Building the Marketplace of the Future
With this commitment to green business, we are also taking risks. As our markets mature, competition from new entrants will increase. And many of these newcomers will be established corporations with long track records of successfully marketing themselves and their products to the mainstream. Their goal will be to become a market leader, following the mantra of former General Electric CEO Jack Welch -- to be #1 or #2 in every market in which they compete.
In the MBA program at the Presidio School of Management, we are introduced to numerous market opportunities that are brushed over, or simply not addressed, in many "mainstream" graduate business programs. These are the areas that I believe present the primary opportunities for green business entrepreneurs and small companies to choose the markets in which they will want to deliver their innovations, and for defining the winning strategies that will help them deliver superior customer (and planet) value.
A relevant insight that is directly applicable to green businesses comes from the work of Harvard business school professor and business author Clayton Christensen. According to Christensen, most innovations in an industry follow one of the three following trajectories that can also be regarded as generic strategies:
Strategy #1: Sustaining Innovations
According to Christensen, "sustaining innovations" keep a company on a trajectory of constant product improvement. Existing companies who are leading their markets typically are in continual product development. New entrant companies usually stand little chance to challenge an established player who employs a sustaining innovation strategy, due to the position of the incumbent in their market. For example, there has never been a successful challenger to Cisco Systems in the enterprise "internetworking" market, even though many have tried.
Strategy #2: The Low-End Theory
When customers are being serviced with increasingly innovative products, room in the market then opens up for low-end innovations. Typically, customers at the low end of the market do not need all of the functionality that is provided by the leader and they are willing to accept a product or service that has less to offer but is cheaper. For example, most small businesses don't need the functionality of a Cisco router, and instead buy a low-end, low-cost router from Linksys. In many cases, an incumbent will not be able to easily follow a low-end challenger, due to the business structure and profit model of the incumbent. This can be an opportunity for green businesses entrepreneurs, if we are able to create low-end innovations in existing markets. But it is also a risky strategy, since larger players have the ability and deep pockets that would enable them to use this strategy to enter our markets if they observe our success and determine that it would be profitable to do so.
Strategy #3: Targeting "Non-Consumers"
Finally, there's the category that targets non-consumers. This is where entrepreneurs can identify a potential need for a product that over time can become "the next big thing," creating a whole new market category. When targeting non-consumption, a green business can start by providing a product or service that is “good enough” for those customers that are not using (or not committed to) existing products in a given category, and while doing so grow a business and improve his or her offering outside the radar screen of the established markets. The newcomer can then grow their business to a size that makes it ready to challenge an existing market with the now improved product that is ready to take over customers from the old players. This targeting of non-consumers may be the most suitable strategy for new sustainable businesses that have a long-term target of replacing non-sustainable businesses.
For example, even though their strategy may not have been designed this way, Toyota's first Prius falls in the category of targeting non-consumers. It was a fairly unattractive car that didn't appeal to the general car-buying audience. But many people bought the car based on its fuel efficiency and lower environmental impact. Having this unattractive vehicle on the market allowed Toyota several years of test marketing and learning, while the competitors did not take the hybrid effort very seriously, building larger SUVs instead. Toyota operated in a blind spot of the market, which enabled them to develop and introduce the current Prius with a bang -- catching Detroit off guard.
In our desire to set the world onto the path to sustainability, we have an opportunity to develop more categories that will come to define new for-profit markets. Organics, developed outside of the mainstream view, is now the fastest growing food category. And green building techniques and practices, developing in niche markets such as college campuses, are getting ready to explode onto the mainstream stage.
Some markets may inherently be non-profit markets. For example, DriveNeutral is a Presidio School of Management student-led project in which we have teamed up with the Chicago Climate Exchange to market “carbon offsets” to drivers who want to reduce the carbon emissions footprint of their driving. This is an example of a good-cause business that is primarily centered on repackaging a sustainability-minded service so that it becomes accessible to individuals. As such, it will operate in market conditions that will quickly put margins under pressure in a way that no for-profit business could endure. Therefore, it is a service better suited for the non-profit sector.
For green businesses, there is a lesson in all of this. And that is to put our focus on the right market opportunities, to establish our brands, and to grow profitable companies while the mainstream focus is still somewhere else. Now is the time to think strategically. Today's strategies will determine if we will be absorbed by the big players or whether we will hold our own and be running the markets that we establish as we move into the future.
Jørgen Vos is a 2006 MBA candidate in the Sustainable Management program at Presidio School of Management. He has a Masters in Electrical Engineering from Eindhoven University of Technology in the Netherlands. With an extensive background in global product management and marketing management for Cisco Systems, Inc., he also has experience as a high-tech sales engineer traveling throughout Western and Eastern Europe and the Middle East. He is currently involved with DriveNeutral.org in the capacity of chief financial officer.
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