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10.13007/286

Ideas for Leaders #286

Eureka! How to Get that Great Idea toMarket

Key Concept‘Making a market’, or creating a need for something no-­one has experiencedbefore, is difficult enough for the most well-­known sellers, but forentrepreneurs it is doubly so. To overcome the hurdle of succeeding with anew product, they need to work not only on the innovation itself but also oneducating potential customers. This research sets out an approach to market-­making for entrepreneurs in certain complex markets.

Idea SummaryIt is often assumed that customers are the best judges of whether or not theyhave a problem, but that is not always the case, especially when it comes toinnovative complex products. As with almost any novel high-­tech product,consumers are uncertain of their requirements, so producers engage inguesswork to try and identify what they desire but cannot articulate. It’s adifficult position for both parties, and exacerbated for those entrepreneurswho, unlike well-­established brands, lack an existing ‘implicit contract’ basedon trust. These innovators may be responsible for creating some of the mostcutting-­edge technologies of our times, but success in any market is oftendivorced from the quality of the product offering itself: good technologies oftenfail! Without the luxury of the implicit contract, entrepreneurs have to tryharder to convince consumers. And when times are hard and uncertain, theyare even less likely to realise these opportunities because people tend to gofor the tried and trusted, those with whom the implicit contract already exists.

Take Dyson – the market was presented with a bagless vacuum cleaner, aproduct consumers did not realise they needed until they got it. James Dysonhad more information than they did about the specification that would workand he satisfied an untapped need, offering a viable alternative in acompetitive market. But it was important for him to convince the market hewas not a ‘fly-­by-­night’, as evidenced by his company’s ongoing technologicalinnovation into new products. Without the implicit contract he had to offercontinuous innovation and invest heavily in the same to win his customersover, to gain that contract of trust.

Entrepreneurs working in certain complex markets need to accept that theirinnovation is not enough – how they get that innovation to market is equallyimportant, the process by which they transform a brilliant design into amarketable commodity that people suddenly realise they need. Without themarket, their good technology will fail.

Business Application

AuthorsGodley, Andrew

InstitutionsHenley Business School

SourceStrategic Entrepreneurship Journal

Idea conceivedDecember 2013

Idea postedDecember 2013

DOI number

SubjectCompetitive strategyEntrepreneurshipProduct Development

How entrepreneurs can overcome market-­making failure:

Get a good reputation and build trust

In markets where consumers are unsure about the problem they face,entrepreneurs must make a credible commitment to solve these problemsrepeatedly;; it is the only way to make this market. Such a commitment tellsconsumers you are willing to invest in your reputation, and you realise thatyour reputation will be damaged if you make a mistake. Consumers will bemore likely to trust the diagnoses of their problems by committedentrepreneurs, so do what you can to demonstrate that. Improve yourcustomer service, invest in quality control, enhance your marketing andadvertising, offer guarantees, provide IT upgrades…these and other actionswill help entrepreneurs acquire the reputational capital they need to competewith the big brands.

When it comes to novel technologies, the goalposts keep moving, soentrepreneurial market-­making in these complex sectors requires anunderstanding of that change and the willingness to adapt products toconsumer needs.

Consider partnering

Developing reputational capital is a long-­term strategy, so what canentrepreneurs do in the short term? If, as the research indicates, we know thatconsumers will only engage in transactions if they believe the producer iscommitted/has a reputation, the solution for new entrants without thatreputation is to partner with existing high reputation firms. There is a dangerof technology leakage, but at least it gets new starters over the hurdle ofconvincing sceptical consumers who know nothing about them or theirinnovations.

Get your pricing right

In these sorts of markets, any entry strategy that tries to build market sharethrough low-­price entry runs the risk of losing a disproportionate amount ofconsumer goodwill when prices are subsequently raised. Consumers mayinterpret this as opportunistic and you run the risk of them withdrawingcompletely. A more sustainable route to making a market for such a product isto always charge premium prices initially, and then either reduce prices orincrease product quality through increased market support services.

Further Reading

Entrepreneurial Opportunities, Implicit Contracts and Market Making for ComplexConsumer Goods. Andrew Godley. Strategic Entrepreneurship Journal (December2013) DOI: 10.1002/sej.1167.The Innovators Dilemma: The Revolutionary Book That Will Change the Way You Do

Business. Clayton M. Christensen. HarperBusiness (1997).

Further Relevant ResourcesAndrew Godley’s profile at Henley Business SchoolHenley Business School Executive Education profile at IEDP

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