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Innovating in Markets with "Chicken or Egg First" Dilemma
Paresh Patel
PhD, Founder & CEO-PayRange
Tuesday, July 14, 2015
Whether the chicken or egg came first is an ancient philosophical dilemma that is often found in the business world as start-ups innovate new territory. This is usually the case when a new product or service requires two or more parties to not only adopt the innovation, but also change away from the status quo.

For instance, in the case of the car-sharing service Uber, they needed both people offering rides and consumers requesting rides. Only then can the service be successful. Having drivers without riders, or riders without drivers doesn't work.

My company, PayRange, is innovating in mobile payments for machines. Like Uber, our business requires both operators of machines to deploy PayRange and it requires users to download the app and use it to pay on the machines. This is the classic chicken or egg scenario - which comes first? Do operators need a user base to entice them to install, or do users need wide availability to download and use?

The answer is both need to be built in parallel - more like a snowball effect. It starts very small with tiny groups of each, but then grows in tandem. In order for this snowball to gain momentum, there are three key factors to consider: customers' customers' problems, perceived ubiquity, and virality.

While only one stakeholder maybe your actual "customer" in the sense that is who your company sells to and derives its revenue from, it's vital to understand the needs of all downstream customers and solve problems throughout the chain. Most notably is your customers' customers. Instead of focusing all efforts satisfying your customers and their needs, have visibility into who their customers are, their problems, and how your company can help solve those problems. Those end-user customers will inevitably pull demand through your customers if your solution is solving real problems downstream.

The second point is of perceived ubiquity. While each stakeholder would like the solution to be ubiquitous, there only needs to be a notion of perceived ubiquity. The startup can help foster perceived ubiquity strategically through its roll-out plan. Instead of a shot gun approach, select the smallest market or environment where the company can quickly gain traction. It might be a geographic region like a town or city, it might be a location like one worksite or school, it could be a community of users like eBay or Amazon users, etc. The key is within that group, there is a notion of perceived ubiquity and it can then grow into other markets quickly.

Last is that the product or service needs to have a virality component - where one satisfied user can entice or encourage other users. This concept is generally well understood by business people, but executing successfully can certainly be a challenge. Virality can simply be social influence "wow, this was cool, you have to try it" or it can have a financial incentive where one or both parties receive some benefit for a referral.

There also tends to be a network effect where the more participants in the system, the more valuable it becomes to all. Whatever the approach, it must be authentic and fit well with the product or service that is being offered. The program should support the overall strategy, not feel like something that was just bolted on.

Companies that often succeed in new markets with the "chicken or egg first" dilemma are innovating more than just technology. They take a holistic approach and look at the entire chain of stakeholders and work to solve problems for each, while developing a customer experience that is orders of magnitude better. They don't start with the status quo and improve, but rather start with a clean sheet and map out the optimal solution that is not constrained by how things are currently done.

In doing so, depending on the business, they may be innovating in delivery channels, branding, manufacturing lines, installation and setups, business model and pricing, customer service approaches, sales and distribution, and of course the actual customer experiences. The cumulative effect is a snowball that starts and builds momentum so quickly that it becomes a moot point whether the chicken or egg came first.

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