How to Expand Your Business by Creating New Markets

By Florence M. Stone

For every new market success, there are countless organizations that burn millions of dollars trying and failing to create a viable market. How can companies avoid such failures? The answers can be found in the book “Creating and Dominating New Markets,” by Peter Meyer, a principal of The Meyer Group. In an interview with AMA’s Members Only Web site, Meyer shared his thoughts on how businesses can built new markets at less risk.

AMA: Your book is titled “Creating and Dominating New Markets.” How do you define “new” in your book?

Peter Meyer: When you create a new market, you are building a market that does not yet exist for any customer or vendor. You are the only competitor. In the 1990s, online communities were a new market for everyone. AOL created and still dominates that market. In the 1970s, overnight document and package delivery was a new market for everyone. FedEx created that market and is still the main player in that market.

We always tell our clients that new markets are a problem. They are not product- or technology-driven. Your success will come from identifying the problem that is most important to your potential customers and then devising a solution to that problem,—not the other way around.

AMA: In your book, you identify four common denominators of success in new markets. What are these?

Meyer: For a greater chance of success, remember that:

• Customer-driven markets work better than vendor-driven markets. That is why Merck has built a new market with Imitrix migraine medication, but no one has yet built a real market with home automation. Migraines are a problem that customers perceive as very real. Smart homes seem to be a solution in search of a problem.
• Follow one of two lower risk paths. If you have good customer knowledge, use it. That is how FedEx got started in commercial delivery. If you know your product well, leverage that. That is how Motorola sold analog cell phones in Asia. Business is hard enough without making it harder on your organization. Don’t assume that you have to abandon both.
• Structure for failure. Build your market in iterations, and keep in close contact with your customers as you do so. Notice the places where you are not quite hitting the problem, and adjust those as quickly as you can. You will fail in little ways, so correct them as you go. One of our clients, Cisco, insists that products be revisited every 90 days. You can do the same.
• Start with cross-functional teams and leadership. You can’t ask Marketing or Finance to create a new market on their own, charter a team that includes those functions as well as sales and engineering. No one function is set up for this, but you can build and manage a team that can succeed.

AMA: What is the role of the manager or executive in making entry into a new market successful?

Meyer: Your role is to charter that team, make sure that they know what the objective is and then continually ask the right questions. You can’t tell them how to do this; if you knew, you would not need them. But you can ask questions that will lead the team to figuring out how to succeed.

Some good questions include:

To the potential users:

• If you could do this, would you get really excited?
• What would get you really excited?
• What problems keep you up at night?

To your team and yourself:

• Are we solving a real problem?
• Or do we have a solution in search of a problem?
• What are the unexpected common denominators among our end users?
• Do these common denominators suggest more than a product line extension?
• Are we watching our sales team in case they find unexpected markets?
• What do we have to do to be first to market acceptance?
• What are our customers doing in today’s market that we never expected? Can we see a new market from that?
• Where are the break points to hit before we can first enter a market and second make a return? What is the point to leave?
• Is the inherent value there for the end buyer or for a third party?
• Can we identify a channel that will get that value to the buyer very quickly and efficiently?
• Can we establish a good relationship directly with the buyers no matter which channel we use?

To yourself:

• Does my instinct support my analytical decision to try and create the market?

AMA: Clearly there are obstacles to entry into a new market. What are some of the most common?

Meyer: Pitfall #1: The company has a solution for which there is no problem. You would not buy a product that does not solve an important problem, so why should you expect your customer to act any differently?

Pitfall # 2: The market is there, but you are missing it. This happens when you don’t quite understand the problem. IBM and Sears created an online network (Prodigy) designed to solve problems in shopping. AOL created a network designed to solve problems in bringing people together. The problem was not that people could not buy things but that they could not easily get to each other and e-mail. AOL made that process “brain-dead easy.” This evening, AOL will carry almost half the Internet connections in the country. They got there because a small company with few resources understood the problem better than Sears, IBM or Microsoft.

Pitfall # 3: The market is there, but you don’t yet know how to get to it. AT&T knew in the 1960s that the market for videophones could be created, but it could not get the product to work. We know that we could create a market for curing HIV, but we don’t (yet) have a product that will do that. Most markets do not need brand new technologies, but there does need to be some form of solution that actually works.

AMA: How can you create opportunities for your existing products?

Meyer: Don’t start with your existing products; go look for problems instead. Ask, “Who feels the problem and how severely?” Always compare a new opportunity to the problem that you are planning to solve (or are solving today) in the market that you are creating. If the new problem is much worse, with many more prospective customers, only then should you consider pursuing the opportunity.

When you do have an applicable product, expect to modify that product. To create an analog cell phone market in an Asian country, Motorola had to modify many procedures and processes, including how they would do business. It was a lot of work, but it was very much worth the effort.

AMA: How can existing customers help you to make a good decision about the new market to enter?

Meyer: Your existing customers can help you most not by asking for a product or service, but by explaining the problem and then interacting with the solution. When you take the time to program interaction into your product, you get the added benefit of knowing where to take it next as your customers customize the product to their own needs. Both of you benefit when you encourage communication with your customers.

AMA: Could you share with us an example of market entry and dominance that others could emulate?

Meyer: In the book, we use examples that cost a great deal (in time, people and money) to implement, and others that were fairly inexpensive. Federal Express started with a problem and very little time or money, and did quite well. The management team chose to guarantee overnight delivery of small packages and documents. They chose a fairly low technology solution (they bought used planes to start) and created a solution that was good enough, not over-engineered.

Google was started by two students to find a solution to the problem of finding information on the Web easily and quickly. They used one new technology and lots of old and cheap technologies to support that. They built the company from their credit cards, and still use cheap PCs to run their data center. Google was not the first company to build a search tool, but it was the first one to become widely accepted. The founders have done quite well for themselves.

In each case, the company chose to solve a well-defined problem that no one else was addressing, and then worked very hard to solve it. We always coach our clients to look for solutions that are good enough and then deliver them so that they can learn from the interaction.

AMA: Once you are in a new market and have a dominant place, what are some of the ways you might lose market share to another firm?

Meyer: In a word—indolence, which is defined as “the combination of laziness and avoidance of pain.” Problems change, and when you don’t respond to those changes, you open yourself up to smart competition. Don’t allow yourself just to solve problems that no longer matter when you could also be solving problems that are newly important.

Even so, markets mature. It may take months—sometimes decades—but the market that you are creating will eventually become old. The solution is not to rest on your laurels, but to do it again. Creating new markets is fun and rewarding; don’t deny yourself the opportunity.

AMA: Is this a good time to create new markets? After all, for many companies, money is scarce.

Meyer: Both economic downturns and recoveries are excellent times to create new markets. During both, usually there are brand new, urgent problems to be solved and many companies are too cautious to try to solve them. The problems are severe enough, and plentiful enough, so that you can work on them without spending as much money as when the economy is better. This is a great time to look at creating new markets.

For more information on “Creating and Dominating New Markets” visit www.amacombooks.org or www.amazon.com.