Which customer should you sell your new product to?
This chapter deals with an interesting question. Who is the best customer for a new product? We have seen that typically new products will replace an existing product or service that is already doing a job for a customer. So the obvious answers would be the top customers for who the existing product is doing the job. But think again. They are top customers because they are happy with what they are getting and the incumbent is striving hard to delight them. If not then, then who? The bottom most customers? Almost there. But not quite. The bottom most customers don't need everything existing products have to offer and are grumbling about the price. And they are probably not attractive customers given the margin one makes on them. But they are still grudgingly getting what they want. They are not going to throw away the bird in hand for two in a bush. So who does that leave? The non consumer. But you may ask if they are the non consumer, then does it not mean they have no job to be done. No. Not necessarily. They may have a job to be done but not getting it done because the existing product may be too expensive or too complex to use. So if something simpler to use or cheaper comes along they may jump on board.
Why are they the best customer for a new product? Because a new product needs space and time to evolve without facing the brutal competition of existing product with all the supporting ecosystem. The non consumer is the one who provides that. The non consumer may accept a much lower level of performance since they were anyways not getting served. The product can start with them and move up the value chain through sustaining innovation. While the underlying technology may be complex, the solution needs to be simple and easy to use for them. And last but not the least new products progress - need new channels. Existing channels will find existing high margin product more profitable and may not expend resources on a new product that might not even need all services of the channel.
Let me illustrate this an example of a service - business process outsourcing of financial transactions. This is highly reconciliation heavy and is done manually by low cost resources in offshore locations. One innovation to make it cheaper is to automate it using robotic process automation and artificial intelligence. A much more disruptive innovation would be to eliminate the need for reconciliation using blockchain technology. Now usually the focus for this innovation are big customers who already have outsourced and may have already explored artificial intelligence as well. However, for them the blockchain solution is not worth all the cost for the incremental gain as it is only a sustaining innovation. The ones who are currently not served by outsourcing and artificial intelligence are mid range companies. They probably do not have scale to benefit from the services of outsourcing companies. So outsourcing companies' sales force may not be the right sales channel to reach them as all those sales channels would be geared towards big multi nationals. We have an interesting alternate channel possible here - banks! What if their banks offered them this service as a barter in exchange for access to their suppliers and information about payments due from these suppliers to enable supplier financing. That way these companies that are not served either by outsourcing or by automation because they are too expensive suddenly get a most advanced blockchain solution. Now a blockchain solution will have lot of challenges and lot of transactions will fall out. But it would still be an improvement over what they are currently getting. And as the solution matures for these customers they can start moving up the value chain.
Continuing with this same example, let us examine why a blockchain solution is not being developed by any of the big IT and Outsourcing companies. To build this new business they need funding. To get the funding, whoever is proposing this solution can propose it as an opportunity or as a threat. If positioned as an opportunity, it would be about new customers. Here the new customers would be the mid size companies who wouldn't be considered an attractive enough market to pursue in terms of immediate returns. On the other hand, the new technology can be positioned as a threat that can take away existing outsourcing business. This framing will make them focus the new solution on the existing big customers. This won't work because the new technology is not sufficiently evolved to offer adequate performance level to them. So any commitment to sell to them won't work. That is how things get struck in a catch 22 situation and such disruptive solutions don't emerge in these kind of companies.
The way out is for big companies to recognize that there will always be threats to existing business and keep an innovation arm separate as an insurance against these threats. And to have them work independent of the main business and work with the right targets and channels to capture the non consumer market and evolve to be ready when the threat materializes in their main stream market to avoid being blindsided.