The New-Market Conundrum

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What specific behaviors and implicit rules do the most successful pioneers follow in new markets?  Top experts from Harvard and Stanford reveal a new strategic framework that can help other innovators chart a course in new markets and avoid the pitfalls they present.

The past two decades have seen the birth of an unprecedented number of new-to-the-world markets. Technologies such as cloud services, warehouse robotics, and smartphones have redefined entire industries, making old business categories obsolete. A steady stream of emerging innovations—from commercial drones and autonomous trucks, to virtual and augmented reality, to plant-based meat substitutes—suggests the era of market creation will continue for the foreseeable future.

From a strategic point of view, new markets are like science fiction’s wormholes, where conventional rules of time and space do not apply. In new markets, the questions that typically define a company’s strategy—where to play and how to win—have no easy answers. Large companies that invest millions may find themselves outflanked by brash start-ups and today’s winners may be tomorrow’s losers. PayPal, for example, is now the clear leader in online payments, but in the market’s first years the top competitor was a company called Billpoint.  23andMe took an early lead in personal genomics, but who will ultimately dominate that market remains up in the air.

As Rory McDonald of Harvard and Kathleen M. Eisenhardt of Stanford explained in a recent Harvard Business Review article, it’s tempting to think of pioneers in new markets as conquering a totally foreign terrain with no recognizable landmarks or proven navigational tools. But in their research into patterns of success and failure in new markets, McDonald and Eisenhardt uncovered something unexpected. Over the past few years, they’ve conducted more than 200 interviews with entrepreneurs and corporate innovators in fields ranging from personal genomics and augmented reality to drones and technology-enabled finance (“fintech”). What they learned is that the most successful of these pioneers follow the same set of implicit rules and share specific behaviors. These rules and patterns often defy...

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