Discovering value

The Smart Manager - - Contents - SHARON TAL IS AU­THOR, WHERE TO PLAY.

A clear, struc­tured strat­egy, and a prac­ti­cal frame­work bet­ter iden­ti­fies, eval­u­ates, and fo­cuses on the right mar­ket op­por­tu­nity, says Sharon Tal, au­thor of Where to Play.

“Com­mer­cial­is­ing in­no­va­tive ideas is a con­stant run. It re­quires im­mense ef­forts, as you at­tempt to move for­ward and make progress on your way while fac­ing one hur­dle af­ter the other…en­trepreneurs and in­no­va­tors are trained to run fast…run­ning fast may be use­less if you are not run­ning in the right di­rec­tion.” En­trepreneurs have to fo­cus on valu­able mar­ket op­por­tu­ni­ties but en­counter fail­ure when wrong choices are made due to flawed eval­u­a­tion. Sharon Tal, co-au­thor with Marc Gru­ber of Where to Play, tells us how one can choose and pre­pare to act on an op­por­tu­nity, us­ing a tool such as the ‘mar­ket op­por­tu­nity nav­i­ga­tor’, stay­ing fo­cused and ag­ile.

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.

“Fo­cus­ing smartly is not only about choos­ing a promis­ing mar­ket but also about man­ag­ing the del­i­cate, yet crit­i­cal bal­ance be­tween fo­cus and flex­i­bil­ity.”

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 2x2 ma­trix, which we call the at­trac­tive­ness map. The Y-axis rep­re­sents the over­all po­ten­tial of each mar­ket op­por­tu­nity, and the X-axis 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 riskhigh 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’

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

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

“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.”

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-

“Star­tups are ex­tremely scarce on re­sources— both hu­man and fi­nan­cial— and must not spread them too thinly.”

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.

“An at­trac­tive mar­ket is one that will likely pro­duce a sig­nif­i­cant po­ten­tial for value cre­ation and that poses man­age­able chal­lenges in cap­tur­ing that value.”

At­trac­tive­ness Map

Ag­ile Fo­cus Dart­board

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