The business world is littered with examples of companies that failed to identify and enter new markets (think Blockbuster). And then there are those that do well in their core market, but because that area grows less relevant over time the companies find themselves at a dead end (think DEC).
Business strategist Stephen Wunker has puzzled over these scenarios since he was 15 and wanted to create a planetarium at his high school. The self-described "real nerd" wrote in the preface of his new book: "I have spent my life imagining how people could enjoy new products, services and experiences." He went on to study such matters at Harvard Business School under the tutelage of famed professor Clayton Christensen, whose path-blazing research into disruptive innovation sparked, and continues to influence, Wunker. Those years of both research and practice -- Wunker has an impressive track record himself when it comes to creating new markets -- led him to write "Capturing New Markets: How Smart Companies Create Opportunities Others Don't," which was recently published by McGraw-Hill.
The book offers strategies -- or a "toolkit," as Wunker is inclined to call it -- for successfully developing, entering and mastering new markets, using an assortment of case studies, many of them from IT, including Google, Apple and Dell, as examples of both success and failure. Needless to say, Google and Apple are in the success category, while Dell is used as an example of having "one trick up their sleeve; they are great at doing what they do, even when that thing becomes less and less relevant to where growth in the market is continuing to occur," Wunker wrote.
Established companies should identify and move into "smart new markets" that are close to their core business rather than terrain that moves them away from what they do best. Apple is an example of that. "There was no new technology in the iPad and a lot of companies had looked at this space for years, but it took somebody with Apple's unique capabilities, with its brand" to open up the market for tablet computers, he said in an interview with IDG News Service.
"It's a rare company that re-imagines a long-established industry," Wunker said, referring again to Apple. "They came to the cellphone party after the party was winding up. A lot of people panned the iPhone at first because it didn't stand a chance as a smartphone, but that's not what it was -- it was the first mobile Internet device."
Leaders of companies that succeed at identifying and capturing new markets have "an overarching strategic thesis" and then they give employees the flexibility to move quickly to put that strategy into place. They can envision where their companies are headed and they also accept that there will be failures along the way because that's part of the process of succeeding, he said. Leaders of companies that don't succeed are "blind to new market opportunities and it hobbles them when they decide to pursue new markets," he added, mentioning Digital Equipment as an example.
"You need to constantly be thinking about that next wave," said Wunker, who is managing director of New Markets Advisors, whose U.S. base is in Ipswich, Massachusetts.
Interestingly, his research and experience have shown that if a company is spending a lot of money to pursue a new market then they are more likely bound to fail. "The decision to go after new markets should not be a high-stakes decision. If it is, you're spending too much money. You should allocate a very modest amount with a handful of exceptional people to pursue things in a venture capital style," he suggested.
Company leaders should "make governance frequent, highly focused, with a light touch. They should set direction and priorities," he said. And they should stay informed, with periodic updates about progress.
Again, venture-backed startups are a model worthy to emulate, in Wunker's opinion. "Not many big corporate CEOs have been to a board meeting of a VC-backed startup," he said. But what they would find is sharp focus on two or three objectives, with a lot of leeway and flexibility for employees to execute on those objectives, and progress reports at each monthly meeting.
Sometimes, management will decide that a company needs to grow into new areas and they'll ask a few employees to look into those markets, but will offer them no direction. "So the team reverts to sending up [to management] detailed business plans for full-blown ventures because that's what you'd do in the core business, and management gets queasy about it for one reason or another and kills it. The next business plan, the same thing happens, but for different reasons," he said, noting that there are proven ways to break out of that cycle.
Companies have to push past the old models that are still taught in business schools and some of the new approaches that work will be counterintuitive, such as seeing treating competitors as allies, Wunker said, echoing the set of strategies he provides in the book. Adapting new models for success may be more important now than in recent memory to turn the corner on the Great Recession, he said in the book. "New markets are particularly relevant in today's economy," he wrote in the book. Competing head-to-head with entrenched competitors can be far too costly "and so it is compelling to pioneer businesses with low costs of entry but high potential rewards."
For some companies, pride gets in the way. "Pride is a very dangerous emotion," he said in the interview. "The problem is that the most successful companies are the ones that can afford a concerted push into new markets, but they're also the most proud, and companies that are struggling often say it's something we can't afford right now. The key is to de-risk the decision by making it small and fast and cheap."
Facebook is a good example.
"[Mark] Zuckerberg played this extremely well. He focused on an achievable foothold. He has kept the business flexible. He's very open to new types of partnerships or new revenue streams and yet there is a strategic cohesion to what they do and an overarching vision about what the Facebook experience should be," Wunker said.
Succeeding at new markets also takes patience.
"One of the virtues of more experienced managers is patience," he said. "Most new markets don't operate at Silicon Valley speed. Somebody who has been around for a while will understand what are the early signs of success and when to cut bait" because attempts to move into a new market are failing.