Success factors
The eight essential attributes of market creators are summarised below. It seems clear that with one possible exception, all eight are necessary conditions for market creators. The exception is customer concern, but only where the supplier has a truly irresistible proposition and insignificant competition.
1 A clear strategic vision based on a radically different way of meeting a large, previously unsatisfied customer need.
2 A set of highly distinctive capabilities – technological, marketing and logistical – tailored to the needs of the market.
3 Value propositions so compelling that they change customer behaviour and shift loyalties.
4 An entrepreneurial but disciplined organisation that balances creativity with practicality, is innovative but pragmatic, and creates effective teams.
5 A robust, radical business model that is not easily imitable.
6 Genuine concern for the quality and consistency of the customer experience.
7 Leadership that ensures the clear communication of strategic direction and consistent implementation.
8 Sharp focus on the chosen market.
A case can be made for other attributes, but most candidates are common to all successful organisations. The strongest contender is attracting and motivating exceptionally talented people, essential to the development of distinctive capabilities and disciplined entrepreneurialism. I have bundled this with nurturing human capital, one of the factors essential for long-term competitive success.
The eight attributes are not in themselves sufficient conditions for take-off, which depends crucially on the external business environment. Many ventures in the 1980s attempted something similar to what AOL and Amazon did so successfully in the 1990s, in France as well as the US, but the technological infrastructure was less sophisticated, nor was funding so easily available.
By far the most important precondition for the development of a new market is latent demand, the previously unsatisfied market need that the new enterprise uncovers. These markets took off in the way that they did because they struck a major chord with customers. In all the successful cases, demand greatly exceeded the expectations of the founders, let alone those of sceptics. Where the companies can take credit is in spotting the need before almost anybody else and developing capabilities and value propositions that answered it.
Characteristics of new markets
• Suppliers are meeting a significant customer need that was not previously being satisfied, or only poorly. The extent of this need – latent demand – is the main determinant of how large the market becomes. In a few cases, like low-cost air travel, the need had long been clear but was ignored by incumbent suppliers. In most radically new markets, the need had not been clearly articulated beforehand. Nobody knew in 1980 how much they ‘needed’ a personal computer, let alone a search engine, or how much difference a skinny café latte could make to their lives. Yet these products quickly came to be seen as essential by millions of customers because they offered them something of real value.
• New markets are conceived by a radical innovation or a series of them – in technology, product design, business process or model. The market for PCs was driven primarily by technological developments that later ‘discovered’ all kinds of customer needs. Amazon’s innovations were Jeff Bezos’ strategy and model for the business and the IT systems his colleagues’ developed . They also built on the innovations of those who created the Internet and the Web.
• Business models seem bizarre, and other features of the market are difficult to make out. At the outset it is unclear who will sell what to whom, if indeed any money ever does pass hands – viable business models can take years to emerge and frequently never do. What look like promising new markets often turn out to be damp squibs or tiny niches. Even in the most exuberant cases, it is impossible to predict how fast they will grow or how big they will become.
• To compete in the new market, suppliers must possess unusual capabilities. The lack of these is the most common barrier to other suppliers, including incumbents in markets invaded or subsumed by the new one. Typewriter manufacturers (other than Olivetti and IBM) had no means of competing with PC makers, nor corner stores with the prices and choice offered by giant supermarkets. Mail order companies however found that they already had many of the capabilities to be effective online retailers.
• These capabilities enable the first supplier(s) to make compelling new customer propositions that address the unsatisfied need.
In the new markets described here, the unmet needs, levels of innovation, business models, capabilities and customer propositions were all clearly distinct (with the benefit of hindsight) from those in any previous market. The reason sales rocketed was that the needs they identified or discovered came to seem vital to their new customers. They were thirsting, whether they knew it or not, for better coffee, more convenient ways to buy books and to trade with each other. The market creators were successful primarily because of their imagination in spotting these needs, their creativity in devising ways to meet them, the exceptional capabilities they developed, and the compelling propositions they were able to make to customers.
Not many entrepreneurs set out to create a new market, nor do they do so literally in the way that a designer creates a new product or a composer a symphony. To what extent is it meaningful to speak of a company creating a market, and is it a sensible goal?
What all the market creators described here did was open up ‘competitive white space’ that other suppliers were ignoring. Their vision and the actions they took were critical to how and when each market developed and the shape it took. It was their capabilities that largely defined the new market. Consequently all of them initially enjoyed enormous competitive advantage – something close to a monopoly for a time. This is the prize that market creation offers.
There are essentially two strategies for holding onto it. One is to keep capabilities so distinctive and customer propositions so compelling that competitors cannot match them. The other is to cultivate strategic assets that act as barriers to competitors. The two are not of course mutually exclusive – the safest strategy combines both.
Strategic assets can take several forms – from the legal monopolies of post offices to the brands and distribution channels of Coca Cola. When the idea of a new economy appeared, a new set of strategic assets and concepts captured the imagination of many entrepreneurs and investors – first mover advantage, scalability, feedback loops and network effects offered the hope of quickly dominating a large new market. Many of those who tried were more intent on pursuing this dream that on cultivating the essential attributes of market creators.
