Will Your New Idea Work?

Ansoff Matrix

The potential market for a great idea

One of my first consulting jobs was working for a company that had invented a waterless toilet.  At the time, Australia was in a major drought, so this seemed like a pretty good invention.  However, sales had been slow, and they had decided that they need to go international if they wanted to sell more.

So, where should they go?

They gave us the answer at the start of the project: China and India.  How had they made that decision?  An analysis of the market potential there.  They had a guy that did a very extensive spreadsheet analysis of the market opportunities globally.  It started with population, then made assumptions about how many people needed toilets and many other variables – around 27 in all.  The only problem was that each of those 27 lines just multiplied or divided the original numbers by a constant – which meant that the final rankings were exactly proportional to the first variable – population.  So – India and China were the targets.

The story that went with this made sense too.  At the time, only about 60% of the people in both countries had access to any kind of working toilet (and this included fairly primitive technology like pit toilets).  The need for clean sanitation was enormous, the potential health outcomes were good, the humanitarian argument was strong.

Our job was to figure out how to sell their toilets in India and China, because they hadn’t had much success so far.

The first thing that I did was try to make those market estimates more accurate.  I did a lot of work get a more realistic estimate of the addressable market, and in the end, I thought I did a pretty good job.

This was a classic top-down market analysis.  You gather data about what people have and what they need, get a sense of the market trends, figure out how big the market is, and calculate how much of a share of that market you can take.  If the numbers look good, go for it.

For the toilet guys, the numbers looked good, so they went for it.

And completely failed.

What do people need?

I knew that the project was doomed from the minute I started on it – but my failing was that I couldn’t get the scope of the project changed.  The problem is pretty obvious.  The reason that 40% of people in India and China didn’t have access to clean sanitation isn’t because they had some kind of toilet shortage, and were just waiting for a waterless toilet to show up.

The problem was money.  People that couldn’t afford $25 for a pit toilet certainly couldn’t afford lots more than that for a fancy waterless one.

The problem with the project is that no one involved with had gotten onto the ground and found out what people really needed – a more bottom-up approach to finding your market.

Top down or bottom up?

We’re currently working on our collaboration with the Wharton Business School as part of their Global Consulting Practicum program, and the question of top down versus bottom market analysis came up.  Len Lodish, the founder of the program is here, and we had a chat about this with one of our student teams.

Len tied the answer to the Ansoff Matrix – it looks like this:

Ansoff Matrix


It looks at products and markets, and asks whether you’re looking at existing or new ones.  You can use these quadrants to think about how to make your new idea work:

  1. Existing product in an existing market – the goal is market penetration.  Here, we can use top-down approaches to see if your new idea will work.  We know the size of the market and we’re just trying to get more of it.
  2. New product in an existing market – the goal is product development.  We can use top-down analysis here as well.  Again, we know about the size of the market, and we should have a reasonable idea of what people need.
  3. Existing product in a new market – the goal is market development.  Here is where the top-down analysis approach starts to fail.  This is where the toilet project was working.  It failed because we didn’t understand what the new market needed, or whether it would even value the product that we trying to bring in.
  4. New product in a new market – the goal is diversification.  In this quadrant, top-down analysis can tell you that the market might be attractive, but it is nearly impossible to go into this situation without having a good bottom-up understanding of what people need.

The real issue that Len and I were running into is that top-down market evaluation is a lot easier to do.  Our team wanted to test markets for our client through research, not through talking with people.  That’s the mistake that we made on our toilet project – and it’s incredibly common.

When going into new markets, get out of the building

The key point here is that when you are entering new markets, you can’t figure out if your idea will work or not just through desk research.  You have to get out of the building – that is why this is such a critical part of the lean start-up process.

Start-ups run into this problem when they get hung up on features, not the value that they’re creating.  Most start-ups are trying to launch a new product into a new market – so they have to talk to people to gain a genuine understanding of their needs.

The problem is different in big companies.  They regularly send new products into existing markets, where the top-down approach works well.  But then they look to new markets, they try to use the same approach.  This leads to failure.

Ben Yoskovitz wrote a great post today on how to use the lean start-up principles to get around this problem in established firms. If we had gotten out of the building and talked to people in India and China, we would have learned that the water-free toilets would not work yet.  My suspicion is that if we had talked to people in, say, California, that there was a clear need for the product there.

To figure out if our new idea will work, we need to understand what people need.  If you have a good match between this and what you’re offering, then you’ll have a chance.


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Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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11 thoughts on “Will Your New Idea Work?

  1. Great post Tim. Really good contrasting of the old approaches versus the new.
    Given your past experience and work with Wharton, would be interested to know what your impression is of how the big consulting firms are adapting and using new (lean) approaches towards analysis? It’s not something I ever really saw used…

    • That’s a great question Richard. I’m not seeing much evidence of the idea spreading into the major consultancies. The ideas show up in the Wharton collaborations that we do because the people involved with it like Len all tend to have very strong entrepreneurial backgrounds. Consequently, they’ve been doing lean launch type work for many years, even though they don’t talk about it using the current lean language. So the ideas do get picked up in the work that we’re doing with them, but their application is subtle.

      • Hhm, it will be interesting to watch the ongoing evolution won’t it… towards the end of my time in a corporate consulting environment (and as I learnt more about the new methodologies and ways of thinking) I could see how great it would be to apply them to a number of the businesses that I was working with, but to do so would have been to go against the grain and would not have been really understood by those at the top.

  2. Hi Tim – I would argue that whichever Ansoff quadrant you’re in, you must have a combination of top-down analysis and getting out there to talk to people. Even if you know an established market well, and the numbers look good, you can explore how you plan to execute the opportunity with product features/benefits, communication, pricing etc. Consumers are ultimately more useful (and interesting!) than spreadsheets.


    • Hi Kevin – I pretty much agree with that. Our conversation with the student was interesting, as she was trying to say that top-down was always best (but then, that’s probably what you would expect an MBA student to say). My preference would always be to talk to the market – or at least understand it deeply.

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