There is a huge difference between entering an existing market and building a completely new one. To see an example, check this out – it is the very first Apple product, which Andrew Chen writes about in a terrific post:
You can see why IBM didn’t view personal computers as any kind of threat to their mainframe market. Chen talks about what the Apple I reveals about design, but there are a few other interesting points that this raises:
- Disruptive innovations start in niches. Or, as Greg Satell says, disruptive innovations are crappy. Personal computers started out with hobbyists. Pretty much everyone that bought one was also a programmer, because there weren’t programs to speak of at the time. In other words, they were all hackers. In the big picture, they were a microscopic niche. That’s why the first PCs could look like this.
- Building a market is different from entering one. When the Apple I launched, there was no PC market. When the iPhone launched, there was a mobile phone market, and there was also a smartphone market, and both were plenty crowded. If you enter an existing market, you need a new business model or a 10X performance improvement to succeed. If you’re building a market, you’re also building a business model that work for it.
Steve Blank makes this point strongly in his books, and here is how he puts it:
Here’s the point. Market Type changes how you evaluate customer needs, customer adoption rate, how the customer understands his needs and how you should position the product to the customer. Market Type also affects the market size as well as how you launch the product into the market. As a result different market types require dramatically different sales and marketing strategies.
As a result, the standard product development model is not only useless, it is dangerous. It tells the finance, marketing and sales teams nothing about how to uniquely market and sell in each type of startup, nor how to predict the resources needed for success.
- If you’re building a market, learning is the most important thing. If you are Procter & Gamble launching a new product, you pretty much know how to do it. Very structured product development systems work in this setting. However, if you are building a market, structure will kill your new product. Structure is deadly because it assumes that you know what business model will work, but that is actually what you’re searching to find.
In their book A History of Silicon Valley, Arun Rao and Piero Scaruffi say:
Silicon Valley works because it encourages smart failure. One oft-repeated piece of advice is “fail often but fail quickly.” As the co-founders of MIT Entrepreneurship Review discovered after visiting the Valley, there still exists a trial-and-error or evolutionary process where failures could create opportunities and better innovations. Also failure is “encouraged and rarely punished,” reflecting a still existing pioneer spirit of the American West.
One example Coleman offers is SUN Microsystems, which did everything wrong that was possible in creating products, but corrected course quickly. In Coleman’s view, “a startup is not a technology company – it is a learning machine.” There are few business cultures in the world that are as tolerant of failure as the Valley. People who fail and learn from it become better entrepreneurs and managers.
When you’re launching a new innovation, you must think carefully about the type of market that you are in. If you are building a market, the main objective needs to be learning. In that case, you can launch something that looks like the Apple I. In fact, you’re probably better off launching something like that fast, because that will accelerate the learning.
When you’re building markets, you need to be building dynamic business models that evolve. That’s why the Apple I looks so different from what we see now from Apple. More than anything else, it’s because they were operating in a very different type of market then.