Entrants and Incumbents

I had previously written about the book, Seeing What’s Next, from which I had created this graphic:

SignalsChange.png

In a conversation this week about new business models, I was reminded of Christensen’s model of how upstart or entrant companies can stay under the radar of incumbent companies, while the entrant develops asymetrical skills and motivation.

Since creating this graphic, I’ve worked with several start-up companies. I’ve learned that, first of all, determining the problem that we are trying to solve is essential in order to understand who are our customers.

According to this model, new entrants to a market should identify potential customers based upon the markets of established incumbent(s). There are three types of customers:

  1. Undershot – willing to pay more for more functions/services
  2. Overshot – find current offering more than adequate
  3. Non-consumers – lack ability or the wealth for current service / products

For a new entrant, the best market is the non-consumer (also the least demanding) who is “below the radar” of the incumbents.

The second best target group is the Overshot Customer (specialist displacement for mainstream) who is willing to accept a more specialised product/service than the broader offering of the incumbent, or one who is looking for something cheaper and “good enough” (low end).

Usually, the products/services for the non-consumer market are relatively simple and affordable and make it easier for the customers to do something that they could not do before, or was much too difficult or costly. For instance, open source CMS and blog software have made it easy for anyone to set up a database-driven website. Previously, only large organisations could afford an enterprise system. Non-consumers, small & medium-sized businesses, have adopted these open source systems under the radar screen of the major vendors and created a new market.

Other factors include non-market conditions, such as new regulations, that change the way the market will behave. The requirements for compliance training have created a new market for cheap and easy training programs.

In order to address these markets of non-consumers or overshot customers, the entrant needs Asymmetric Skills & Asymmetric Motivation. The entrant must be able to do something that the incumbent firm is not capable of doing or not motivated to do. Web 2.0 has opened up a whole array of skills that can give an entrant an unfair advantage.

Some of the key questions that we should keep asking when looking for signals of change in the marketplace are:

  • What jobs are customers trying to get done?
  • Are customers not served, undershot or overshot by current offerings?
  • Where are new business models emerging?
  • What role do regulatory agencies play?

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