This article is an excerpt from the Shortform book guide to "Play Bigger" by Al Ramadan, Dave Peterson, et al.. Shortform has the world's best summaries and analyses of books you should be reading.
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What are the disadvantages of entering new markets? Why is it so hard to design a new market?
As great as its benefits are, market design is difficult for three reasons. However, the book Play Bigger suggests that overcoming these disadvantages is worth it for your company in the long-run
Let’s look at why entering the new market has its disadvantages.
Reason #1: You Must Build Your Company, Product, and Market Simultaneously
According to the authors, the first disadvantage of entering a new market is that you must build your company, market, and product simultaneously so they support and reinforce each other—a colossal challenge for any company. When you can do this, a flywheel effect occurs, wherein one part of the company boosts the next part, which boosts the third part, which boosts the first part, and so on. When this flywheel composed of company, market, and product spins fast enough, the company builds so much momentum that it becomes the unbeatable market winner.
For instance, you might build your low-tech devices company, market, and product simultaneously by encouraging developers to think in a minimalistic way and to make only limited use of tech in their work because this approach is aligned with the product you’re selling. You might also choose to employ more marketers than developers because your company’s challenge won’t be the development of the product—in your case, relatively easy—but rather the marketing of a product that’s intentionally less advanced than others on offer. These choices about the company in turn improve the product and market design, which loop back and further improve the company—thereby starting a flywheel.
Reason #2: The Tendency to Settle for ‘Better,’ Not ‘Different’
Another disadvantage of entering a new market is that there’s a strong pull to create a product that’s better—not different—in an existing market simply because doing so is easier than creating a different product in a new market, write the authors.
This is because, at some point in the inception of a new business, the daily demands of running it begin to take priority over the bigger-picture concerns of market design and aligning company, market, and product in service of building a new market. What’s more, businesses experience financial pressure to make a profit now by catering to existing customer needs and problems instead of bringing in greater profit later by creating a whole new market. All this leads to the tendency to simply build a good-enough product that can compete in an existing market but won’t ever make you a market winner.
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Here's what you'll find in our full Play Bigger summary:
- Why financial success doesn't depend on education or intelligence
- Why the key to financial success lies in understanding human behavior
- How to create a financial strategy you can follow for decades
