Export News, April 2011

Remember the Daleks? Those wheeled mutants from Dr Who determined to take over the world and exterminate all humankind. Cartoonist Gary Larson memorably portrayed their strategic flaw – stuck in front of a flight of stairs having had their plans for global domination thwarted.

These are what authors Clark Gilbert and Matthew Eyring, in their excellent Harvard Business Review study of minimising risks in new ventures, call ‘deal-killer risks’. That is, significant market issues that can destroy any chance of your export venture being successful.

Risk is the natural bedfellow of any exporter. Taxation, transportation, banking, regulation, customs, employment issues all represent real challenges. But there is also that fundamental risk at the early stage of any exporting venture – will you be able to sell your wares?

“At the start of a new venture, the only thing you can know about your initial strategy is that it’s probably part right and part wrong,” say Gilbert and Eyring. They acknowledge you can’t eliminate risk, unless you want to diminish reward, but you can do things to address key risks earlier.

Gilbert and Eyring talk about two categories: the deal-killer risks the Daleks experienced, and path-dependent risks.

Path-dependent risks are those insights that change the way you take a product to market. For example, a New Zealand medical device company we worked with had developed a clever new instrument that promised to rapidly increase the productivity of a particular type of operation. It wasn’t selling as quickly as they hoped.

After talking to current and potential customers it became clear that to use this new surgical device a surgeon also had to adjust their surgical technique. The company wasn’t simply selling a surgical device, but a revised surgical technique which used this new type of device. The ‘product’ was actually the revised technique and the new device packaged together. This insight had significant implications for selling the product. It meant a different way of supporting it, promoting it, a different relationship with a channel partner and so on.

Gilbert and Eyring says too many companies tackle risks around the wrong way. They solve the infrastructure-type risks (e.g. warehousing, inventory, website) before they address issues of customer demand and the appropriate product mix (see diagram). Assessing that demand and the consequent product mix are the very first things successful entrepreneurs do to reduce the risks of new ventures.

From “Beating the Odds When You Launch a New Venture”. by Clark G. Gilbert and Matthew J. Eyring. Harvard Business Review, May 2010.

For Kiwi exporters the lesson is to not rush into new markets, but to do the work to understand them and the risks that exist. A great idea is not enough to overcome significant market risks.

Great idea not enough

A great idea only gets a business only so far. Many Kiwi innovators build their success on attracting the early adopters that tend to drive the initial growth phase of a technology business. These customers are the ones interested in the features of a product, those that actually come looking for innovation. To reach the next level, the sustainably profitable part of the market, companies need to be able to find and connect with those mainstream customers that are mainly interested in benefits, not features.

If more New Zealand innovators are to make it on the world stage a crucial part of that ‘experience and skill’ is in building a strong marketing foundation. This means a comprehensive understanding of factors like the need of the target market, the commercial realities of the market, the key success factors in the market, and the strengths and weaknesses of the key players. No matter how clever your innovation, a good market understanding is far more powerful than a list of product features when you are standing in the boardroom of a big US customer.

Effective export marketing is about applying the same discipline and intellectual rigour to marketing as innovators apply to their technical challenges. Building a sound marketing platform provides the environment, understanding and commercial focus for a technical entrepreneur to grow their business. The significant increase in market understanding and the knowledge of how to approach a market lowers risk and helps diminish the fear of the unknown.

Kiwi tech entrepreneur Sir Gil Simpson defines innovation as “success through difference,” i.e. taking a different approach to solving a customer’s problem and being commercially successful with it. That latter point is absolute key. Inventions don’t put money on the table – innovation does.

Knowing the market side of the equation – where and how people buy a particular product, what competitive solutions are available, what sort of pricing strategy is most profitable, what in-market support is required and so on; is just as hard as the invention challenge.

Test early, test cheaply

HBR authors Gilbert and Eyring’s mantra to describe this approach to reducing export risk is “test early and test cheaply”. They recommend getting insights from the market as early as possible in the lifecycle of your new venture or new product initiative. The insights from this help temper your enthusiasm and open your eyes to potential risks.

For example we worked with a technology company several years ago that had developed a new tool for online programming. It had some early sites, but they weren’t confident of demand, and where to position the product.

A Google ad campaign with multiple message variations teamed with a simple landing page helped gauge levels of interest, and what parts of the market tended to be interested. It was a cost-effective and invaluable insight for the company that helped them make some decisions about their product launch strategy.

There are many other ways to ‘test early, test cheaply’. You can call and survey prospects, go to tradeshows, talk to distributors. In some situations it is possible to try and sell your initial concept to early adopter prospects.

NZTE have a lot of overall market data available online, and they can also conduct specific in-market research projects in specific circumstances.

Mining blogs, Twitter streams, LinkedIn group discussions and other online forums can be valuable. Journalists in your niche often have a lot of market knowledge and usually happy to share it, and industry associations can also be useful sources of market data.

Minimising risks for your new export idea is all about increasing your knowledge of the market. The alternative is ending up like the Daleks, your ambitions for global domination thwarted.

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