The creation of the idea is only the first step. Shiller: I think that a common human error is to underappreciate the importance of timing. Sandor: I think that this is a critical point. Some people confuse a go-to-market (GTM) strategy with a business plan. Ideas are not as scarce a resource, both financially and from the human-capital perspective, as the ability to execute. Email email@example.com. So the challenge is twofold: you need to teach them about your new market and convince them you're the best in it. We have more ideas than we have the capability to implement. Really, the big challenge is the execution and building of that market, which involves a whole range of players and disciplines including trade associations, accounting, and legal, as well as educating the press and academics, and building human capital — all of those things. If it is there, you get a set of feedback as to what the likely economic structure is going to be, which in my experience in the technology realm, is almost always different in the specific from what you think it will be. If I think about, for example, the way RealNetworks's vision is developing now, and this phrase I've heard from you, "celestial jukebox in the sky," you are very much trying to integrate what's going on with wireless devices and phones. Here's an example of a critical institutional framework: The exchange didn't have the resources to go around to the state insurance commissioners and convince them to treat risk-transfer mechanisms on the exchange in a similar way to reinsurance. Rather than doing a lousy job with video and audio, we decided, "Let's do a good job with, first, voice audio and then music audio, and then let's get to video," which we started two years later. Maybe we're coming to a common thread. As Professor Mutki noted, “clear categorical identities are essential to valuation because they allow actors to determine valid comparables, which are central to determining criteria of evaluation.” Essentially, without a proxy already on the market, it's your role to educate customers on the value and placement of your product. I mean, they are 24/7, total focus, believe that markets can solve social and environmental problems. Young Entrepreneur Council (YEC) is an invitation-only, fee-based organization comprised of the world's most successful entrepreneurs 45 and younger. We had to educate the investors. It's not that they're bad ideas. Reasons to Buy: New enterprises often begin because an entrepreneur saw a gap in the market and a demand for the product. It's interesting. If you are in the wilderness, trying to get people excited about an idea, you can have a relatively long period of time when you're doing that. I would differentiate between start-ups and scale organizations for a couple of reasons: One, in the case of the start-up companies, as I mentioned earlier in the conversation, you have a short fuse, because you don't have, typically, an existing, sustaining business to fall back on. And when we launched RealAudio and invented internet streaming, there was this technological underpinning, which was the belief that the digitization of media was an inexorable trend, and once there was a standard dial tone, an interconnectivity method for all of the digital devices in the world, which I came fairly early, I guess, to believe was going to be IP, or the Internet Protocol, that there would be an inexorable trend towards more and more media flowing over that protocol, connecting more and more consumers in more and more ways, and that there was a great opportunity for us to build some of the foundation technology that made that delivery possible, and then to start to build some of the consumer services that would be enabled by that. That kind of distracted us from our mission, because we now had a business that was going. It's not like developing a cure for cancer, because we don't have all the grateful people who've benefited in a concentrated way. We were traveling around to the futures exchanges, trying to get a home-price futures market started. As opposed to reinsurance being treated as capital, this was treated as a speculative asset. We've got a bunch of zealots, here. So when setting out to create a team, the first challenge is to clearly identify what skills and passions you are looking for. Certainly on that last point. The invention component is 5 to 10%. What I hear you saying, Bob, is that part of the opportunity that's created here is the possibility of tying yourself so strongly to a powerful idea. I'd love to hear about the inventive process. Develop at least three, and no more than five, SMART marketing goals. So what we produced was price indices and automated valuation models, which we were doing in the 1990s. So these are my own personal examples, but things can be timed right and they can be timed not so well. History is being made all the time, and it's changing the situation and the world. So we knew, going into it, that we were taking a long-term strategy that required putting together a lot of pieces. The replication or the diffusion or the imitative aspect of it takes the balance. I think of a phrase that a guy I knew used to describe the original Macintosh computer. Also what is needed is the expertise and experience to identify and quantify the profitability of … Next, you need to click on the ‘Commission’ tab to set a commission rate for vendors across … A media and technological innovator, a leader in the use of finance to address social problems, and a creator of housing futures discuss the risks and rewards of attempting the trick. Or do you think we've covered the ground well? They have a mission, both to bring that to life as a positive societal development, and then also, because they are converted, they want to convert the rest of the world. For example, when creating our first dress shirt we had to find either a dress shirt manufacturer with a heat press or an outdoor apparel manufacturer with the ability to stick to tight tolerances. Ways Entrepreneurs Can Stretch Their Capital, 2 Million Professionals Polled On How To Make Virtual Conferences Better— Here Are Their Top 10 Hacks. In our industry, famously, YouTube sold out to Google for a very, very large amount of money, which I think was the right call for them, given the litigation risks that they faced in that business and the large amount of money that Google was willing to throw at them, because Google has such a rich — whether it's frothy or not, we'll see in the fullness of time — but a very rich valuation. You should create a marketing strategy that makes the most of your strengths and matches them to the needs of the customers you want to target. A business plan is broader in scope and considers every aspect of a business, while a go-to-market strategy is focused specifically on delivering a product or service to an end customer. That's a good thing, overall, but it creates anxiety. Then they could sweep you away. In the case of interest rate futures, I was on the rubber-chicken dinner circuit with savings and loans and industry groups across the country. It took some courage, but Allan Weiss, my partner, called me up, it was around the late 1990s, and he said, "I think we have to sell this business, because it's just becoming day-to-day, and it's distracting us from our bigger mission." To develop a marketing strategy, start by defining your target audience and ideal customer using your consumer knowledge and product research. If you take a look at futures contracts and things like that, 90% of them fail. The companies come and go, but people survive. The benefits are spread out over the world. Developing market information. The conventional and perhaps easier option is to develop products for an existing market, but there are plenty of lucrative benefits to creating a brand-new market instead. It's really a technological advance. To do a market survey, you first need to determine the market limits or physical boundaries of the area to which your business sells. And in our own example, the company that Allan Weiss, Chip Case, and I created was lucky. But that's the challenge of business life. Young Entrepreneur Council (YEC) is an invitation-only, fee-based organization comprised of the world's most successful entrepreneurs 45 and younger. You implemented something you could, but ultimately, the pot of gold at the end of the rainbow was the Treasury complex. You need to also get academics on board, so that they understand what it means to have the right to emit. Is it the theory you learned when you were in school? Create New Channels to Find Your Customer. Whenever a new business launches a product or a service, it can either enter an existing market or create a new one. Then there's the information technology revolution. For the bold who really want to create a category or invent a market, the challenge is greater -- but so is the potential reward. I have a partial academic background in economics. What do I need to create a campaign? © 2021 Forbes Media LLC. You have to be timed right for what's happening now. Going beyond that, risk management theory tells us that markets for risk are fundamentally important. You also need to create the right company. So it started with the notion — which we accept as academics, but it really was not widely accepted — that you could get around problems of externalities through trading a new secondary good, and that is the right to emit. To me, the prime examples of that are eBay and Google, which were involved in creating new technology that ended up being associated with massively, explosively large markets. Rob, where do you get your vision from? Shiller: Well, we started in 1990. And so Google was willing to pay what amounted to $1.7 billion, and rode up to about $2 billion, for a company that probably had about $10 or $15 million of paid-in capital at the time. Are you willing to commit the required time and resources to reach this new market? In our case, it required both setting up a new exchange, and that has all kinds of execution risks, etc. Other times, savvy business executives have to create a need for a product they feel passionately about, thus the need for a market development strategy. Definition: Market development is a strategic step taken by a company to develop the existing market rather than looking for a new market. But as Whole Foods and Sundance demonstrated, the secret is that you have to do more than just create a high-quality, innovative product -- you have to invent a market, too. That limited its use. Our experience with that was when we started with streaming audio in 1995. In this case, it was the Board of Trade. Although catering to their own target market is still a priority for companies, selling products to an existing demographic that has not been fully tapped yet offers great risk but even greater financial opportunities. Is vision that central to the way you think about it? You can regroup and come back in again. That's the automated valuation model. But the market system that we have, certainly in entrepreneurial cultures, actually subjects you fairly early on to a feedback loop that causes you to understand, first, whether the unsated need or the opportunity to create a new compelling experience that you thought was there is actually there. And it created a demand for fast, online evaluation of the values of homes. That's a much simpler concept than the notion of jukebox in the sky, which has to introduce consumers not only to a new way of distributing the content, but a new way of thinking about their commercial relationship to the content. If you are writing a business plan for a restaurant chain then you need to asses… Glaser: Although I think that is true in general terms, the classic saying that big companies can't invent and only the small companies can sort of ignores the fact that small companies are subject to a kind of Darwinian efficiency. Target only those you think are willing to broaden their reach or who can educate their customers on the advantages your new product offers. Aman Advani is Co-Founder and President of Ministry of Supply, a menswear company focused on creating a new category of clothing, Performance Professional, through a collaboration between experienced engineers and seasoned fashion experts. I think of the triumph of capitalism — that governments all over the world are embracing capitalist institutions. I don't mean to interrupt, Bob, but I think that Bob and I experienced the same sort of thing. But then you have the advantage that, if you are a little bit early to a market, you can get in the feedback loop from some early customers and not die on the vine. We started out producing real-estate price indices at a company called Case Shiller Weiss. I'm thinking, first of all, of basic economic theory and the idea that there are non-traded goods and the welfare implications of that. The others had proven their ability to invent new markets. Next, determine what your marketing goal is, like expanding … Our initial thought was to create futures markets, but what happened is we did a kind of switching, which I think is actually common in entrepreneurship. Can … This is a long process. You know, sometimes I laugh. For example, a SMART marketing goal could be: “Increase by 15% the number of qualified leads passed to sales in the military market by Q4 2020”. And Bob, when I think about where the housing market is now, versus where it was 15 or 20 years ago, what does that imply for what you're trying to create? It's tricky to find people who've held similar roles, though these "unicorns" are out there. In some cases, like a futures contract I developed in the 1990s to help insure insurers against catastrophic losses from severe weather and other natural events, I think there were execution problems. So if you have a risky and uncertain environment, how do you incentivize people to do good work? We represented the Salish and Kootenai Tribes and we developed a structured financial product where we gave them cash for the 80-year accumulated carbon that would be sequestered in a reforestation project they were undertaking, and then we sold the note to some investors. We knew that, over time, video would be more important, but that the characteristics of the internet at the time, and the ways that people connected to the internet, particularly in terms of bandwidth, were not going to be good enough to make video good. Orders larger than 100 shares could be filled by multiple market makers. In a scale commercial entity, you have the disadvantage that you don't necessarily have that same pulsating urgency informing everything you do. Typically, a marketing plan includes: An overview of your business’s marketing and advertising goals. So the role of vision is phenomenally important in getting things going. So it was something that combined a set of things that I was interested in, and that I was trained for. It helps you reach and connect with your target audience and ultimately is how you will grow your business in the long run. But if it turns out that the market is a lousy market, you can end up having launched a revolution but being a catalytic element sitting at the bottom of the glass, rather than a participant in that market. Sandor: That's exactly the case in organized derivatives markets, whether it's the CBOE or the Board of Trade or the CME. The innovation, the commercialization of the idea, which requires a lot of details, is probably 70%. But I guess the bottom line is, as I tell my students, that one must always be aware of history and the details that are unfolding right now. Doing this, will help encourage store visitors to buy right now. How sensitive are you to the set of developments that are going on, simultaneously, that allow for a particular manifestation of the market? Sandor: Bob, how long did it take you? And beyond that, to agency theory, which is a theory of how to motivate people and which can be combined with risk management theory. You create a good business if it turns out that the characteristics of the market that actually develops are favorable. Your target market is the group of people most likely to want or need your products or services, and that's where you'll spend the bulk of your advertising dollars. Richard Sandor: From my point of view, I distinguish between an institutional framework and a new product. On a day-to-day basis, how much of your time is spent on that activity? And they may end up being more favorable than you expected. And all this was a long process for me of thinking and understanding and talking to people. But over that whole period, I was involved in academic research. If you look at that business compared to the iPod, which is a closed environment, the iPod is a much simpler proposition. New businesses need sales and customers as soon as possible, and market research can ensure that those sales and customers don’t stop coming. So you may have a core idea which is very good, and since you can't quite get the details right, you could become something for someone else to target and then improve some of the details. You could end up with teams that are good teams but don't necessarily have that intensity (although we try to get as close to that as we can). All those theories, to me, represent the real vision that I have, and that many of us have, for improving the world. They're poorly executed. Glaser: Timing is crucial. They're people who either after 9/11 became disenchanted with the world that they were living in and sought to do something differently, or coming out of a PhD program, they're interested in problems of water and endangered species, and things like that. Market makers are required to continually quote prices and volumes at which they are willing to buy and sell. And it is one that we believe in, but we also knew that one of our competitive advantages was that we would have the staying power that a lot of early-stage start-up companies would not. In theory, a new company’s challenge is to create a great product and match it with the appropriate market. Most big firms don't come up with the big inventions. ; a new spot market, which has regulatory implications; and a new futures exchange. It goes back in time just about as far as mine does. He said 1992, is that what you said, Richard? Some friends of mine are in the property casualty reinsurance business. The experience of launching something, even if it didn't succeed, is an experience that develops you into a different person. Podolny: Richard, can I ask you to elaborate a bit on the institution building that you say needs to be done to make the vision a reality? I wrote another book in 2003, called New Financial Order. This process helps to maintain consistency with markets. It's a challenge, but exciting to pave a new path. As a matter of fact, since 1982 or so, there have been no new products in the Chicago exchanges. Of course, the secrets of a rival or a competitor matter enormously, too. In investing, a developed market is a country that is most developed in terms of its economy and capital markets. Glaser: You want to make sure that you haven't just played the catalyst role and set somebody else up to drive the commercial opportunity. And then, beyond that, there's behavioral economics, which talks about the real human condition and why some of these theories are difficult to bring to fruition. A way to get the word out: Think about the most effective tools you have to spread the word about your campaign. Having a sound strategy and knowing best practices are important, but you still need to be prepared to put in lots of hard work to grow your community and make it flourish. The country must be high income, but this also includes openness to foreign ownership, ease of capital movement, and efficiency of market institutions. Then the reality of how the economic value chain develops is often quite different from the concept or the vision that started things off. Another thing that people under-estimate is how your human capital matters. The success of a business depends on exactly how you launch in relation to the stage of these events. Is It Time To Change Director Board Compensation In Private Real Estate Firms? Podolny: One of the topics we touched on, early on, was the issue of the time that's required. So I have a similar viewpoint as Rob's, but I think there's added institution building that's critical. We probably spend 90% of our time, or 95%, on the execution. This guide will examine 1) the benefits of creating a new market. Conduct Thorough Market Research: Put in the necessary time during the initial exploration phase to research the market and gather as much information as you can. Sandor: If we take a look at industrial R&D, it follows the pattern of Google. This is a balance you have to navigate and explain to customers, though you can also lean on the adventurous nature of an early majority to help create the category with you. You start with a grand idea, and it creates a fertility of imagination that produces a smaller idea that works and keeps paying the bills. A timeline of when tasks within your strategy will be completed. But in the commercial world, most ventures are either on a path to success or on the scrap heap within a three- to five-year period from launch. Unfortunately, you only see all of these factors once you get into a business. Questions about an article? I think that, if you don't have a vision, unless you want to be the proverbial "monkeys typing Shakespeare," you're unlikely to actually try something very different from what's been tried before. For example, a new company looking to grow their business will generally have a marketing plan that emphasizes strategies to increase their … Then there is the separate question of a new product. No basic inventions, only improvement inventions. The company looks for new buyers to pitch the product to a different segment of consumers in an effort to increase sales. No system is prepared for a product that crosses multiple categories; for example, a wardrobe is normally split by "day or night" and "work or casual." In the execution of this idea, the Chicago Climate Exchange, the first work we did was at the Rio Summit in '92. Consider price, quality, location, service, accessibility, values, and lifestyle. Pay close attention to the media consumption information you gathered for your target profile. The market analysis isn’t just one part of a successful business plan—it’s one of the best reasons to write one. Like us, you might be knocked down time and time again by these challenges. One of the big differences between, let's say, non-commercial entrepreneurship versus commercial entrepreneurship is, typically, if you have commercial entrepreneurship, you assemble venture capital or whatever kind of risk capital for a particular purpose that's looking for a return over, let's say, a three- or five-year period. We also encountered another pair of challenges once ready to start production and go to market: Investors -- angels, banks, institutions -- all have expertise and hypotheses. The role of the bootstrap strategy, I think, is extremely important, because you need something that shows enough of a spark that you can get other people interested in participating — be it the other people that are necessary to fund the venture to the next scale or be it the customers that are necessary to create the economics associated with the development of the new market. Below is what we've learned about combining both sides. Rob Glaser: I'm happy to start. Podolny: I think it ends where it begins, which is that all of you have clearly been visionary and missionary in the markets that you've been helping to give birth to. The mother of the complex came secondarily. But, in fact, the big idea was the long-term bond. Yale Insights is produced by the Yale School of Management. A part of the vision was seeing that there was an opportunity that looked to me like it was just over one or two hills, as opposed to five thousand miles away. This first article will act as a high-level overview of many of the things that are required to build a successful marketplace. We've learned that the easiest route might not be the right one. Send out surveys, conduct focus groups, and ask for feedback when you have an opportunity. I wrote a book in 1993 called Macro Markets. No system is prepared for a product that crosses multiple categories; for example, a wardrobe is normally split by "day or night" and "work or casual." By Juan Manuel de Toro Shutterstock The failure rate for new products and services can be as high as 90% in some sectors. That sense of mission is an incredibly important element. But similar to potential team members, you can look for a production partner with one particular skill who may simply have a passion for the other. Marketing is important because without it, your business simply will not go anywhere because it won’t be seen. Analyzing data collected from multiple sources, generating insights from that data, and making informed decisions greatly impacts your performance. So there's definitely this powerful sense of urgency associated with that model. When you look at the food chain between small, start-up companies and some of the larger companies that are not, typically, first movers, but that are poised to pounce in because they have structural assets that are relevant, that plays out all the time, and creates one of the dilemmas that entrepreneurs often face as a market is exploding. From experience we suggest starting online -- the most industry, market and product-agnostic sales channel that exists. But, as respected VC Bijan Sabet notes on his blog, just creating a beefed-up product and fighting for market share is not always enough. Download the Marketing Planning Gui… The second thing, which I find really fun, was the notion of a big idea and a little idea, and I think there's ratification if we study markets. I mean, I started a radio station in high school. Sandor: Sure. In a given market, there's always a lot of speculation. I've designed some real failures. The Indian telecom supplier market was heavily saturated and to make an impact, Huawei needed to separate itself from the rest and create a distinct identity as well as a reputation for reliability. Podolny: Is there anything else you think would be important for the readers to know? A description of your business’s current marketing position. You need to gather information about your market, such as its size, growth, social trends and demographics (population statistics such as age, gender and family type). Investors might understand part of your value prop, but rarely all. (To really answer this question, I recommend some form of market research to validate your gut feeling.) You can review other items on the page and then click on the ‘Save Changes’ button to store your settings. But I think it's in a similar direction of importance. People who understand one side of the business and are comfortable taking an educated leap of faith on the other. It is important to keep an eye on your market so you are aware of any changes over time, so your strategy remains relevant and targeted. And we have attracted as employees — tell me if this is true for you as well — people who are really not just in it for the money, people who are excited by new ideas. According to Market Research World, market research is “a systematic, objective collection and analysis of data about a particular target market, competition, and/or environment.” Market research can define your target market or see how successful your product or service is in the marketplace. And regulatory approval happened at that time. You should aim to sell to the market segments that will be most profitable for your business. I mean, how much is timing a central issue that you have to be sensitive to in how you move from the vision to the details? I think purposeful risk-taking, and the adventure it creates, is the best exercise for the intellect and generator of human capital. This assessment determines whether a business and its … The problem for us was that the Ministry of Supply Case study -- titled “Will Professionals Demand its Performance?” -- was the only one that ended in a question mark. If done with the right economics in mind, that’s what leads to a successful business. The first short-term interest-rate futures contract was on the Treasury bill, but the real pot at the end of the rainbow was eurodollars. And the effects can be far reaching, as markets are capable of taking on a life of their own. What do you do to move from vision to reality? Luck, particularly as pertains to timing, played a tremendous role. Then use the data gathered as supporting materials for your … What these give us is a powerful technology for improving human welfare. The first interest-rate derivative that was started was Ginnie Mae futures contracts. Shiller: People really shouldn't be too concerned about failure in a business. I'd be curious to hear everybody's viewpoint on a timeline on invention. These include: Why … You get industrial concerns on board.