strategy+businessISSUE 64 AUTUMN 201110 Clues to OpportunityMarket anomalies and incongruities may point theway to your ne...
comment leading ideas                                                                                                     ...
comment leading ideas                                     promising resource or technology         product or service to n...
comment leading ideas                        market. When the smaller bikes sold          Shurgard Storage Centers Inc. Th...
strategy+business magazineis published by Booz & Company Inc.To subscribe, visit www.strategy-business.comor call 1-877-82...
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Booz & co 10 clues to opportunity

  1. 1. strategy+businessISSUE 64 AUTUMN 201110 Clues to OpportunityMarket anomalies and incongruities may point theway to your next breakthrough strategy.BY DONALD SULLREPRINT 11304
  2. 2. comment leading ideas well-known product innovations — 10 Clues to Opportunity including the airplane, the mobile phone, and the tablet computer — began similarly, as products that Market anomalies and incongruities may point the people felt should already exist. way to your next breakthrough strategy. 2. This customer experience doesn’t have to be time-consuming, arduous, expensive, or annoying (but it is). Consumer irritation is a reli- by Donald Sull natural human tendency known to able indicator of a potential oppor- D psychologists as confirmation bias: tunity, because people will typically uring their heyday in People tend to notice data that con- pay to make it go away. Reed Hast- the late 19th and early firms their existing attitudes and be- ings, for example, founded Netflix 1 20th centuries, transatlan- liefs, and ignore or discredit infor- Inc. after receiving a US$40 late fee tic cruise lines such as the Hamburg mation that challenges them. for a rented videocassette of Apollo America Line and the White Star Although it is difficult to over- 13 that he had misplaced. Charles Line transported tens of millions of come confirmation bias, it is not Schwab created the largest low-cost passengers between Europe and impossible. Managers can increase brokerage house because he was the United States. By the 1960s, their skill at spotting hidden oppor- fed up with paying the commissions however, their business was being tunities by learning to pay attention of conventional stockbrokers. Scott threatened by the rise of a disruptive to the subtle clues all around them. Cook got the idea for Quicken after new enterprise, namely, nonstop These are often contradictions, in- watching his wife grow frustrated transatlantic flights. As it happened, congruities, and anomalies that tracking their finances by hand. the cruise ship lines had one poten- don’t jibe with most of the prevail- 3. This resource could be worth tial strategy with which to save their ing assumptions about what should something (but it is still priced low). business: vacation cruises. Starting happen. Here is my own “top 10” Sometimes an asset is underpriced in the 1930s, some of these lines field guide to clues for hidden break- because only a few people recognize had sailed to the Caribbean during through opportunities, observed in its potential. When a low-cost air- the winter, thus using their boats a wide variety of industries, coun- line such as easyJet or Ryanair an- when rough seas made the Atlantic tries, and markets. If you find your- nounces its intention to fly to a new impassable. And in 1964, when a self noticing one or more of them, a airport, real estate investors often new port was opened in Miami, major opportunity for growth could leap to buy vacation property near- Fla., the pleasure cruise business be- be lurking behind it. by. They rightfully expect a jump in gan to boom. 1. This product should already real estate values. Similarly, the But the great cruise lines missed exist (but it doesn’t). As the accesso- founders of Infosys Technologies this breakthrough opportunity. ries editor for Mademoiselle maga- Ltd., India’s pioneering provider of They saw their profitability fall zine in the early 1990s, Kate Brosna- outsourced information technology while dozens of startups, including han spotted a gap in the handbag services, were among the first to rec- Royal Caribbean and Carnival, ret- market between functional bags ognize that Indian engineers, work- rofitted existing ships to offer plea- that lacked style and extremely ex- ing for very low salaries, could pro- sure cruises and built an entirely pensive but impractical designer vide great value to multinational new travel and leisure category that bags from Hermès or Gucci. Bros- clients. The company earned high continues to grow today. nahan quit her job, and with her profits on the spread between what Managers and entrepreneurs partner Andy Spade, founded Kate they charged clients and what they strategy+business issue 64 walk past lucrative opportunities all Spade LLC, which produced fabric paid local engineers. the time, and later kick themselves handbags combining functionality 4. This discovery must be good when someone else exploits the strat- and fashion. These attracted the at- for something (but it’s not clear what egy they overlooked. Why does this tention of celebrities such as Gwyn- that is). Researchers sometimes rec- happen? It’s often because of the eth Paltrow and Julia Roberts. Many ognize that they have stumbled on a
  3. 3. comment leading ideas promising resource or technology product or service to new uses (but throat price wars that plagued the without knowing the best uses for it not with our support). Chinese appli- country’s appliance industry. right away. The resulting search for a ance maker Haier Group discovered 7. Customers shouldn’t want problem to solve can lead to great that customers in one rural province this product (but they do). When profitability. One example was the used its clothes washing machines to Honda Motor Company entered the founding of the ArthroCare Corpo- clean vegetables. Hearing this, a U.S. motorcycle market in the late ration, a $355 million producer of product manager spotted an oppor- 1950s, it expected to sell large mo- medical devices based on a process tunity. She had company engineers torcycles to leather-clad bikers. De- called coblation, which uses radio install wider drain pipes and coarser spite a concerted effort, the compa- frequency energy to dissolve dam- filters that wouldn’t clog with vege- ny managed to sell fewer than 60 of aged tissue with minimal effect on table peels, and then added pictures its large bikes each month, far short surrounding parts of the body. Med- of local produce and instructions on of its monthly sales goal of 1,000 ical scientist Hira Thapliyal, who how to wash vegetables safely. This units. Then a mechanical failure codiscovered this process, founded a innovation, along with others in- forced the company to recall these 2 company to offer it for cardiac sur- cluding a washing machine designed models. In desperation, it promoted gery, but that market turned out to to make goat’s-milk cheese, helped its smaller 50cc motorbike, the Cub, be too small and competitive to sup- Haier win share in China’s rural which Honda executives had as- port a new venture. Undeterred, he provinces, while avoiding the cut- sumed would not interest the U.S. looked for other potential uses, and found one in orthopedics, where there are more than 2 million ar- throscopic surgeries per year. 5. This product or service should be everywhere (but it isn’t). Some- times people chance upon an attrac- tive business model that has failed to gain the widespread adoption it de- serves. Two archetypal retail food stories illustrate this. In 1954, res- taurant equipment salesman Ray Kroc visited the McDonald broth- ers’ hamburger stand in southern California, and convinced them to franchise their assembly-line ap- proach to flipping burgers. In 1982, coffee machine manufacturing ex- ecutive Howard Schultz visited a coffee bean producer called Star- bucks in Seattle. He recognized the potential of a chain restaurant basedIllustration by Stefanie Augustine on European coffee bars, and he joined Starbucks, hoping to con- vince the company’s leadership to convert their retail store to this format. When they didn’t, he start- ed his own coffeehouse chain, later buying the Starbucks retail unit as the core of his new business. 6. Customers have adapted our
  4. 4. comment leading ideas market. When the smaller bikes sold Shurgard Storage Centers Inc. The Donald Sull well, Honda realized it had discov- resulting company, European Mini- is a professor of strategic and international ered an untapped segment looking Storage S.A., was the first of several management at the London Business School, where he is also the faculty for two-wheel motorized transporta- such companies that Svensen-Ameln director for executive education. His books tion. (The campaign is still remem- started in Europe, to great success. include The Upside of Turbulence: Seizing bered for its catchphrase, “You meet 10. That new product or service Opportunity in an Uncertain World (Harper Business, 2009). the nicest people on a Honda.”) shouldn’t make much money (but it 8. Customers have discovered a does). Established competitors are product (but not the one we offered). often surprised when upstart rivals Joint Juice, a roughly $2 million do well. In his 2008 book, The Part- company that produces an easy-to- nership: The Making of Goldman digest glucosamine liquid, was Sachs (Penguin Press), Charles D. founded by Kevin Stone, a promi- Ellis noted that for decades, Gold- 3 nent San Francisco orthopedic sur- man Sachs partners had avoided in- geon. He learned about the nutrient vestment management, which they from some of his patients, who took believed generated lower fees than it for joint pain instead of the ibu- trading and investment banking. profen he had prescribed. Many When Donaldson, Lufkin & Jen- doctors might have ignored this or rette Inc. published its financial even scolded their patients for fall- performance as part of a 1970 stock ing prey to fads, but Stone recog- offering, Goldman partners were nized he might be missing some- startled to learn that fees and bro- thing. He looked up the clinical kerage commissions on frequent research on glucosamine in Europe, trades added up to a highly profit- where it was the leading nutritional able business. Shortly thereafter, supplement. (Veterinarians, he dis- Goldman expanded into managing covered, swore by it, and their corporate pension funds, and ag- patients fell for neither fads nor gressively built its business. placebos.) Then he built a business Incongruities like these can of- around it. fer a critical clue about where your 9. This product or service is assumptions no longer match real- thriving elsewhere (but no one offers ity. From there, you are more likely it here). In the early 1990s, a Swed- to uncover the kinds of opportuni- ish business student named Carl Au- ties that you might otherwise have gust Svensen-Ameln tried to store missed — and that your competitors some of his belongings in Sweden still don’t recognize. Start by asking while at school in Seattle, but found yourself, What are the most unex- that all the local self-storage facilities pected things happening in our were full. He studied the storage in- business right now? Which competi- dustry, already prevalent in the tors are doing better than expected? United States, and discovered a Which customers are behaving in business model characterized by ways we hadn’t anticipated? Take high rents, low turnover, and negli- yourself through the list of top 10 gible operating costs. Yet self-stor- clues. Leaders who consistently no- strategy+business issue 64 age, at the time, was virtually non- tice and explore anomalies increase existent in continental Europe. the odds of spotting emerging op- Svensen-Ameln and a friend from portunities before their rivals. + business school set up a partnership Reprint No. 11304 with an established U.S. company,
  5. 5. strategy+business magazineis published by Booz & Company Inc.To subscribe, visit www.strategy-business.comor call 1-877-829-9108.For more information about Booz & Company,visit Park Ave., 18th Floor, New York, NY 10178© 2011 Booz & Company Inc.