Is your existing market your deathtrap?

Is your existing market your deathtrap?

By Dinesh Ganesarajah

Clayton Christensen states that established firms are “held captive by their customers” (i.e., they listen too carefully to them). This leaves them vulnerable to disruptive innovations that appeal to an emerging market that ultimately outgrows their existing market. In contrast, startups often develop disruptive innovations that appeal to an emerging market (early adopters), but are unable to “cross the chasm” to the existing mainstream market of pragmatists. Stanley F. Slater and Jakki J. Mohr suggest startup firms and established firms need to develop capabilities that the other possesses. Doing so allows established firms to avoid disruption, and allows startups to cross the chasm to the mainstream.

The chasm between the emerging market to the mainstream.
The chasm between the emerging market to the mainstream.

Disruptive Innovations:

In his seminal book, The Innovator’s Dilemma, Clayton Christensen argues that established firms, through their focus on their established markets and existing customers, leave themselves exposed to disruption. Disruptive innovations, which often underperform established products in mainstream markets, offer benefits some emerging customers value. These emerging customers eventually become the mainstream. The established company’s existing market then becomes a small, high end market.

The evolution of the printer market is an example of disruptive innovation at work.

  • Laser printers, made by companies such as Xerox, were expensive and used largely by businesses. However, the laser printer market was disrupted by bubble-jet printers, made by the likes of Hewlett-Packard.
  • Bubble-jets initially produced prints that were of too poor quality for businesses, but which were “good enough” for the emerging consumer market. Today, bubble-jets are used by businesses and consumers alike.
  • In recent years, mobile displays – made by companies such as Apple and Samsung – have become a “good enough” alternative to prints for an emerging younger consumer market. This emerging market is happy to use their mobile device in lieu of printing event tickets and boarding passes.

Crossing the Chasm:

In contrast to the dilemma established firms face, Geoffrey Moore’s seminal work, Crossing the Chasm, argues that startup companies often are successful launching to an emerging market of early-adopters, but are unable to “cross the chasm” to the mainstream market. Moore argues that marketing strategies used to attract visionary early adopters do not speak to the very different needs of the mainstream market. The mainstream market typically consists of pragmatists. Pragmatists seek a complete end-to-end solution to their problem, whereas early adopters are often willing to piece together the startup firm’s solution with what else they have to create a solution.

Examples of innovations that crossed the chasm include the iPod and Documentum:

  • Apple’s introduction of the iPod was not the first MP3 player to be launched to consumers. However, the iPod was coupled with the launch of an iTunes store and computer software that made it easy for the mainstream customer to purchase music cheaply and transfer it to their iPod. This “complete solution” was a contrast to the arduous process of ripping MP3s from CDs or from file sharing software, which mainstream customers would not tolerate existing MP3 players.
  • Documentum, a document management software business, spent the early part of the 1990s in the “chasm”. In 1994, the company focused on building a complete solution for the pharmaceutical industry, providing a computer aided solution for managing documents through the new drug approval process. Documentum acquired 30 of their top 40 customers, and became a company the pharmaceutical was unwilling to go out of business.

What Does this Mean for You?

In their 2005 paper, Successful Development and Commercialization of Technological Innovation, Stanley F. Slater and Jakki J. Mohr argue that startup firms that are adept at satisfying needs in the emerging market of early adopters are most likely to possess the resources and capabilities to develop disruptive innovations. Conversely, established firms, that are successful at satisfying needs in mainstream markets, are more likely to develop innovations that appeal to the mainstream market – complete solutions that appeal to pragmatists.

A critical implication is that businesses must develop what are often contradictory resources and capabilities to be successful in appealing to both emerging and existing markets. For startups to appeal successfully to both early adopters and the pragmatists, they must develop some of the resources and capabilities of established companies that allow them to listen to the needs of mainstream customers. Similarly, for established companies to develop disruptive innovations they must develop some resources and capabilities used by startups. This entails not listening to their existing customer, but developing products that appeal to customers in an emerging market – technology enthusiasts and early adopters.

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