Exploring The Unknown

In a previous post we talked about handling Unknown Unknowns. The first step it seems is to acknowledge there are things out there in the business landscape that we don’t know about. The next step we suggested in that post is to try moving the light around a bit to see what we can find.

But, bearing in mind Meno’s Paradox, how will we recognize things for what they are when we see them?

It’s a dangerous business, Frodo, going out your door.

We need a Map - but by definition we are starting with something mostly blank and so we will have to fill it in as we go.

Luckily we have some things we know to be on the look out for. In our Spherical Cows post we highlighted six functional areas that all business share. We can us knowledge of these functional areas to fill in the map. As a refresher, here are the six functional areas common to every business:

1. Discover a Thing people need or want (Customer Needs)
2. Create that Thing (Solutions).
3. Let the world (or at least the part of the world you think need or want the Thing) know what you have created (Marketing).
4. Sell the Thing to people who are interested (Sales).
5. If they buy the Thing, you have to deliver it (Operations).
6. Make sure that in doing all of the above, you can afford to keep going (Finance).

This first thing to do is look for aspects of area #6, which is primarily economics. We can use that as our compass, telling which way is up in this new market.

We use area #6 to ask these sorts of questions:

Using the Economic Compass

• Analyze Market Size What is the TAM?

• Analyze unit economics: How much do things in this market cost to buy?

• Study profit margins: What’s considered healthy in this industry?

• Identify major cost drivers: Where does the money actually go?

Start with element #6 (the economics compass) when entering a completely new market. If you can’t quickly understand how money flows and where profits come from, the other elements won’t matter. Many industries that look attractive on the surface have brutal economics that only become clear when you dig into the financial realities.

OK, so now we know which way is up in this market, the next thing to look for is Customer Needs. This is the topic element #1 concerns itself with, figuring out what people want or need. In this new market you are exploring, what do customers want or need?

Recognizing the Sea Of Customer Needs

We can ask these sort of questions:

• Research customer pain points: What problems are people complaining about in forums, reviews, social media?
• Study existing solutions: What are current players trying to solve?
• Look for gaps: What needs seem underserved or ignored?
• Talk to potential customers: Direct conversations reveal unspoken frustrations

The next thing we can expect to find in a healthy market are some solutions to customer needs. This is what element #2 concerns itself with, building the things that customers want or need. It has to do with Products and Technology.

The Solution Peaks

We can draw the outlines of where solutions are by considering the following:

• What are the current solutions? What Products are offered in response to the customer needs, and who makes them?
• Analyze how value is currently created: What does the production/service delivery process look like?
• Identify key resources needed: Technology, skills, materials, partnerships
• Understand barriers to entry: What makes it hard for new players to create value here?
• Spot innovation opportunities: Where could things be done better/faster/cheaper?

Now all we have to do is find out the riches from the Solution Peaks make their way to the Sea of Customer Needs. There are several ways to consider, dealt with by elements #3 (Marketing), #4 (Sales) and #5 (Production). Each of these creates a path from Solutions to Customer needs and we can look for each in turn as we continue to explore the market.

Find Marketing Flows on the map

• Map communication channels: Where do customers in this industry get information?
• Study messaging patterns: What language, claims, and promises do successful players use?
• Identify influencers: Who shapes opinions in this space?
• Understand buying triggers: What makes customers pay attention?

See if you can trace the path Sales makes

• Decode sales processes: How long are sales cycles? Who makes decisions?
• Analyze pricing models: Subscription, one-time, usage-based, freemium?
• Understand purchase motivation: What finally gets customers to buy?
• Study successful sales channels: Direct, retail, online, partnerships?

How are promises kept?

• Locate the suppliers: Who packages up Solutions and makes them into Products?
• Map the delivery chain: How does value actually reach customers?
• Identify critical success factors: What determines customer satisfaction?
• Understand logistics: Physical delivery, digital access, ongoing support?
• Spot failure points: Where do companies typically struggle with execution?

One we have sketched out these different ‘locations’ we hopefully have some landmarks by which we can navigate the brand new market we are exploring.

To recap

• First, understand the money. Is this market profitable and growing?
• Then, return to the beginning and look at what people want or need in the market.
• Once you understand customer needs you can look for solutions.
• How do customers learn about solutions in this market?
• How do solution providers sell?
• How do solution providers build and deliver?

These are simple topics for a reason - when we are looking to map the unknown we need to look for the kinds of things we can regonize when we see them. We treat a simplification first approach as a strategic asset.