10 Clues to Opportunity
Market
anomalies and incongruities may point the way to your next breakthrough
strategy.
During their heyday in the late 19th
and early 20th centuries, transatlantic cruise lines such as the Hamburg
America Line and the White Star Line transported tens of millions of passengers
between Europe and the United States. By the 1960s, however, their business was
being threatened by the rise of a disruptive new enterprise, namely, nonstop
transatlantic flights. As it happened, the cruise ship lines had one potential
strategy with which to save their business: vacation cruises. Starting in the
1930s, some of these lines had sailed to the Caribbean during the winter, thus
using their boats when rough seas made the Atlantic impassable. And in 1964,
when a new port was opened in Miami, Fla., the pleasure cruise business began
to boom.
But the great cruise lines missed
this breakthrough opportunity. They saw their profitability fall while dozens
of startups, including Royal Caribbean and Carnival, retrofitted existing ships
to offer pleasure cruises and built an entirely new travel and leisure category
that continues to grow today.
Managers and entrepreneurs walk past
lucrative opportunities all the time, and later kick themselves when someone
else exploits the strategy they overlooked. Why does this happen? It’s often
because of the natural human tendency known to psychologists as confirmation
bias: People tend to notice data that confirms their existing attitudes and
beliefs, and ignore or discredit information that challenges them.
Although it is difficult to overcome
confirmation bias, it is not impossible. Managers can increase their skill at
spotting hidden opportunities by learning to pay attention to the subtle clues
all around them. These are often contradictions, incongruities, and anomalies
that don’t jibe with most of the prevailing assumptions about what should
happen. Here is my own “top 10” field guide to clues for hidden breakthrough
opportunities, observed in a wide variety of industries, countries, and
markets. If you find yourself noticing one or more of them, a major opportunity
for growth could be lurking behind it.
1. This product should already exist
(but it doesn’t). As the accessories editor for Mademoiselle
magazine in the early 1990s, Kate Brosnahan spotted a gap in the handbag market
between functional bags that lacked style and extremely expensive but
impractical designer bags from Hermès or Gucci. Brosnahan quit her job, and
with her partner Andy Spade, founded Kate Spade LLC, which produced fabric
handbags combining functionality and fashion. These attracted the attention of
celebrities such as Gwyneth Paltrow and Julia Roberts. Many well-known product
innovations — including the airplane, the mobile phone, and the tablet computer
— began similarly, as products that people felt should already exist.
2. This customer experience doesn’t
have to be time-consuming, arduous, expensive, or annoying (but it is). Consumer irritation is a reliable indicator of a potential
opportunity, because people will typically pay to make it go away. Reed
Hastings, for example, founded Netflix Inc. after receiving a US$40 late fee
for a rented videocassette of Apollo 13 that he had misplaced. Charles
Schwab created the largest low-cost brokerage house because he was fed up with
paying the commissions of conventional stockbrokers. Scott Cook got the idea
for Quicken after watching his wife grow frustrated tracking their finances by
hand.
3. This resource could be worth
something (but it is still priced low).
Sometimes an asset is underpriced because only a few people recognize its
potential. When a low-cost airline such as easyJet or Ryanair announces its
intention to fly to a new airport, real estate investors often leap to buy vacation
property nearby. They rightfully expect a jump in real estate values.
Similarly, the founders of Infosys Technologies Ltd., India’s pioneering
provider of outsourced information technology services, were among the first to
recognize that Indian engineers, working for very low salaries, could provide
great value to multinational clients. The company earned high profits on the
spread between what they charged clients and what they paid local engineers.
4. This discovery must be good for
something (but it’s not clear what that is).
Researchers sometimes recognize that they have stumbled on a promising resource
or technology without knowing the best uses for it right away. The resulting
search for a problem to solve can lead to great profitability. One example was
the founding of the ArthroCare Corporation, a $355 million producer of medical
devices based on a process called coblation, which uses radio frequency energy
to dissolve damaged tissue with minimal effect on surrounding parts of the
body. Medical scientist Hira Thapliyal, who codiscovered this process, founded
a company to offer it for cardiac surgery, but that market turned out to be too
small and competitive to support a new venture. Undeterred, he looked for other
potential uses, and found one in orthopedics, where there are more than 2
million arthroscopic surgeries per year.
5. This product or service should be
everywhere (but it isn’t). Sometimes
people chance upon an attractive business model that has failed to gain the
widespread adoption it deserves. Two archetypal retail food stories illustrate
this. In 1954, restaurant equipment salesman Ray Kroc visited the McDonald
brothers’ hamburger stand in southern California, and convinced them to
franchise their assembly-line approach to flipping burgers. In 1982, coffee
machine manufacturing executive Howard Schultz visited a coffee bean producer
called Starbucks in Seattle. He recognized the potential of a chain restaurant
based on European coffee bars, and he joined Starbucks, hoping to convince the
company’s leadership to convert their retail store to this format. When they
didn’t, he started his own coffeehouse chain, later buying the Starbucks retail
unit as the core of his new business.
6. Customers have adapted our
product or service to new uses (but not with our support). Chinese appliance maker Haier Group discovered that
customers in one rural province used its clothes washing machines to clean
vegetables. Hearing this, a product manager spotted an opportunity. She had
company engineers install wider drain pipes and coarser filters that wouldn’t
clog with vegetable peels, and then added pictures of local produce and
instructions on how to wash vegetables safely. This innovation, along with
others including a washing machine designed to make goat’s-milk cheese, helped
Haier win share in China’s rural provinces, while avoiding the cutthroat price
wars that plagued the country’s appliance industry.
7. Customers shouldn’t want this
product (but they do). When
Honda Motor Company entered the U.S. motorcycle market in the late 1950s, it
expected to sell large motorcycles to leather-clad bikers. Despite a concerted
effort, the company managed to sell fewer than 60 of its large bikes each
month, far short of its monthly sales goal of 1,000 units. Then a mechanical
failure forced the company to recall these models. In desperation, it promoted
its smaller 50cc motorbike, the Cub, which Honda executives had assumed would
not interest the U.S. market. When the smaller bikes sold well, Honda realized
it had discovered an untapped segment looking for two-wheel motorized
transportation. (The campaign is still remembered for its catchphrase, “You
meet the nicest people on a Honda.”)
8. Customers have discovered a
product (but not the one we offered).
Joint Juice, a roughly $2 million company that produces an easy-to-digest
glucosamine liquid, was founded by Kevin Stone, a prominent San Francisco
orthopedic surgeon. He learned about the nutrient from some of his patients,
who took it for joint pain instead of the ibuprofen he had prescribed. Many
doctors might have ignored this or even scolded their patients for falling prey
to fads, but Stone recognized he might be missing something. He looked up the
clinical research on glucosamine in Europe, where it was the leading
nutritional supplement. (Veterinarians, he discovered, swore by it, and their
patients fell for neither fads nor placebos.) Then he built a business around
it.
9. This product or service is
thriving elsewhere (but no one offers it here). In the early 1990s, a Swedish business student named Carl
August Svensen-Ameln tried to store some of his belongings in Sweden while at
school in Seattle, but found that all the local self-storage facilities were
full. He studied the storage industry, already prevalent in the United States,
and discovered a business model characterized by high rents, low turnover, and
negligible operating costs. Yet self-storage, at the time, was virtually
nonexistent in continental Europe. Svensen-Ameln and a friend from business school
set up a partnership with an established U.S. company, Shurgard Storage Centers
Inc. The resulting company, European Mini-Storage S.A., was the first of
several such companies that Svensen-Ameln started in Europe, to great success.
10. That new product or service
shouldn’t make much money (but it does).
Established competitors are often surprised when upstart rivals do well. In his
2008 book, The Partnership: The Making of Goldman Sachs (Penguin Press),
Charles D. Ellis noted that for decades, Goldman Sachs partners had avoided
investment management, which they believed generated lower fees than trading
and investment banking. When Donaldson, Lufkin & Jenrette Inc. published
its financial performance as part of a 1970 stock offering, Goldman partners
were startled to learn that fees and brokerage commissions on frequent trades
added up to a highly profitable business. Shortly thereafter, Goldman expanded
into managing corporate pension funds, and aggressively built its business.
Incongruities like these can offer a
critical clue about where your assumptions no longer match reality. From there,
you are more likely to uncover the kinds of opportunities that you might
otherwise have missed — and that your competitors still don’t recognize. Start
by asking yourself, What are the most unexpected things happening in our
business right now? Which competitors are doing better than expected? Which
customers are behaving in ways we hadn’t anticipated? Take yourself through the
list of top 10 clues. Leaders who consistently notice and explore anomalies
increase the odds of spotting emerging opportunities before their rivals.
- Donald Sull , a professor of strategic and international management at the London Business School http://www.strategy-business.com/article/11304?pg=all
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