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To launch a disruptive business, focus on tactics that seem to work and that yield insight into customers and their needs, no matter how small the impact might be at first.
If you lack customers early on, you have nothing to scale.
If you are launching a two-sided marketplace, focus on acquiring supply-side customers before going after the demand side.
Only over time, as the company’s growth rate stabilized, did it switch to online customer acquisition channels.
Uber went door-to-door to get its first drivers to sign up.
See your business through your customer’s eyes.
without enough customers, there is no reason to build out anything else.
Ultimately, two major factors explain startup failure. The first factor, unsurprisingly, is the failure of new businesses to acquire enough customers.
acquiring enough of the right kind of customers,
“When a manager with a reputation for brilliance tackles an industry with a reputation for bad economics, it is the reputation of the industry that often remains intact.”
“contrary to conventional wisdom, most profitable corporate growth doesn’t come from participating in a ‘hot’ industry and riding the trends upward. In fact, a large number of companies with sustained profitable growth are in industries that may appear to be mature.”
Bain & Co. found that 80 percent of the time, a company’s higher rate of growth owed more to its performance relative to competitors than to the historical growth rate of the market it had chosen to enter.
To grow quickly, new businesses must choose their markets with an eye toward achieving a competitive advantage.
Back in the early 1990s, C. K. Prahalad and Gary Hamel suggested that companies should enter markets in which they possessed special skills or strengths, or “core competencies,” as they called them.
“The idea spread from core competencies to core everything—core processes, core businesses—everything that constituted the essence of what a company was and did. Management consultants encouraged companies to focus on their core as a source of untapped potential in a time of rapid change and unpredictability.”
From the beginning, the notion of “core competency” has always been somewhat vague.
Profit from the Core
In all, Zook and Allen proposed six distinct categories of adjacencies.
When demand dries up, they can shift gears to a diversification strategy, producing products and services in new markets that allow for economies of scope.
(first “black cars,” then private cars).
In 2016, Uber changed its focus from scaling up to scoping outward.
UberEats,
UberRush.
For these new businesses, Uber engaged its existing workforce of 40 million active drivers worldwide, making more ...
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UberEverything,
whose purpose was to identify adjacent opportunities around its core competency in the rides business.4
Yet it carries significant downsides. As you enter adjacent businesses, you risk choosing one that your current customers find irrelevant.
In 2006, building on its competency in caffeinated drinks, the Coca-Cola Company released a coffee-flavored soft drink to compete in the fast-growing coffee market. The drink didn’t please customers, and Coca-Cola discontinued it just a year later.
Ask your customers.
A second drawback of the traditional “adjacencies” approach is that most businesses analyzing possible adjacent markets to enter will find numerous candidates—perhaps too many.
With so many potential businesses that attempt to build on a company’s existing skill set, it’s hard to decide which to pursue.
The vast majority of conventional approaches to growth pertain to possible firm-side synergies:
marketing prowess,
customer-side synergies.
Once again, it is cost reduction that drives customer behavior.
CVC adjacencies,
When Gmail came out in 2004,
Google Maps, launched in 2005,
Seeking out customer-side synergies confers significant advantages over the traditional, firm-side synergies approach.
Founded in 1999
Founded as an online business-to-business marketplace, the company in 2003 moved into consumer-to-consumer e-commerce and in 2004 acquired both Aliwangwang, a text message service, and Alipay, an online payments service.
Yahoo China
2009
In 2015, Alibaba took a majority stake in smartphone maker Meizu.
Note how many of these companies operated in non-adjacent industries,
So why didn’t the company stick with its original, business-to-business online marketplace and focus growth there in order to dominate the market and achieve competitive advantage by traditional economies
of scale?
Alibaba’s expansion strategy focused squarely on customer-side synergies and CVC adjacencies.
Directly
Alibaba began growing by focusing on a single stage of the shopper’s CVC with its Alibaba website.
Instead of using the traditional industry adjacencies approach (payment, mobile phones, and logistics are not adjacent industries), the company opted to move into adjacent CVC activities.
