May - 2001 - issue > Cover

Launching a company and creating a market around a new product or service entails risk on a number of levels: financial, technological, people. When a company has these elements in place — adequate funding, marketable technology and proven executive leadership — it is ready to address market risk. Through our strategy work at The McKenna Group, we have identified three key success factors for managing market risk while building a market for new technologies. Again and again, we’ve seen that companies that fail to embrace these drivers consistently fail to gain traction in today’s marketplace. Those that master these concepts are far more likely to ultimately succeed.
FOCUS & 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 market leverage approach enables you to establish a beachhead from which to build bridges to other segments. Moreover, by narrowing your focus you conserve financial and human resources. The beachhead approach is a proven method for accelerating market adoption, reducing costs of sales and building the base of referenceable customers that you will need to expand into the broader market.

On what market segment should you focus? It is very important to evaluate all the segments within the market, and then determine which are experiencing the most pain points that your solution can address. With this knowledge in hand, you can prioritize potential beachheads according to their attractiveness, and your ability to reach and serve them effectively. Remember, the market segment that needs your solution most is not necessarily the ideal candidate. Your best beachhead will be the segment that gives you the most influence over the other segments in the market and gives competitive differentiation at the point of entry. Think of it as a lead bowling pin: hit the right one, and the rest will fall.

Once you select your beachhead, it’s time to tailor you product or service positioning for the distinct attributes of the segment. Positioning must be based on three criteria: Does your offering resolve the primary needs of the target segment? Can you provide evidence that it is true? Are you the only supplier of this solution?

We have found that the use of a positioning statement is the most effective way to articulate your value proposition. Using the criteria above, you’ll be able to craft a compelling story for you customers, and a vision around which your team can focus its market building efforts.

THE TOTAL SOLUTION CONCEPT
No product or company exists in a vacuum. Regardless of how appealing your technology may be, audiences rarely embrace a new product overnight. Too many new technology companies — especially engineering-driven companies — succumb to the mistake of focusing on the core product and ignoring the context in which the product must be placed. Adoption of an unfamiliar product can be accelerated when you make it easy for your customers to integrate the new technology into their lives. This means providing complementary services and creating a superior customer experience: the total solution. Especially for new technologies, customers must be guided and educated. By providing the necessary support and training services, you can ensure that your customers will be able to derive full value from your core offering.

It is also crucial that you tailor your service and product offerings to fit the needs, lifestyles and culture of your customers. Airlines and banks long ago discovered that the customers making the biggest impact on their bottom lines were frequent flyers and high-worth individuals, respectively. Both of these industries devote considerable resources to creating an environment for their top customers that ensures their needs are met. By creating a positive customer experience, they build loyalty and reduce churn. For a negative customer experience scenario, consider the spotty record of the telecommunications industry rolling out DSL services over the past couple years. Those companies had advanced technology, poor service, long delays, and limited success.

CREATING AN ECOSYSTEM
For continued business success, new technology companies must create a sustainable market infrastructure or ecosystem around focused areas. This entails building technology partnerships to deliver a total solution and marketing partnerships to leverage established players with “reach” and wherewithal. Further, significant energy should be spent identifying a business model that delivers value for all the players in the ecosystem. Very often, companies tend to forget this reality and instead focus their energies on shallow PR, advertisements, and unproved business models. During the dot-com heyday of the late 1990s, we saw stark reminders of how not to do this. For example, shooting rodents out of a canon at half time during the Super Bowl. Instead, companies should focus on creating “persistent presence” and sustainable business models through technology and marketing partnerships.

Sequencing the growth of your business is vital. Consider chip giant Intel, which for many years kept its advertising budget at the barest minimum. By the time Intel finally did begin spending money on ad campaigns, it had garnered 85% of the chip market for PCs and a sterling reputation for quality and innovation. The customers and partners that were key to their success were in place, namely the ecosystem. Notably, when Intel did begin large-scale advertising, it pursued the innovative Intel Inside program through which it subsidized the advertising efforts of its PC-manufacturing customers. It’s been a very successful strategy that has reinforced the company’s ecosystem and enhanced its likelihood of continued market dominance.

Creating markets for new technologies is a daunting challenge for any entrepreneur. Executing a well-planned strategy based on the three concepts discussed here, however, will vastly increase your chances of success.

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.