This is a reflection of Chapter 7 in Christensen's "The Innovator's Dilemma". The old ways don’t work anymore. Talking to customers, getting expert opinions and doing economic modeling may work for deriving what to build for existing markets, but is useless in new ones. Essentially, if you don’t already know the customer needs of a market, you’re most likely in a new market. The issue with established companies when they go about building products in new markets is their approach. The management team at these places have an MO of careful planning and doing heavy market research when developing products and that’s because it’s necessary in the majority of their work. Since they’re working within the bounds of a market where customer needs have been established, this approach totally makes sense. However, that core property changes the entire battlefield and therefore, the approach one has to take if they are to win in that market.

So how does one go about understanding a new market? Rather than taking the “sustaining innovation” approach of careful planning and research, one must take a “discovery-driven” approach. This means planning for learning rather than execution. Since there are no clear financial numbers to base forecasts off of, we cannot make assumptions that would justify large production lines for instance. We want to be in a place where we can easily change our operational model when we discover new rules about our environment. Planning for learning means to first be in the mindset that your initial understanding of the market and therefore whatever strategy you take is probably wrong and will fail. By accepting that, you’ll avoid decisions that may deplete resources needed for later iterations. From that point, we can ask what missing information we must learn to understand the needs of the market and how we will go about filling in the blanks.

For instance, Hewlett-Packard launched a product many years ago called Kittyhawk, a small 1.8 inch disk-drive meant to be installed within PDAs. For anyone who doesn’t know what a PDA is, it’s this thing. Everyone at HP working on the Kittyhawk made the assumption that PDA sales volumes would be significant based off expert forecasts, and as a result, invested a ton of money into automating their production line to account for the projected high-volume. They also approached the product architecture in a way that made it difficult to change its initial designs. This would hurt them later on as it would make it difficult to change the Kittyhawk product to fit unforeseen applications like being fit to video game consoles. In this case, the video game makers requested a much lower end version where they didn’t require all the nooks and crannies that the initial product had. If they had gone with the assumption that nobody knew what PDA sales volumes would be, they probably would have taken a more modular approach to their design where components could easily be replaced. The point is, the mindset you take when approaching the market has huge ripple effects throughout the product’s development.

Another lesson in understanding new and emerging markets is that they usually come from unanticipated success. This affects how one must market their product since by accepting that they don’t know how their product will best be served for, the messaging by which it is marketed must also reflect that. Christensen calls this agnostic marketing. So rather than go and say the Kittyhawk is the best disk-drive for PDAs for x reasons, you may say something like “The Kittyhawk is the smallest and most durable disk drive yet capable of storing up to 50 megabytes of memory”. By simply saying what the product is and not what it’s useful for, this allows customers you would never even think about to connect the dots to their use case. It is really important to be honest about your assumptions and how you’re basing them. A good case study in understanding unanticipated success is Honda’s “Supercub” and the emergence of off-road dirt bikes.

Essentially, Honda had built a small 50cc bike called the Supercub which was very popular in Japan for city travel in highly urban areas like Tokyo. They developed really efficient production processes for the engines in these bikes- the largest cost in building them-so their labor costs were much lower than than other motorbike manufacturers around the world. As a result, Honda execs were dying to export their bikes to North America where these low labor costs could be leveraged to take over the market. The only problem was motorbikes in North America were primarily used for long-distance travel. This meant larger and more powerful bikes were needed to make it a comfortable ride. Honda set out to build a new type of engine that could do highway travel with the hopes of selling these types of bikes to American consumers. They sent out some of their people to LA to begin these efforts and the result was a near-failed effort. The new highway-fitted engine caused all sorts of problems like oil leaks, dealers didn’t want to deal with an unproven product line and the costs associated with replacing the warrantied bikes almost put Honda in bankruptcy. One day, one of the Honda execs in the LA office rode the Supercub he brought to some dirt trails in east LA. It let him vent out his frustrations and told his other Honda worker-buddies to join him the next time. Eventually, it caught the attention of non-Honda people who wanted to participate in this off-road dirt biking. Unanticipated success! Honda ended up discovering a new market segment which proved successful over the years - off-road, recreational dirt biking. They created distribution channels with sporting good dealers and they were off to the races.