How to Survive In a Market That You're Inventing
The paradox of business is that competitors are a tremendous asset. An existing market validates the very principle that customers are ready to spend. And when you have a competitor, you have a built in audience to target with messaging about your superior value.
But the greatest innovators don’t benefit from an existing market. Their solutions are so revolutionary that they can’t follow a road map.
Solving a real, human need doesn’t always mean being able to rely on existing market precedent. Evolutionary products have an established base of paying users, but revolutionary ones do not, and that presents a real challenge when securing capital.
Luckily, we live in an era filled with examples of innovators who built their own markets up around them. By looking at the challenges those companies faced and the strategies they used to overcome them, we can all gain insight into leadership that turns world-changing ideas into fully realized companies.
It’s a fundamental economic principle that scarcity drives value. Companies inventing new markets can embrace this truth to grow a market up around them. A young, small company that doesn’t have the resources to make a big splash can win by thinking small.
Tesla Motors knew that it couldn’t create a fleet of electric cars right away, so it targeted a small, elite segment of buyers. Its inaugural car, priced at $109,000 and able to go from 0 to 60 in under four seconds, appealed to a very small, very exclusive audience. The company had to be cool before it could afford to be big.
With over 15 million paying users, Spotify offers the greatest argument for the validity of the subscription music model. Though Rhapsody enjoyed a head start, it lags far behind Spotify with 2.5 million users. Spotify paved the way for wide-scale acceptance of monthly music billing by selling exclusivity.
Spotify built up a its user base through a limited beta. Users could only sign up by invitation, and the number of invites given to existing users was tightly controlled. The scarcity of an invite made the service desirable, and controlling the invites allowed Spotify to scale in sync with its capacity to deliver service. To keep desirability high, they made sure that visible, influential music luminaries like Trent Reznor were among the first invited in the U.S.
Making your service exclusive generates buzz while it validates your ability to provide solutions in a controlled environment, which ultimately makes you attractive to investors. It requires costly logistical infrastructure to change the world, so companies with big ambitions benefit from starting small and validating their efforts.
Know when to pivot.
When a company in an unproven market plateaus, it’s a scary feeling. The risk in solving a new problem is that the niche of receptive users is too small to justify the overhead of your company. If your startup starts to plateau, it’s time to examine the user experience to identify bottlenecks.
When Airbnb first started, its reach in New York City stalled out. It had earned the attention of a small core of users, but wasn’t growing. So its founders started investigating, and found that listings looked lackluster. When they invested in high-quality photos of their user’s spaces, interest quickly grew.
An early success for Airbnb came when Barry Manilow’s Drummer rented an entire house while on tour. Before his request, Airbnb required that a host be present to provide breakfast, which meant never offering an entire house because the host needed somewhere to stay. That self-imposed restriction limited the service they could offer. By listening to their users’ needs, they expanded the market they could reach. Two-thirds of Airbnb listings in New York City are now “entire home” listings.
Having a small base of users means that your company is on the right track. It also means that your work has only just begun. Put yourself through each step that your customer takes, and try to identify restrictions. Talk to users. There’s a chance that you’re limiting your own reach, and that simple reforms can greatly expand your popularity.
Be prepared to hear “no.”
A vision of a better world is scary, and can be hard to convey to others. Every company that builds its own market will hear “no,” far more than they hear “yes.” Building new markets is not for the easily discouraged. You must persevere even when others do not share your vision.
A good solution can and will change the world – but it takes real leadership to get there. A visionary company must be prepared to start lean and scale up, pivot base on intimate familiarity with their user experience, and weather an almost unimaginable sea of doubt. But the companies that succeed are the architects of the future.