Why New Market Entries Often Fail

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One of the areas where my previous client work at McKinsey and my current client work overlap is in the area of market entries.

A client sees a new market opportunity and wants to figure out if and how to chase it.

A lot of attempts at entering a new market fail.

Here are some of the more common reasons:

For big companies entering a new market, one of the most common errors is not having a differentiated product or service offering.

The attitude some larger organizations have is: we will succeed in the new market simply because we are us. This is a very inward-looking attitude toward being successful in a market place.

The key question to ask is: what offering can we uniquely provide to customers that they will value that they can't get currently, but really do want? Ideally you want something that can be provided to customers that really harnesses the company's unique advantages.

Let's take a hypothetical example and say Apple wanted to enter the hotel business and compete against Marriott. What makes Apple unique? What about that uniqueness can Apple bring to how it designs and runs a hotel? Is this something customers would actually value?

Amongst smaller businesses, especially startups, entering brand new, emerging markets, the challenge differs.

In this scenario, the biggest mistake is fundamentally misunderstanding marketing demand. The classic startup entrepreneur says, " I have a great idea!"

Invariably, the entrepreneur is referring to a specific product, service, or increasingly an app.

I call this kind of thinking "supply-driven thinking."

Using the economic terms "demand vs. supply," supply-driven thinking is when a supplier in the market place has fallen in love with a great "idea" and wants to supply it to the marketplace.

The problem with this thinking is that it often makes a ton of assumptions about market demand. Quite often these assumptions are not validated beforehand, and it's not unusual for these assumptions to be completely wrong.

A much more reliable approach is to understand the PROBLEMS customers face, the lack of adequate solutions that exist to solve that problem, and the customers' frustration that a better solution doesn't exist.

This kind of thinking is demand-driven thinking. The major benefit of this approach is that you have confidence that if you can come up with a good solution, customers fundamentally want to buy it.

Maybe you will have technical issues. Maybe you will have difficulty standing out in a noisy marketplace. Maybe you won't be able to recruit the talent you need.

All of this may be true, but at a minimum you don't have to worry about customers fundamentally not wanting what you are selling.

I know a lot of ways to solve the headaches that occur when growing a business. The one problem I have no idea how to fix is when customers fundamentally don't give a crap about what you sell.

When I teach this concept, one of the common criticisms I hear is that sometimes customers don't know what they want until they see it.

Henry Ford is often quoted on this concept, "If I asked customers what they wanted, they would have said they wanted a faster horse."

This misunderstands my point.

I never said ask customers what they want. Customers have very little imagination.

What I said was: understand what PROBLEMS customers face that they are frustrated with and irritated by.

A great example of this is from Steve Jobs himself, who has historically frowned upon market research. Prior to the iPhone, Jobs introduced the iPod + iTunes combination.

Prior to this combination, MP3 players existed. What was irritating about the old MP3 players wasn't the device themselves. It was the fact that the music-buying experience was very cumbersome.

At that time, you would typically listen to the radio and hear a song you liked. You would make a mental note of the song title and artists. Then you would drive to the local mall, find a music store and buy the entire CD (just to get the one song you wanted).

Then you'd drive home, put the CD in your computer, covert it to MP3 format, and then copy the file to your MP3 player.

The whole process literally took a few hours. You also had to buy the 13 others songs on the album you didn't want, just to get the one you did.

This insight was clear to probably 500 million people at the time.

What made Jobs brilliant was that he was not in the product business. He did not set out to create a better music-playing product.

Instead, he noticed the PROBLEM. The process of buying music was fundamentally annoying and inefficient. He thought of a better SOLUTION that happened to involve a product and a service combined.

THAT was why Apple's market entry into the music business was so successful.

They understood the market really well (which most startups tend to mess up) AND they offered a really differentiated offering (which a lot of big companies tend to not do well enough).

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7 comments… add one
  • Emre Jul 9, 2015, 2:39 pm

    Thanks Victor,
    Very insightful and made me rethink and take another look, critically, at the problem/solution of my new project!

    Best,

    Emre

  • Jihaan Jul 15, 2015, 8:44 am

    Thanks Victor.

    Good to be reminded about the difference between great ideas and market receptiveness.

    Regards,
    Jihaan

  • kim Jul 15, 2015, 9:00 am

    Can’t agreed more with Victor’s analysis

  • Carla Jul 15, 2015, 11:46 am

    A great article! People with ideas usually get too busy with the idea itself and the details, often forgetting about the client and his needs. It is not about you or your idea, it is about the client.

  • Tylee Jul 17, 2015, 3:47 pm

    Loved the Henry Ford quote!

  • Nitin Garg Jul 20, 2015, 1:26 am

    Dear Victor:
    Well-written article! Appreciate your insights
    Nitin Garg

  • Deepa Aug 27, 2015, 11:51 pm

    Finally I read a smart response to Traditional Henry Ford quote which often times get misinterpreted.

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