This article is an excerpt from the Shortform book guide to "Play Bigger" by Al Ramadan, Dave Peterson, et al.. Shortform has the world's best summaries and analyses of books you should be reading.
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What are the disadvantages of entering new markets? Why is it so hard to design a new market?
As great as its benefits are, market design is difficult for three reasons. However, the book Play Bigger suggests that overcoming these disadvantages is worth it for your company in the long-run
Let’s look at why entering the new market has its disadvantages.
Reason #1: You Must Build Your Company, Product, and Market Simultaneously
According to the authors, the first disadvantage of entering a new market is that you must build your company, market, and product simultaneously so they support and reinforce each other—a colossal challenge for any company. When you can do this, a flywheel effect occurs, wherein one part of the company boosts the next part, which boosts the third part, which boosts the first part, and so on. When this flywheel composed of company, market, and product spins fast enough, the company builds so much momentum that it becomes the unbeatable market winner.
For instance, you might build your low-tech devices company, market, and product simultaneously by encouraging developers to think in a minimalistic way and to make only limited use of tech in their work because this approach is aligned with the product you’re selling. You might also choose to employ more marketers than developers because your company’s challenge won’t be the development of the product—in your case, relatively easy—but rather the marketing of a product that’s intentionally less advanced than others on offer. These choices about the company in turn improve the product and market design, which loop back and further improve the company—thereby starting a flywheel.
Reason #2: The Tendency to Settle for ‘Better,’ Not ‘Different’
Another disadvantage of entering a new market is that there’s a strong pull to create a product that’s better—not different—in an existing market simply because doing so is easier than creating a different product in a new market, write the authors.
This is because, at some point in the inception of a new business, the daily demands of running it begin to take priority over the bigger-picture concerns of market design and aligning company, market, and product in service of building a new market. What’s more, businesses experience financial pressure to make a profit now by catering to existing customer needs and problems instead of bringing in greater profit later by creating a whole new market. All this leads to the tendency to simply build a good-enough product that can compete in an existing market but won’t ever make you a market winner.
(Shortform note: In Zero to One, Peter Thiel argues that not only is it more profitable for a company to fight the tendency toward creating better, not different, but it’s also necessary for global progress and the survival of humanity. He contends that when companies around the world replicate the products and processes that have made western countries affluent—rather than building novel products and processes—they also replicate the harmful environmental impact of those products and processes and perpetuate unfair business practices that concentrate wealth.)
For instance, when setting up your low-tech device company, investors may pressure you to add high-tech features to your product so it can compete with other smartphones, and customers might also clamor for such features because they want a product that’s akin to other products they’re familiar with and don’t realize they have a problem of tech overwhelm. Heeding these voices, however, would prevent you from establishing a new market for low-tech devices and making yourself its winner.
Reason #3: Consumers Hesitate to Embrace New Solutions
The final disadvantage of entering new markets is that it’s difficult to get consumers to embrace a new solution or market, write the authors. Humans have a natural tendency to want to maintain the status quo, and it takes significant effort to shift consumers’ thinking from acceptance of the way things are now to an understanding of how things could be improved.
When you design your market, as we’ll discuss in the next part, you’re responsible for shifting consumers’ mindsets from the status quo to embracing the new possibilities your market and product provide. At your low-tech company, you’ll need to show consumers how the status quo—constant smartphone use—is a problem and how life could be better if they weren’t so engrossed in their phones.
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Here's what you'll find in our full Play Bigger summary:
- Why financial success doesn't depend on education or intelligence
- Why the key to financial success lies in understanding human behavior
- How to create a financial strategy you can follow for decades
