Harvard’s Clayton Christensen is famed for several concepts in business such as disruptive innovation, Jobs to be Done, and organizing firm cultures around Resources, Processes, and Priorities. But one contribution of his has been broadly neglected, even if the seminal 2001 article which produced it also made popular the phrase “skate to where the puck will be.” It’s the concept of how cycles of business ecosystem integration and modularity spawn new market opportunities.
Christensen, who was my mentor for several years, chronicled how industries typically begin with one player integrating a full solution, so that the pioneer reduces dependency on unmotivated or poorly-suited partners and so that it can tightly control the interplay of complex components. Only then is the solution good enough for customer adoption. Over time, this value chain fragments. Specialists with focused capabilities and efficiencies come to rule particular aspects of an industry. Christensen showed how this occurred in computing, for example, where the industry began with behemoths like IBM producing its own processors, memory, operating system, and much else, only for companies like Intel, Micron, and Microsoft to specialize later on. This process also occurs in less technical fields too.
The implication is that market pioneers need to create full solutions for customers around the parts of their offering that are truly new and distinctive – IBM didn’t need to make its own cardboard boxes, for instance. Moreover, the pioneers often need to be deeply involved in selling the new proposition and ensuring that customers use it well, chronicling their success to then inspire more mass adoption. There may be partners involved at some links of the value chain, such as finding initial customers, but the firm originating the big innovation needs to remain deeply involved throughout the sales cycle.
In my book Capturing New Markets, I’ve called these sales strategies “country roads.” They can be winding and lonely, but the driver has a lot of flexibility about the route to choose. This is in contrast to sales “superhighways,” which lead to well-established destinations, carry many fellow travelers, and have a supporting infrastructure (rest stops, gas stations) that makes driving those routes easy – so long as you’re headed to where that highway is going.
The company Magic Leap has faced such a juncture with its revolutionary technology. The firm is an early mover in the field of Augmented Reality, which uses a 3D head-mounted display to overlay virtual data on real-world environments. Magic Leap is trying to bring this technology to surgery, among other fields, so that physicians can see biometric and imaging data about a surgical site while looking directly at the patient. This proposition can be highly useful in disciplines like neurosurgery, for instance, when the operation has to access a precisely-defined site and not disturb other critical anatomy.
For Magic Leap, the head-mounted display is not enough to create success. It has to marry the hardware with surgical planning software to create a full technical solution, then it has to conduct clinical trials to prove suitability in practice, and it must find early adopters and ensure their success so that others can subsequently push their hospitals to adopt the systems. All this isn’t easy, but that’s the way new markets typically form.
This is the plan the company has followed, partnering only as necessary. For instance, Brainlab makes software for neurosurgery planning and has established customers; that’s not the distinctive part of Magic Leap’s solution, and it would be prohibitive for the company to develop those assets on its own.
Jennifer Esposito, who heads Magic Leap’s medical business, told me “A lot of our job is to educate the industry and ecosystem about what the technology can do. Then we enable the established players in the ecosystem to adopt it. My team is available to work hand-in-hand to help these companies get brought up to speed. It’s also important for us to have the closed feedback loop and bring that into the product development cycle.”
This work creates high barriers against rivals entering a space pioneered by an early mover like Magic Leap. It is also costly and time-consuming, a consideration which many start-ups tend to discount too much. Eventually, industry value chains can fragment even in complex systems, but by then the momentum from establishing the industry has created market leadership and scale economies which can carry through the successful pioneer. IBM is no longer a fully integrated computing firm, but it is still quite a force to be reckoned with.
There is a saying in business that “pioneers are the ones with arrows in their backs.” Sometimes. When a value chain becomes fragmented, focused competitors can enter later and leverage all the market development work conducted by the early movers. But when it remains at least somewhat integrated, that feat is quite challenging. In Magic Leap’s case, it is hard to imagine how the maker of the augmented reality system can be easily pushed aside later on even as it may develop more ecosystem partners over time. There will be too many inter-dependencies for that to happen.
If you are trying to jumpstart an industry, remember Magic Leap’s approach. Not many firms will be able to follow in your tracks, and if you travel the country road early you will beat rivals who are taking superhighways which aren’t nearly as fast as they might look.
Contributed to Branding Strategy Insider by Steve Wunker, Author of JOBS TO BE DONE: A Roadmap for Customer-Centered Innovation
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