We all know the drill, and we can recite it in our sleep. Listen intensively to what your customers want; improve your product and services based on what you learn; and then offer those innovations to them and you will experience a never-ending increase in revenue flow.
Not so fast according to Professor Clayton Christiansen, professor at the Harvard Business School. In his seminal work, “The Innovators Dilemma,” he argues that’s exactly why companies so often stumble.
He points to Harley-Davidson Inc., one of our local companies. The management was outstanding in innovating based upon feedback from customers. Early ads featured a group of outlaws with their Harleys and a tagline something to the effect that: we wouldn’t want to disappoint these guys when it comes to quality. Milwaukee is the home for anniversary Harley rallies. Their customers come from all over the United States, and Harley’s great engineers listen carefully and continue to improve the basic Harley motorcycle.
In the meantime, Honda introduced what is known as a disruptive technology. Their small off-road motorcycles were almost the opposite of the powerful over-the-road cycles made by Harley-Davidson.
Guess what? Harley-Davidson is fighting for its life and has to downsize dramatically just to survive. (No, I am not about to predict that this iconic American company will not be able to figure out the solution to its current challenges in the market).
Why did Harley listening to their customers create an opening for Honda? The answer has great relevance for your company.
Disruptive technology is one that appeals to a different market segment than the existing customers. It is a game changer for existing products. Think email versus snail mail. It disrupts the conventional ways of doing things. It introduces new technology that in the near term probably doesn’t perform as well and has to be priced significantly lower than competitive products.
A company’s current customers would resist something that doesn’t work better or feels dramatically different. Any given company has little motivation to introduce a product that their customers might not like. More importantly, they would have to do it at a price that’s less profitable than their current offering.
IBM focused on the production of mainframes. Yet there was a whole generation of potential users of laptops they failed to think about. Apple and Dell Computer made chopped liver out of IBM.
Is an IBM or Harley-Davidson clueless? Hardly. All business leaders are focused on trying to improve quality and offer a better variation of what they currently offer. Why would they take the risk of upsetting the expectations of their own customer base?
Don’t tell that to Randy Spaulding. My investment network, the Successful Entrepreneur Investors, provided the startup capital to Randy in early 2008. He dramatically improved the testing of drugs for cardiac effects on patients and was able to upload that information to pharmaceutical companies faster and with greater quality than had ever been done before. Two years later, his company, Spaulding Clinical Research, is growing rapidly with almost 100 employees, and has nine major pharmaceutical companies as customers.
Now he’s prepared to introduce even more disruptive technology. He has the intellectual property on the Spaulding IQ. It is an electrocardiogram designed for drug testing trials. It is considerably smaller than anything that has been tried before. It uses a voice print that accurately identifies the subject’s voice and attaches the data to it. Most importantly, this device will price considerably lower than anything that has ever been produced in this space before.
There will be market resistance from existing customers. Randy’s plan is to prove it works in clinical trials on his own subjects now. If successful, that will build a compelling case that the major pharmaceuticals will not be able to ignore.
So what take-away value can you get from these examples?
If you introduce a new product or service look for a new market niche and new customers outside of your normal target market. Professor Christiansen argues that Detroit should not offer electric cars to current customers because, with the exception of dedicated environmentalists, the American consumer does not want a product with low acceleration, limited driving range and fewer luxury features.
He suggests Detroit target a different demographic such as teenagers, which could dramatically reduce teen death rates because of slower vehicle speeds, or alternatively parcel a market in growing, crowded, noisy urban areas including cities of Southeast Asia.
For the most part you will not develop these kinds of dramatic new technologies, but you should at least think seriously about a different market segment than your existing customers when you try new products or services. It preserves your existing brand, and you will learn what it takes to succeed in a different segment of the market.
