This blog is an excerpt from a white paper by the Market Creators Lab. To view the paper in full, visit the link below.
One class of innovation has always stood out from the rest: the innovation of category-defining products that birth new mass markets.
The family home computer. Smartphones. Video conferencing. Credit cards. Microfinance loans. Securitized mortgages. Mobile homes. Peer-to-peer home rental. Vacation time shares. Fast food restaurants. The chocolate bar. Pesticide-resistant crop seeds. The microwave. Solar purchase power agreements. Online shopping.
If today’s aspiring market creators succeed, that list may come to include virtual healthcare, DNA-tailored therapies and foods, cultured meat, personal home robots, and space travel.
Market-creating innovations capture attention for a good reason. They possess what Elon Musk calls a high “utility delta”—they create transformational impact in people’s lives. They also create enormous money-making opportunities. Big impact and big profits. It’s business at its best.
But despite the potential rewards, most corporations and investors are reluctant to pursue these opportunities. And for good reason: market-creating ventures rarely pan out.
Today, a venture’s chance of achieving enduring profitability remains faint. Venture Genome calculates that 90% of startups fail completely, and 1.5% produce a successful exit of $50 million or more. Of those, less than 20% will become profitable, based on the last decade of IPO performance. The likelihood of success, in other words, is lower than 1%.
It also takes a lot of money to try. Alphabet, the parent company of Google, was bleeding $1 billion quarterly from its “X” unit—a division set up in 2010 to pursue market-creating innovations like glucose-measuring smart contact lenses, hot-air balloon-deployed rural internet service, drone delivery, and self-driving cars. Alphabet shuttered most of the unit’s ventures in January of this year, as their path
to profitability remained dim.
Amazon’s equivalent unit—its Grand Challenge Lab—suffered the same fate, with most of its ventures closed in 2023. Disney’s “Disney+” streaming service has lost over $11 billion in the five years since launch, leading to the ousting of CEO Bob Chapek. Goldman Sachs shuttered its disruptive, mass-market digital bank “Marcus” in 2023, having amassed $5 billion of losses in four years.
Because of this track record, market creating ventures are assumed to be high-risk and high cost by their very nature. The readily accepted explanation is that standing-up ventures that profitably solve previously unsolved problems poses enormous uncertainty and complexity.
As many have pointed out, market creating ventures don’t have customers and users that can be observed and researched, nor are there competitor business models whose operations can be benchmarked and probed for weaknesses and strengths. Numerous other factors and stakeholders must be navigated, including regulatory agencies, government policies, advocacy groups, rapidly evolving technology bases, cultural norms, and environmental concerns and constraints.
Solving everyone’s demands and doing so profitably ultimately requires bringing together thousands of interacting people, processes, partners, assets, and control systems into a well-oiled machine.
We agree that market creating ventures are complex systems challenges that carry high uncertainty. However, their high failure rates and high costs aren’t caused by the complexity and uncertainty of this innovation challenge. They result from the innovation methods used today to tackle it.
Today’s widely accepted venture innovation strategy—first defining the basic product idea based on a customer problem or job to be done; filling in a business model plan or canvas with various parts needed to make, sell, and deliver it and create a competitive moat; and then launching a minimum viable product and experimenting in-market to organically evolve it until it achieves consistent profitability—is setting ventures up to fail and consuming a lot of money in the process.
As sensible as the approach sounds, it violates the science of innovating new, breakthrough systems that do things current systems cannot. In doing so, it corrupts the venture’s core DNA, driving up the underlying cost structure and closing off any path to profitability before a minimum viable product has even been built. Experimenting in-market then introduces tremendous noise, making it nearly impossible to determine why a venture isn’t working and whether it’s critically flawed.
Systems engineering is a rigorous discipline that allow engineers to consistently and reliably innovate new, breakthrough systems. It’s how NASA, the United States space agency, successfully landed men on the moon in 1969, and how in 2021 they succeeded in deploying the James Webb Space Telescope into a solar orbit 930,000 miles from Earth. It’s why missions to Mars—a planet lying a staggering 140 million miles from Earth—have a 40% success rate.
Today, this discipline is used to innovate everything from satellites, bridges, and tunnels; complex communications and transportation networks; to software and even government policy. Renowned architect Frank Gehry ushered in a revolution in architecture by applying them to innovating physics-bending buildings. It’s key to his ability to deliver projects on time and on budget.
And when you look closely, you see it in the principles and processes employed by successful engineers-turned-entrepreneurs. It was the basis for how the late Steve Jobs built Apple. Today, it’s the basis of Elon Musk’s “algorithm.”
In this article, we explain the science behind systems engineering and what’s needed to innovate new, breakthrough systems. We then introduce a new methodology for market creating ventures based in systems engineering called “integrative venture engineering” (IVE). IVE’s inception dates to 2012 when the fatal flaw in the conventional innovation strategy was uncovered during a seven year collaboration between Cornell and a variety of industry partners to understand the unique challenge of market creation.
Since then, we’ve validated core processes and tools through more than a dozen corporate and entrepreneur-driven ventures across a range of industries. We believe IVE will deliver a step change in the success rates of new market ventures while driving down the cost of innovating and testing them.