth that is appropriately focused and likely to succeed.
More often than not I find myself emphasizing the focus side of this equation.
But in some instances, particularly when you are working with a genuinely disruptive technology, it can be limiting to think of your business and your market too narrowly.
The importance of defining your market, and the value proposition to your customer, at the right level of abstraction/generality, has popped up in two recent conversations I’ve had, both of which are worth sharing.
First, I was having a conversation with Kent Goldman, a sharp young product exec. from Yahoo! We were discussing the whole blog thing, and debating how broad an impact blogs will have as the market matures. Will this be a narrow new feature that a niche audience uses to create online diaries, or will it become a widespread platform for self-publishing that impacts how we communicate and interact down the road?
Kent subsequently pointed me to a great quote by Theodore Levitt, who in 1960 wrote a business classic called Marketing Myopia:
“The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented.”
Professor Clay Christenson, author of The Innovator’s Dilemma and The Innovator’s Solution, has a further refinement of the notion of customer oriented market analysis. Professor Christenson recently was helping me think about the market opportunity for a company we are evaluating for possible investment. It is a company with a fairly radical technology breakthrough which has the potential to wreak havoc on a very large established market that today is controlled by large established incumbents. Professor Christenson’s advice was for the company not to think of the market narrowly — in terms of products and services that today’s incumbents offer — but rather to think about what job this technology fills for customers.
This probably sounds a bit abstract, but I think it would be unfair and inappropriate at this point for me to discuss the particulars. If you’re interested, though, I would strongly recommend you check out The Innovator’s Solution, especially pages 74-79. Here is a good overview:
“Predictable marketing requires an understanding of the circumstances in which customers buy or use things. Specifically, customers –people and companies–have ‘jobs’ that arise regularly and need to get done. When customers become aware of a job that they need to get done in their lives, they look around for a product or service that they can ‘hire’ to get the job done. This is how customers experience life. Their thought processes originate with an awareness of needing to get something done, and then they set out to hire something or someone to do the job as effectively, conveniently, and inexpensively as possible. The functional, emotional, and social dimensions of the jobs that customers need to get done constitute the circumstances in which they buy. In other words, the jobs that customers are trying to get done or the outcomes that they are trying to achieve constitute a circumstance-based categorization of markets. Companies that target their products at the circumstances in which customers find themselves, rather than at the customers themselves, are those that can launch predictably successful products.”
Professor Christenson then gives a fun example: a fast food chain that segmented the “milkshake” market according to the differenct types of customers who bought them, but then had much more success when it examined how and why people bought milkshakes. This company was able to market shakes much more effectively when it realized that the vast majority of milkshakes were bought either by people on their way to work who wanted an easy to consume quick breakfast that was filling and would distract them during a boring commute, or, on the other hand, tired parents later in the day who wanted to please whiny kids (this is one I can certainly relate to…).
So, for you entrepreneurs out there, it might be interesting to ask yourself what business you really are in, and what job(s) you fill for your customers…