I recently gave a speech about innovation at the urging of the founder of City Summit, Ryan Long, about what constitutes market-making innovation, and what we should be investing in--not only with our money but with our time. We have oversaturated markets, we have Amazon with page after page after page of drop-shipped products and duplicates, we have more entrepreneurs now than ever before, and we have low barriers to entry. All of these shifts have encouraged this massive wave of spirited business lovers to try and find their place in this seemingly never-ending ecosystem.
Warning! Highs Bring Lows
But low barriers to entry doesn't equate to high rates of success. In fact, it's quite the opposite. There is a difference between entrepreneurs' causing disruption, that all too commonly used buzzword, and their being market making. Let's talk about that first.
Disruptive vs. Market Making
Tesla is truly a disrupter. It went for the high end of the market, not the low end, and in the auto industry, the company took a huge leap in its own direction. That means it disrupted the market and helped drive it in Tesla's direction. The company has now outsold BMW, Mercedes, Acura, and Audi here in the States. Tesla sold more cars than any other luxury car brand this past year. Another well-known disrupter, Apple, is the reason we all have mobile phones. Everything about what Apple has done is disruptive. Then Netflix came along, at the right time for itself, because the birth of digital media helped the company disrupt the market. But, be forewarned, these occurrences are rare.
Market Making Statistics Are More in Your Favor
Uber, Airbnb, Amazon, are not disrupters. They created new markets, within massive market changes happening (the internet, online shopping, etc.) at the same time, and they went along with it. They are market makers, not disrupters. Maybe it seems more exciting to be Tesla, but let's look at this statistically.
You have a 6 percent chance to be the disrupter.
You have a 28 percent chance at success as a market maker by building a market within an already thriving or growing ecosystem.
The Winding Path to Innovation
If you think your space is somewhere in market making, creating a deviated path from an already well traveled, well proven path, great! Let's go to the next phase of questions. Are you investable? People pitch me their ideas every single day, and while I love the enthusiasm, innovation isn't an easy path based on the thought you had last night while heating your burrito. Maybe that's where it begins, but that's the first steppingstone. I've been living in this realm for 27 years, and I've learned that your time is more important than my money. So when I'm asking, is it investable, I'm talking to you. Is this journey worth your time?
"It" Factors to Look For
Credibility: Can you do what you say you will do? Can your technology do what it says it will do? Will regulations or market restrictions kill it before it goes live? Can you deliver the goods?
Collateral IP: At the end of the day, will you be left with something that someone else sees enough value in, that it's worth money?
Market-Proof: Product market fit accounts for such a huge percentage of failure. And nobody expects it to happen this way. You have to show the dog will eat the dog food and also that the owners will buy it. If you match the product market fit, you up your odds of success of surviving by 56 percent. If you don't get this right, no number of amazing teams and no amount of culture or networking will save you.
Benefits to Market Making vs. Disruption
Less risky ROI. You aren't reinventing the wheel, and you aren't selling the first wheel either. This takes a lot of risk off the table.
Proof is there. Customer education is significantly reduced or nonexistent. You have more market proof, which is the gold standard in my book.
Carving out a niche in a secure area. This creates an opportunity for you to ride a wave with other market makers.
I want to leave you with this. HBR did a massive study on disruptive innovation, and right out of the gate put attention on something most of us probably haven't considered:
In our experience, too many people who speak of "disruption" have not read a serious book or article on the subject. Too frequently, they use the term loosely to invoke the concept of innovation in support of whatever it is they wish to do. Many researchers, writers, and consultants use "disruptive innovation" to describe any situation in which an industry is shaken up and previously successful incumbents stumble. But that's much too broad a usage.
This is important, because it's time to get clear, not only on our terminology but also our goals and, most important, our position in the market, which will allow us to more clearly see the path to success.