When you’re launching a new venture, one of your hungry competitor earliest considerations is how your innovation might fit into the existing technical environment: should it replace some dominant species or improve the overall market climate? In ecological terms, is your new company going to produce fish food or fight the largest carnivores for survival? And how should that decision shape the company you create?
The IT economy is an ocean crowded with products of every size and description. Engineers and marketers have tried to fill every niche with technical products, many of which have failed to thrive. If you’re working on plans for a new technology, it’s important to consider where you fit in the product food chain — what’s your strategy to survive and thrive?
Just as it takes a vibrant, varied community of plants and herbivores for the few biggest species to survive, there may be many more opportunities for niche successes than for bare–toothed market dominance. So, before whipping up some PowerPoints for VCs that show a $1B market for a $70M investment, consider a few broad options:
- Be a shark: Try to bite off a big chunk of a major market. You’ll need to cannibalize major portions of an incumbent shark’s product line to succeed, while avoiding sharp teeth.
- Be a pilot fish: Find a profitable niche that complements and improves the solution offered by the big fish. Fill some narrow customer–perceived weaknesses in the incumbent’s existing solution without threatening its survival.
- Make fish food: Create specialty, high-value components that the big fish can’t or won’t make for themselves — but can OEM from you and improve their offerings.
Pondering each model may help clarify your business plan.
How about an example?
Imagine your housemate is a database wizard and Stanford PhD. She has a prototype that runs complicated reports and queries 180 times faster than Oracle’s existing database. You’ve been asked for a product vision and introductions to a few venture capital folks. This might be a whale of an idea — transforming the $5B database market — or a goldfish–sized footnote.
Building a new product is like creating a new species:Cross a fish and a Brussels sprout … you need to plan a survival strategy, then equip your company with the right tools and structure (ecology). The company you build mirrors your expected place in the food chain — how you plan to build, sell and support this new creature. Each approach has unique risks and opportunities, and it is very difficult to change strategies later. Which of these seems like the best fit for your innovation?
Being a Shark: The Full System Sell
Perhaps your solution is radically different, nothing like today’s databases. Maybe data is converted into laser beams, mixed via fiber optics to generate intense color patterns, and etched into reusable light–sensitive silicon pyramids. This is such a leap forward that current database technologies will become extinct. Co–existence isn’t possible.
This dramatic evolution calls for a full system sale: replacing the dominant carnivore. Customers will need to gut their Oracle (or DB2 or SQL Server) databases, abandon their environment, swim in a new direction. You will have to convince them of huge advantages, since customers have invested heavily in their current solution.
To compete with the big fish, you’ll need a direct, expect product shoot–outsenterprise–class sales team plus glossy marketing materials, big reference customers and endorsements from industry analysts. Customers will have long selling cycles, high expectations, and will need to see your product perform against the competition. Market visibility is a challenge, with so many companies stirring up the sea floor.
The incumbents will counter–attack using their size and market power: highlighting the risk in an unproven technology; identifying checklist items you are missing; rallying reference accounts and executive contacts; raising regulatory barriers; offering polished technical training; serving up more complete platforms and Internationalized versions. They have large, well–trained competitive teams circling to find your weaknesses. Still, there’s good eating if you can survive and thrive.
Even though VCs like to fund these major carnivore concepts, few new species survive in the wild. They starve before they can mature. It’s taken decades to supplant mainframe dinosaurs, years for wireless to chase away dial–up, and we’re still waiting for self–healing networks.
Pilot Fish: Extending the Ecosystem
If you help the big fish improve their solutions, you don’t need to fight along side them. You can swim alongside the sharks and keep their customers happy. This strategy is sometimes called “partnering” or “joining the ecosystem.” In our database example, imagine that you can sell Oracle customers a special tool that makes their existing reports run 100 times faster. Here, our goal isn’t to replace Oracle, but to extract money from their customers by filling a product–sized niche. Lower risk, smaller rewards.
By definition, your customers are already buying from the sharks. Most of your marketing and selling activities, then, will revolve around this ecosystem. You will be joining database partner programs, buying lists of Oracle and DB2 customers, and speaking at user groups. Most importantly, you will need to make friends with Oracle’s own sales teams and prove to them that you make their customers happier without threatening their commissions. You’re one of the pilot fish swimming with the sharks.
The classic challenge with this strategy is to make your extension just valuable enough. If very few customers need your whiz–bang report accelerator, you’ll starve for revenue. On the other hand, if every Oracle customer demands it, your big fish will announce it as a future enhancement or be forced to ship a decent alternative. There is always pressure for sharks to add “me too” features once the market has been proven.
Making Fish Food: OEM Features
builds strong finsOne last strategy is to sell directly to the sharks: make a specialty food they need to stay competitive. This is truly a niche approach: create some compelling intellectual property ahead of the market, and have the major players deliver it to customers for you. Think of this as technical vitamins, strengthening and fortifying the big fish. You will need some very rare expertise and a few key customers who demand that the sharks include your special improvement.
Returning to our database example, perhaps no one at Oracle is smart enough — or focused enough — to come up with your database report accelerator. If you can rally some of their major accounts to complain loudly, you may create a need for an internal product team to license your smarts. Every shark’s Engineering team is overcommitted, understaffed, and short on focus.
This is an all–or–nothing approach, however. There may be only 2 or 3 big fish in your market, and getting even one to bite will be difficult. Engineering teams are notorious for rejecting outside solutions (“not invented here”). If customers are truly requesting what you sell, the sharks will have some alternate approach to the problem on their development roadmap — to be completed in the next few years — and can plausibly delay you long enough for your venture to starve.
Organizationally, an OEM company should have only a few senior sales folks, and most of its staff in Engineering. You must keep your bit of technology ahead of the market to avoid being marginalized. Do this well, and your whole company may get snapped up.
Big fish need a lot of food and room to swim. Major new competitors invite existing predators to bite back. When planning a new company, you need to decide how big a fish you want to be, and the best organization to support it. Don’t swim with sharks just for the halibut.