In Part 3 of Simon's new series on Disruptive Innovation, he explains why being the first to take the leap into new markets can be challenging but also rewarding.
August 3, 2022
This is Part 3 of a 5-Part series on Investing in Disruptive Innovation. Here is Part 1 of the series, here is Part 2, and here is a primer on what disruption means and why it’s so important in investing.
As written by Clay Christensen in his book The Innovator’s Dilemma, the third principle of disruptive innovation is markets that don’t exist can’t be analyzed.
In a nutshell, that’s the very foundation of “The Innovator’s Dilemma.” Are you willing to make a leap of faith, even if you have absolutely no idea what lies in front of you?
Companies find themselves facing that same question. It’s impossible to know how things will go when they enter a market that doesn’t exist yet. There’s no data about their former growth rates or profit margins. No case studies on what other companies did well or did poorly. No market experts or consultants to help them decipher data. When it comes to entering a new market, the uncertainties are huge.
Yet as scary as taking the leap sounds, there’s also ample rewards awaiting the trailblazers who enter new markets. They get the unique opportunity to learn the needs of their new customers ahead of anyone else, and then adapt their own products to match those demands of their developing market. First-mover advantages are strong here because there is an absence of established competition. Blue Ocean markets where competition is limited or non-existent have no preconceived notions of what pricing should be or what features are generally-acceptable.
That can also make things challenging for larger and deeper-pocketed players later on. Newcomers get the advantage of creating products and customer relationships from scratch, giving them an opportunity to innovate quickly. Those customer-influenced features and strong relationships can be difficult for future competitors to displace.
As controversial as they might be these days…
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