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Market Learning

In those cases where the entrepreneur is totally focused on proving the technical viability of their idea, the situation may exist where there is no understanding of potential market opportunities. This knowledge will only arise once the new product or service is launched, at which point in time preliminary answers will begin to be generated to the key questions of:

  • (1) Who is the customer?
  • (2) What benefits do the customers seek?
  • (3) How can customers be made aware of the new products?
  • (4) Through what channels can the product be purchased?

These answers will provide the learning upon which the company can start formulating a strategy for the successful commercialisation of its new technological solution.

It is unlikely that a large existing firm would wait until market launch before seeking some understanding of the market opportunities. This is because senior managements recognise the high expenditure and potential risks associated with developing a new technology and will demand some form of market assessment prior to approving any major investment in a new entrepreneurial idea. Some firms will tend to rely upon utilisation of the ‘stage gate’ model where an assessment occurs during each stage of a straight-line, sequential process constituted of seven steps: idea generation, idea screening, concept development, business planning, prototype development, test marketing and market launch (Cooper et al. 1997).

In their evaluation of the benefits of utilising the stage gate model in the case of entrepreneurial products, Millier and Palmer (2001) noted the model involves making certain critical assumptions. These are that the product can be characterised as having features or benefits which potential customers can understand and that the market for such a product is readily identifiable. They opined that determining new opportunities is much more difficult when large firms are engaged in seeking to evaluate market opportunity for technology-based, new-to-world entrepreneurial ideas. This is because the newness of the technological solution means that respondents to conventional market research activities such as interviews or surveys will have no understanding of the nature or benefits of the proposition about which they are being questioned. Under these circumstances, the large firm may have to rely upon internal opinions, external experts or other members of the supply chain to offer judgement-based opinions which may or may not be correct. As a consequence, extremely expensive R&D projects may have to be initiated without any accurate definition of commercial viability and it may be some way into a project, only after the first prototype has been developed, that some form of reasonably accurate learning about market potential can be undertaken (Evans and Johnson 2013).

Even in cases where it remains valid to use the stage gate model for managing development of entrepreneurial products, research by Owens (2007) and Pons (2008) revealed that project success can be undermined due to certain other failures in the project management process. Included in their findings are the following factors which respondent firms said led either to project failure or alternatively, projects breaching time schedules or financial budgets:

  • 1. Lack of overall strategic thinking and purpose to guide the development process.
  • 2. Failure of senior management to exhibit strong commitment to new product development because of a tendency to be more involved in resolving the crises that arise in day-to-day business operations.
  • 3. A failure to ensure that adequate financial and staff resources are assigned to the project.
  • 4. Lack of scientific, technical or engineering skills to overcome unexpected technological problems.
  • 5. Inadequate skills within the manufacturing operation to convert a prototype into a viable product suitable for manufacturing in large quantities, or an inability to produce the new product at the specified cost or quality specifications.
  • 6. Poor communications between different departments causing delays or incorrect decisions.
  • 7. Poor decision making due to a tendency to use a hierarchical structure accompanied by limited interaction between the different departments involved in the project.
  • 8. A failure to involve potential customers at a sufficiently early stage of the development process so that the lessons from their feedback can be incorporated into the final product specification.

Another key factor influencing market success is that the speed of new product adoption is influenced by the fact that some people are immediately interested in making a purchase, while others wait until there is evidence that that product delivers the benefits they are seeking or is available at what they perceive as an affordable price. This phenomenon is known as the Product Adoption Life Cycle (Moore 1991). In the case of technological goods, Moore posited that in relation to this cycle, entrepreneurs faced the added market learning challenge of understanding these different customer groups and the benefits sought in making purchase decisions.

Based upon his experience advising high-tech start-ups in Silicon Valley he proposed customers could be divided into Technology Enthusiasts, Visionaries, Pragmatists, Conservatives and Laggards. The Technology Enthusiasts are an extremely small group of customers who seek the benefit of being the first to own the latest technology and are not too concerned if their purchases do not work properly. Visionaries are a slightly larger group, who seek to adopt new, relatively unproved technologies in cases where utilisation can provide their operations with a major new strategic advantage in the market. A chasm exists between these two groups, because to attract the Visionary the technological entrepreneur will need to make available a viable solution that can deliver the benefit of supporting an identified strategic advantage. Where the entrepreneurial firm is unable to offer this benefit, then they will not ‘cross the chasm’ between the Technology Enthusiasts and the Visionaries.

The next chasm to be crossed is offering the benefit sought by Pragmatists. These are customers who will wait until sufficient proof exists that no utilisation problems exist for the technology and that the technology has become an industry standard. This group is extremely important because it and the Conservatives represent the largest customer groups within a market. Conservatives who enter the market next are more cautious than Pragmatists. They will wait until every risk has been purged from the technology even though this means risking a strategic disadvantage by waiting. The last group to enter the market are the Laggards. This group usually is seeking the benefit of low prices and this usually only occurs as the new technology is becoming obsolete, being overtaken in sales by the next generation of products entering the market.

 
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