This blog is an excerpt from a white paper by the Market Creators Lab. To view the paper in full, visit the link below.
Market creating ventures—ones that innovate new business models for new-to-world products—rarely succeed. Across innovation and startup circles, there prevails a flawed assumption that the high failure rate is an unavoidable consequence of operating under high uncertainty.
The true source of the problem is far more insidious: By defining product ideas based on what customers want and need—an essential principle of effective product design—venture builders unwittingly import a market barrier into the business. A market barrier is a systemic flaw in a venture’s core business architecture that drives up costs beyond the value that can be generated for customers.
Market barriers can’t be optimized away, nor overcome through scale economies, disintermediation, or outsourcing. It’s why so many nascent markets full of sophisticated startups and early-stage companies spend years experimenting relentlessly without ever reaching sustained profitability.
The only way to get rid of a market barrier and radically drive down costs is by re-engineering the core business architecture.
In this paper, we pull back the curtain on the dilemma posed by market creation and the unique innovation challenge of market barriers. We then overview a three-step “solve-synthesize-simulate” design loop developed in the fields of integrative design and systems engineering to create solutions capable of “factor 10” performance improvements. We conclude with key learnings about applying this design loop to market creating ventures, having worked with more than 40 corporate new venture teams and startups in both emerging and developed markets.
The secret sauce involves shaping the product form factor to solve 10 key market creation challenges typically handed off to the business model. “Productizing” solutions to market creation challenges creates big efficiencies in the venture’s core business architecture, which significantly reduces the people and resources needed in the business model. We also introduce a new metric—the “market creation margin”—used to evaluate the robustness of the venture’s core business architecture during early-stage design.