"A lot of people are trying to think 'outside the box'. Instead, we are thinking 'inside the box'."

That was the opening of a pitch I attended just three years ago; by a company I quickly chose to support as an angel investor. The founders had noticed three things:

  1. Residential food delivery and subscription meal kit sales were increasing dramatically.
  2. The boxes shipping this food needed to maintain a consistent temperature for three days in difficult conditions.
  3. Styrofoam was the cheapest insulation available, but it was hated by consumers and environmentalists alike.

These guys told me that the shippers were currently spending billions on cold chain logistics insulation, and they intended to cut into that spend with an effective carbon-neutral, compostable alternative. 

Today, the company is exploding in growth and is on track to be valued at $100,000,000.00 by the end of this year. Projected growth over the next several years promises more of the same.

Sure, a lot of things have to go exactly right in order to drive this kind of exponential growth. But still, notice that the founders quantified what the market was already spending on an essential component of their service--despite being unhappy with the product they were purchasing. The money was already budgeted and being spent. These guys were going to cut into that existing flow with something better. They did not have to convince anyone to spend money. They simply had to convince prospects to re-allocate a portion of the money they were already spending to get a better product.

They did not have to create a market. They did not have to convince the market it needed their product. They only needed to convince the market that what they were selling was a new and improved version of what the market was currently buying.

Contrast this to the frenzy going on in Silicon Valley and elsewhere, where brand new inventions are being thrust into the market under the guise that "even though you don't know it and you aren't currently spending on it, you really need this!". And yes, every now and then it works. The unicorns like the iPhone, Facebook, and Instagram go really big. But unicorns are rare.

Hunt unicorns if you want. But for a higher probability of success, follow these five steps:

  1. Follow the money that is already flowing. Look at what companies or consumers are buying, research how much is being spent, and determine how much of the market you could share. When you take over a portion of an existing market (or all of it), your customers don't have to be inspired to spend more money. They just have to decide that your product is better than what they were already buying, which brings us to point number two.
  2. Figure out how to make something better, faster, or cheaper than what this money is already buying. Companies and consumers are already spending this money. All you need to do is create a better product, and you will attract an existing customer base that you know is ready and willing to spend money for your offerings.  
  3. Ask existing spenders to divert some of their spend to your products and your services. Once you develop your better, faster, or cheaper product, start marketing it to your built-in customer base. Convince them to give you a try without diverting entirely from their current course of action. Then, move on to the next step. 
  4. Exceed their expectations. Your product is better than what existing spenders were already buying. Show them--and offer top-notch customer service and support when you do. Once you blow their minds, step five will happen naturally. 
  5. Over time, take over their entire spend. People don't want to spend money on inferior products. Prove that yours is the best, and the market is yours.    

The startup I funded, above, is but one example of a "thinking inside the box" success story. On a larger scale, consumer companies like Amazon and Uber also got their start this way, by building a better, faster, and smarter version of the things their customers were already buying. Today, Amazon has cornered the market on book sales, leaving brick and mortar stores in the dust. And no single taxi service or rental transportation company has been able to combat the ubiquity and ease of ordering a ride with your smartphone like Uber.

If you want to find the next big thing, look around at what your customers are already buying and improve upon it. Rinse and repeat. This formula is just as fun as unicorn hunting--and much more likely to make you rich.

Published on: Jul 25, 2018