Discovering value

July 24, 2018

In your book, you have introduced the market opportunity navigator—a tool that aids in discovering and evaluating market opportunities. How can an organization reap benefits from it and combine it with other business tools?

 Innovative ideas can be applied to different market domains and address the needs of different types of customers. Think about blockchain as an example. This breakthrough technology can create value in so many different areas other than financial transactions. It can be used to create decentralized marketplaces, share data securely across platforms, create smart contracts, and the list goes on. So, whether you are managing a blockchain project in a big company with deep pockets or in a lean new startup,you must try to map out your possible markets and applications, and figure out where to play. In fact, this is the case for almost any type of innovation, and this is exactly where the market opportunity navigator comes in. It is an easy-to-apply framework to help you set your strategic focus, turning this complex choice into a structured and manageable task. Using visual worksheets, it covers three essential steps to help find the right markets for your innovation:

  • generating a set of market opportunities stemming from the venture’s unique abilities
  • evaluating possible market opportunities comprehensively, to reveal the most attractive options
  • setting a smart strategic focus that will also keep you open-minded and agile.

The navigator is designed to reinforce and work smoothly with other common business tools such as the ‘business model canvas’ and the ‘lean-startup methodology’. The wide perspective that it provides adds an essential level of analysis to the micro-planning of the canvases, so you can set your strategic boundaries and engage in meaningful lean cycles of experimentation.

What factors should one take into account to make an informed market choice when identifying potential market opportunities?

Most importantly, managers should look before they leap. It is very important to take the time, and make this decision carefully. To do so, start by uncovering potential markets for your innovation. Having options at hand not only gives you the power of choosing, but also the power of staying agile. Then work systematically on evaluating your options—talk with potential users and search for evidence to support your major assumptions. The goal is to find a market that offers the highest potential for value creation and, at the same time, the lowest challenge in capturing this value. Systematic evaluation, like the one suggested in our tool, can help compare and prioritize different customer segments, so you can make an informed market choice. Finally, remember that focusing smartly is not only about choosing a promising market but also about managing the delicate, yet critical balance between focus and flexibility. You should consciously keep open selected markets that can serve as your backup or future growth options. This allows you to maintain agility over time, and to make sure you do not get locked into one specific direction.

Most established firms see technological change as a threat, whereas startups see it as a vast opportunity. How then can established firms use the market opportunity navigator to recognize opportunities in technology and overcome this challenge?

 All companies have to renew themselves to survive, and are challenged to capture new growth opportunities. They struggle to sustain their competitiveness and find new fertile grounds. Yet, discovering and implementing growth endeavors is extremely challenging for established firms, which are focused more on execution rather than on innovation. To be able to uncover truly fresh opportunities and utilize new technologies, companies should adopt explicit processes and frameworks. Step 1 of the market opportunity navigator offers such a process— it guides managers how to delink their core abilities from any specific product they are presently producing, or any specific customer they are presently addressing. Characterizing these core abilities in ‘their own right’ helps managers to search systematically for new market opportunities and adds new technological capabilities. This process will not only support them in discovering adjacent market opportunities but also facilitate the distant search for new opportunities—to overcome the well-known ‘tyranny’ of the present markets. As a result of this process, managers—in large organizations and in small startups— reveal and map out their landscape of opportunities. So, before they actually start running, this wide-lens perspective allows them to make sure they are running in the right direction.

How effective is the market opportunity navigator when an organization has to define and focus on their target/s in a fast-paced, competitive environment?

 Playing in a fast-paced, competitive environment requires frequent examination of strategy to make sure you are still running in the right direction. Doubts can arise for many reasons; for example, a new competitor entering your market, or a new enabling technology. Whatever the reason may be, you can always go back to the structured evaluation offered by the market opportunity navigator. You can apply it to check your new assumptions, support or refute your doubts, and align your strategy, if necessary. Going back to the navigator whenever you need to rethink your strategy can show that you are still running in the right direction, or can help you discover a new direction—if your analysis indicates that pivoting is preferable. For example, if you come across a new opportunity that seems interesting, avoid simple opportunism—evaluate this new opportunity, look at it relative to your other options, and arrive at an informed decision on whether it is worthwhile to be pursued, now or later.

Could you explain the concept of ‘attractiveness map’ and its four zones?

All market opportunities are not ‘born equal’: some are more valuable than others, offering different levels of challenge in capturing this value.

A visual and intuitive way to distinguish between market opportunities and grasp their differences is to map them on a simple 2×2 matrix, which we call the attractiveness map. The Y-axis represents the overall represents the overall challenge in capturing it. This creates four quarters or zones that represent four types of market opportunities:

  • quick win: opportunities that are located in this quarter of the map offer relatively low potential but also entail low challenge. You can choose to focus on such an option to increase your sales volume in a relatively safe manner, or simply as a stepping stone towards a larger and more challenging opportunity in the future.

Tesla chose such a strategy when focusing first on the high-end electric sports car, as a stepping stone towards an affordable electric car for the masses.

  • gold mine: gold mines are rare opportunities that promise high potential with a relatively low challenge. Uncovering a gold mine is usually the result of identifying a significant need in the market that no one has been aware of before (think about Facebook, for example), or of developing an extremely powerful capability that no other company has. If you have a gold mine opportunity in your map, then you should definitely focus on pursuing it.
  • moon shot: just like the name, moon shot opportunities promise you tremendous potential, but are extremely challenging. In the risk-return analogy, these are high risk-high return options. Breakthrough ideas often fall in this quarter of the map (innovative drug development is one clear example). Choosing to focus on a moon shot means that you accept the entailed risk and that you are ready for the long ride, for a hopefully rewarding end.
  • questionable: questionable opportunities offer a challenging climb towards a relatively low reward. Companies should avoid pursuing questionable opportunities, yet the number one reason for startups’ failure is putting too much in developing an offer that no one really needs. So, if you invest time and effort in researching and validating your target markets before pursuing them, then you just might save yourself from focusing on questionable options. While estimating the potential and challenge of your market opportunities requires a great deal of attention, it will help to differentiate between your options and be fully aware of their upsides and downsides before choosing where to play.

How can market opportunities be shaped?

Identifying and shaping new market opportunities is a creative task, but you can apply systematic frameworks to enhance this creative discovery. The first step of the market opportunity navigator offers such a structured framework. The process begins with getting a good understanding of your unique abilities or your core technologies, to understand what properties they have and what functions they can perform. Once done, it is time to think about them creatively, perhaps recombine them in different manners, in order to identify possible applications. An application means a specific usage or job, which you can fulfill with your core abilities. For example, Google Glass— the smart eyewear developed by Google X Labs. This wearable computer had several unique technological elements, including eye-tap technology, voice control, smart prism projector, and augmented reality abilities. Although the device was officially pulled from the market in early 2015, the unique abilities of Google Glass could actually serve many different applications, other than consumers—for medical purposes, educational purposes, media applications, to name a few. As you uncover potential applications, also consider who may have the need for them. These will create your possible sets of customers. Eventually, a market opportunity is any combination of application and customers. For example, medical applications of the smart glasses include use by different types of surgeons during interventional procedures, by doctors and nurses during clinical examination, and by trainers and medical students. Each one of these customer groups can turn into an interesting market opportunity. Overall, the structured logic of this process helps managers identify, shape, and define new market opportunities in a clear manner.

How can an organization depict its strategy and communicate it using the ‘agile focus dartboard’? How can the ‘agile focus strategy’ assure that companies maintain a focus and deliberately keep open other viable market opportunities?

Setting a smart strategic focus is more than just choosing the most promising market opportunities to pursue. It is also about managing the delicate balance between focus and flexibility. Companies—large and small—must stay agile and open to adaptation and change if they want to win the game. To do so, you will need to set your agile focus strategy—clearly define the market opportunity that you will pursue now, but also the opportunities you will keep open for backup or future growth. Keeping an option open means that you presently invest very little resources and management attention in it, just to make sure not to lock yourself out of it. This will help you maintain your flexibility while staying focused. To clearly communicate this strategy, you can depict it on the agile focus dartboard: place your primary market opportunities at the centre, the options that you keep open in the surrounding square, and the opportunities that you place in storage (ie, disregard at this stage) on the outskirts.

How can startups design an agile focus strategy?

 At first, agile focus seems like an oxymoron, but a deeper observation reveals not only that this is possible, but also that it can be extremely beneficial if done right. Here is how you can design your agile focus strategy, in three clear steps:

  • Identify additional market opportunities that could be suitable as your backup or growth options. A backup option is one that you will want to pursue if you are not successful with your present opportunity. A growth option is a market opportunity that you will want to pursue once you are successful with your present opportunity.
  • Evaluate the relatedness of these possible options to the markets you are presently pursuing. Relatedness means that developing and delivering the product—for both markets—require relatively similar resources and capabilities. The more related an option is, the more you can leverage your existing competencies to succeed in it. And this is exactly what we want.
  • Pick at least one backup and one growth option to keep open. Keep them in mind when you develop your venture’s unique abilities, resources and networks, to make sure you do not get locked into one specific direction.

What are the pros and cons involved when an organization focuses only on one market opportunity (primary opportunity)?

 Large organizations can build a portfolio of products, and play simultaneously in several market domains. However, startups are extremely scarce on resources—both human and financial—and must not spread them too thinly. Therefore, it is important for startups to choose one market opportunity as their primary focus. In rare cases, however, it may be beneficial for small companies to pursue more than one target market simultaneously. This may be the case if your primary market is highly uncertain and risky, and if you have options at hand that are tightly related, so you can leverage the same resources and capabilities to succeed in both.

As an example for such parallel strategy, consider Camero, a leading provider and pioneer of through- wall-imaging solutions. Their products provide real-time observation of stationary and moving objects concealed behind walls or barriers. This revolutionary solution is suitable for intelligence and tactical applications needed by both military troops and law enforcement officers. While both markets had large potential, the main challenge was in accessing these customers and in bearing the very long, complex sales process. To balance this risk, Camero’s managers decided to pursue these two markets simultaneously: military and police. The products they required were similar, and the markets were tightly related, as they were both leaning on government budgets and sharing the same values and word of mouth. This tight relatedness enabled Camero to pursue a parallel strategy, to increase their value and mitigate their risk with minimum effort.

Guidelines on evaluating market opportunities…

An attractive market is one that will likely produce a significant potential for value creation and that poses manageable challenges in capturing that value. To estimate the potential of an opportunity, check if your offering creates a compelling reason to buy for a significant set of customers, who will be able and are willing to pay for it. To estimate the challenge in pursuing an opportunity, understand the difficulties in developing and delivering your offering and the risks associated with your business environment. Assess whether they are manageable and if you can overcome them in a reasonable time frame. To evaluate these parameters, adopt a learning mindset—start with setting your hypotheses or beliefs about your markets, and then strive to turn your critical assumptions into knowledge. Perform desk research—get some figures on the size of the market and the competitive threat you might face, but also make sure to ‘go out of the building’ and talk with potential customers and market experts, to make sure that they really need and want what you have to offer. Step 2 of the market opportunity navigator offers a structured process to help you perform a comprehensive evaluation without overlooking any important factors. The systematic approach also enables you to compare different market opportunities and to make an informed strategic choice on where to play.

(As told to Melissa Fernandes)