session #8: creating a new market space - search facultyfaculty.insead.edu/vissa/nbv/marchapril 2006...

New Business Ventures

© 2006 by Bala Vissa

These slides are intended to support class discussions. They should not be considered a comprehensive set of issues to be dealt with.

Session #8: Creating a New Market Space


#7 Summary - How to replicate an existing business

1. Clarify Core Business Concept to assess a) How value is being created and appropriated b) The interdependencies of the choices (see your core strategy reading “What is Strategy” Porter (1996))

2. Evaluate 4 aspects of the Replication Process (Format applicability; Business process complexity; Brand value; Source dependence)

3. Select Replication Strategy (Re-invent; License; Franchise; Joint Venture)


How entrepreneurs define and dominate a market space

Plan for this session 1. Danger case discussion

2. Framework on how entrepreneurs can establish a leading position in the market space they create

3. Illustrate Venture Design Workbook with the Danger case


Danger, Inc.• Danger founded in Jan 2000 by 3 engineers in Silicon Valley

• Operating in an evolving wireless industry with many powerful firms of different types (e.g. Telcos, handset manufacturers, OS providers etc.)

• Use the Venture design workbook to illustrate. Note that the workbook is – Internal working document (pre business plan)– Asks a systematic set of questions drawn from the framework to be presented

How can a new venture carve out & dominate a market niche?


Entrepreneurial DilemmaEntrepreneurs start by conceiving a novel way to

create value to a set of users • But in launching the venture often

– Fail in opening up a new market (due to team conflicts, resource crunch, low credibility, poor execution etc.)

– Succeed in creating a new market…only to be out competed by powerful players (see Fast Second –Markides & Geroski, 2004)

– Only a few succeed in establishing a leading position in a new market


How entrepreneurs create a new market space

• Claim a market niche– Shape an identity for the firm and the niche and assert

their venture as the exemplar of that niche • Demarcate the niche

– Co-opt established players in adjacent markets and create a defensible perimeter that delays competition

After you dominate a market niche you can use it as a platform for growth into other markets (e.g. Office Tiger)


How to claim a market nicheShape an identity that defines what the new venture

and the new market space are

Common tactics• Adopt cognitive templates from other areas to inform how

you design and communicate your offering • Disseminate stories to shape perceptions about the new

market and the venture (don’t fake it)• Signal leadership through concrete actions that convey

superior expertise / market dominance

Goal is to launch a new market and assert your venture as the leading reference


-Adopt cognitive templates• Most people do not want to use new things – they just want to solve

problems preferably using means they understand • But, there is a natural and negative tendency of entrepreneurs to

make innovations complex and rich…How to make the right design trade-offs and communicate an

innovation to stakeholders?Examples:

• Palm pilot based on “paper organizer” template • Amazon’s design based on the “shopping” template • Ebay based on the “Flea market” template

Use easily understandable templates to design & communicate your offering

Make sure you do just 1 or 2 things very well for users


-Disseminate stories • New areas are often crowded with competitors trying to

claim a market

How to get attention in an overcrowded market?

Example:- eBay’s romantic story about founding - TiVo’s “network executive” advertisement

Disseminate stories that are salient and memorable. Make your actions reinforce the story (…not a good idea to plant

fake stories though)


-Signal leadership• Central issue facing entrepreneurs is lack of credibility (no one ever got fired for

choosing IBM)

How to gain credibility that will open the door for obtaining resources and user adoption?

Example: • Taser (American pioneer of non-lethal law enforcement devices) with details of

research / best practices / testimonials• Amazon as “earth’s biggest bookstore”• MeritTrac with its own test score ala GMAT

What cues of credibility are you providing the market? (set the standard, have well known spokespersons, awards in industry shows etc.)


Summary: Claiming a market nicheShape an identity that defines what the new venture

and the new market space are

Common tactics• Adopt cognitive templates from other areas to inform how

you design and communicate your offering • Disseminate stories to shape perceptions about the new

market and the venture (don’t fake it)• Signal leadership through concrete actions that convey

superior expertise / market dominance

Goal is to launch a new market and assert your venture as the leading reference


Demarcating the niche• If a market gets validated established firms will

want to enter and profit from it• But in the early stages of an industry, roles of

different players not clearly defined – entrepreneurs can take advantage of this ambiguity

The goal is to convince powerful players in nearby markets to become allies and help your growth, as opposed to becoming competitors

• How do you transform potential competitors into partners?


How to demarcate the niche?Negotiate clear boundaries (what you do Vs others do) and

preempt competition by reducing incentives / ability of established players to enter your turf

Common tactics– Provide revenue opportunities to these players as suppliers, distributors or

complementors (e.g. eBay with AOL)– Give these players small equity stakes (e.g. TiVo with Sony/Phillips)– Attract partners who want to dilute the power of a common rival

Who are your partners of choice?How are you going to sell yourself to these partners?

Are you positioning in a non-threatening way to powerful players?Are you covering the main geographies and segments?


Summary: How entrepreneurs create a new market space

• Claim a market niche– Shape an identity for the firm and the niche and assert the

venture as the exemplar • Demarcate the niche

– Co-opt established players in adjacent markets and create your turf – a defensible perimeter – to delay competition

Where does this framework apply best?– Emerging industries – New areas with specific unmet need / market failure


Workbook – Section A (Pg 1 & 2) Assessing the opportunity

Basic questions on assessing and screening the opportunity


Workbook (B) – Claiming a NicheQ3

• What is the offering? – The end-user will acquire a wireless thin device that is

purpose made for internet communication. – It is always connected to the Internet and supported by

a back-end server that hosts all information and functionality.

– The user will pay a monthly subscription and value-added services (downloads, location information, etc).



• What templates are being used to design and communicate the offering? – Users instinctively understood the value of a mobile phone because of the value they

derive from fixed line phones

– Similarly, users understand that the fixed internet is very useful so if there is a product that gave them the exact same functionality on the go (i.e. Internet on the go) then users will immediately understand the value of that offering.

– But so far, companies were pushing the mobile internet device using a phone mentality, not a fixed internet mentality.

– Template that danger is using is: mobile internet like fixed internet (always-on connectivity, functionality similar to desktop computer, charge per month not per usage, etc). A follow-on to adopting this template is - client / server computing model vs. rich phone template

– Templates not being used – mobile phone mentality



• What are the (one or two) key design requirements that allow your offering to solve the end user’s problems? – always-on connectivity– computer applications functionality in the front-end

(browsing, e-mail)– low price (half of their competitors)



• Define the identity of the venture and the market niche: Who/what are you and how will other market players perceive you? – A device company? Well they design devices…– An OS company? Well they developed an OS…– A wireless carrier? Well they have wireless users…All of the above… but none of the above!!!

Danger is a provider of an integrated solution for clients of wireless carriers (a new niche which they are trying to carve)



• Which are the set of activities that you will internalize? – Try to leverage the existing resources of other players.– Activities that are not being provided by any player (in the way

you need it to be) need to be internalized – Internalize activities that are not resource intensive (this way you

can scale operations faster without needing proportional resources)

– Avoid becoming too dependent on a single partner (relying on one large player in a key area may get killed just because of changing priorities of that player)



• What cues of credibility are you providing? – Technical awards – 2002 Best Consumer Electronics

Show, Best Industrial Design etc– Seasoned CEO– Seasoned executive team– Outstanding Consumer Reviews



• What stories are you using to communicate your identity to these partners and users? – Everyone (VCs, etc) wanted them to build another

Blackberry. But they choose something completely different targeted to consumers – something cool and young.

– Jennifer Aniston on TV was lucky but that could have been planned and it works.



• How will you use early customer’s feedback to improve / change your offering? – This is very important. Initial partnership with

VoiceStream/ T-Mobile was like that. – It gave them a lot of feedback and credibility. – First partnership is always the hardest but it is also hard

to not become dependent and be able to get others


Workbook (C) – Demarcating the NicheQ7

• Who are your partners of choice? – Wireless Carriers – because they provided many of the

required functions in the value system and access to customers

– But then key question is which ones? Which category are the natural partners?



• Can you design your business in a way that makes these partners of choice become suppliers or clients in such a way that revenue is shared? (beware of exclusivity though)– They offered 12 months exclusivity to their initial partner

(T Mobile) but only in the US. – They make money from a small activation fee and then

a recurring service fee per user (the more users the more revenue for both parties involved).

– Also make money on value added services.



• Can you entice several of them to buy a small equity stake? – Yes, they did it with the corporate venture arms of Orange and T-Mobile.– Orange’s equity stake is a signal to the market that they are not a T-Mobile start-up…

• Does your existence support their strategic goals? – Yes, they don’t need to subsidize expensive phones & phone manufacturers lose power

– aligned business model– Also, the OS providers will lose power since there will be a new system

• How are you going to enter and sell yourself to these partners – This is a challenge. But one part is a careful choice of the category of players– The leaders will probably try to do it themselves with internal teams (AT&T, Vodafone).

They may actually open negotiations to delay you – Danger focused on the telcos that were contenders for market share & created a sales

process that is focusing on the second tier carriers worldwide.


Workbook (D) – Dominating the NicheQ8

• Are you positioning in a non-threatening way to powerful players? – Yes, they are not framing themselves as OS providers – No margins on the device – the world does not need another hardware manufacturer

• Are you giving enough incentives to your partners of choice so that they do not decide to internalize your offering and capture all the value? (you need to make their decision to partner with you very simple and straightforward. Also you need to keep giving your partners more upside opportunities to keep them aligned)

– Keep partners in their comfort zone if you demand a big organization to change its habits it may agree but will not work in the end as they will return to their habits very soon and create problems for you

– Allow them to keep brand if they want– Allow them to tailor functionality of the server and run it themselves if they want– Allow them to work with the manufacturer of their choice


Workbook (D) – Dominating the NicheQ9

• Are you canceling stepping stones into the market? – Market has not matured enough. I believe they may do

acquisitions in the future• Are you eliminating competing models?

– Apparently no imitators yet (not sure of this)• Are you covering quickly the key geographies and

customer categories? – Yes, they are doing this already by engaging with wireless

partners in the five continents. – They have now signed 12 carrier agreements and have 7

products rolled out – 3 in US, Canada, Singapore, Germany: E-Plus, Austria, Caribbean


Mandatory Term Project Team Meeting #1

• Anytime from 9 am to 4 pm on Wednesday 5th April OR 9 am to 6 pm on Thursday 6th April

• Please sign up for a 30 minute time slot • Basis for discussion (bring a hardcopy along)

– Don Sull’s 5 questions framework applied to your venture project (so I know what your project is about)

– What sort of data you will gather and why


Mandatory Term Project Team Meeting #2

• Anytime from 9 am to 8 pm on Thursday 13th April OR Friday 14th April

• Please sign up for a 1 hour time slot • Basis for discussion – (bring a hardcopy along)

– Venture Replication Workbook (filled in) OR

– Venture Design Workbook (filled in)• Download workbooks from course web site

session #8: creating a new market space - search facultyfaculty.insead.edu/vissa/nbv/marchapril 2006...

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