Eat What You Can Digest

Date:   Monday , November 17, 2008

A wise businessperson once observed that startups die of indigestion not starvation. It’s a comment not about young entrepreneurs’ penchant for late-night pizza, but about the inability of young companies to maintain a strict focus on a central goal.
Last month, we explored the three key drivers or success factors for companies working to build a market for new technologies. The first of these drivers is focus and market positioning. For any company trying to create a market for a new product or service, the first step must be to devise a plan of attack that focuses on a single, well-defined segment of the overall market. This month, we’re going to delve deeper into the need for focus by concentrating on an emerging market that is attracting a lot of startups and venture funding: wireless communication.

The Wireless Opportunity
The enormous success of cell phones over the past decade is the powerful motivating force driving today’s mobile market. The prospect of linking individuals to the Internet, their computers, voicemail and e- mail — from anywhere, any time and through any device — is drawing entrepreneurs from a wide range of industries. In fact, the San Francisco-based research firm ventureOne Corp. recently reported that venture capital investment in wireless companies hit $1.95 billion in 2000, a 100 percent increase over a two-year period.

Traditional telecom service providers, application providers, software developers, device manufacturers and content providers are all scrambling to stake out territory in this emerging market. The entire industry is anticipating the emergence of third-generation, or 3G, wireless networks in the coming months.

But while the industry scrambles to get this new technology into the marketplace, wireless consumers wonder what the fuss is all about. Indeed, for the mobile user, the wireless Internet and anytime, anywhere communications remain unmet promises. For years, the wireless market has been characterized by overblown claims of transformational whiz-bang technology. Wireless application protocol (WAP) is going to let you do all your grocery shopping while you’re riding in a taxi from the airport. Next-generation palm devices will enable you to synch up with your corporate LAN so you can manage your Siebel CRM system remotely. Pretty impressive. Meanwhile, consumers are finding that accessing e-mail through a cell phone requires punching a long series of numbers into a microscopic keypad.

The promises for 3G services are even grander:
videoconferencing on the go, location-based mobile commerce, always-on connections to the corporate LAN or virtual private networks. By sheer increase in bandwidth, 3G is bound to deliver more and better services. But lost in all this hype are the customers.

Identifying Customers
Regardless of how impressive a technology may be, creating a market for it requires building a customer base, and that takes insight. Who are your customers going to be? What are their pain points? Who exactly would benefit most from your product or service? What need would your service meet? We rarely see new ventures that have this level of clarity. But by asking these kinds of questions, wireless companies can gain a deeper understanding of their customers. Just as importantly, you’ll be able to segment the overall market for your products and services into smaller groups based on common needs or pain points.

Unlike dividing a potential audience in terms of demographic criteria — that is, age, educational background, income level, etc. — segmentation based on pain points enables you to discern exactly what type of person will be most receptive to your offering. The group with the most significant pain points are your “early adopters.” Oftentimes, early adopters are easily recognizable because they will already be trying to put together their own ad hoc solution.

Let’s look at how this segmentation approach would work with the market for advanced wireless services. Mobile professionals are obviously the most logical market for 3G products and services. But which ones? Real estate agents who do the bulk of their work outside the office? Senior corporate executives who spend a lot time in airplanes and hotels? Salespeople who work out of their cars?

Pain points often depend largely on lifestyle. For example, one can view the mobile professional world as those that have a structured lifestyle or an unstructured lifestyle. Typically, a person with an unstructured lifestyle (e.g., a consultant, an executive, or a sales person who is always traveling) has a very urgent need to access information irrespective of where he is. We call such people road warriors as they spend more than a third of their time away from their home and office. We believe road warriors are the most likely users of advanced wireless services because they are the ones with the most significant pain point.

Starting with this group of road warriors, you can narrow your focus even more. For example, road warriors within the high-tech industry, consumer goods or the medical industry.

Establishing a Beachhead
When you determine which of these subsegments will be most receptive to your offering, you will have a beachhead from which to penetrate the market.

Identifying and focusing on the beachhead subsegment maximizes your potential for success and ability to influence other segments of the market. Think of it this way: What types of mobile communication services and devices are road warriors in the high-tech business using today? I know of several who carry multiple devices: cell phone, e-mail pager and palm device, along with a laptop, not to mention multiple e-mail and voicemail accounts, messaging services, etc. This set-up amounts to an ad hoc solution — three (maybe four) devices and a mishmash of services that could be replaced by a single voice/data device connecting to a 3G wireless network. Focusing your marketing efforts on this influential subdivision of the larger road warrior market could be a wise choice.

It is important to note that simply identifying the most receptive segments of your potential market is only a starting point. You need to then position your company as the one entity that can address these people’s needs. Building a differentiated positioning and a valued brand with your beachhead market enables you to then progress to other areas of the mobile professional market.

In short, the best way for any company to build a market is to identify early adopters, and then focus all market-building efforts on that subset of the audience. Early adopters give you the most leverage, and eventually, the most influence in the market. Once you have won over your early adopters, you’ll have a much higher likelihood of success in the broader market. Over the past few years, we’ve seen so many new technology companies fail, often because they bit off more than they could chew and couldn’t maintain focus on their core market. Starting with a limited scope and staying focused may sound like a modest strategy, but these small steps are the path to world domination.

Vijay Bobba is a Partner with The McKenna Group, a global strategy consulting firm with a 30-year history of helping companies create business value.