Chapter Twelve

Creating New Businesses

2005 John Wiley & Sons

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Chapter 12 – Creating New Businesses PPT 12-1

 The New Business

• Change what the customer is buying

• Transformational innovation
• Different business strategy including new assets &
competencies
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 Blue vs. Red Oceans

• New market space • Existing market space

• Create demand • Beat competitors
• Make competitors • Improve market share
irrelevant • Improve existing
• Create new strategy strategy
• Transformational • Incremental
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innovation innovation
• High risk-high return • Lower risk
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 Barriers to Long-Term Success of
Improving Existing Businesses
• Competitors response – fast and vigorous
• Hard to hide incremental innovations
• Market dynamics – easy to get behind/less
relevant
• Overcapacity
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 The Innovator’s Advantage

• Competitors inhibited from responding

– Fear cannibalization
– Fear taking eye off existing business
• Competitors unable to respond
– Lack assets, competencies, culture etc.
• Innovator can create customer loyalty &
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authenticity
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 Early Market Leaders Strategy

• Envision the Mass Market

• Managerial Persistence
• Financial Commitment
• Relentless Innovation
• Asset Leverage
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 Managing Category Perceptions

• Focus at outset on attributes and functional

benefits
• Labels help define the category—use them.
Make your brand the exemplar (the best
example of the new category)
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 Creating New Business Arenas

• Creating a dramatically lower price point

• Analyze alternative industries
• From components to systems
• Customer insights
• Market trends
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• Collaborative process
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 From Ideas to Market
• Fatal Biases Inhibiting New Business Creation
– The short-term financial pressure curse
– The curse of success
– The incumbent curse
– The commitment curse
– The size curse
• Making New Business Viable in Established
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Organizations
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 Key Learnings
• In general, above-average earnings come from new business arenas,
and those attempting to excel in existing business arenas on average do
less well financially.

• A business can vary in its “newness” depending on how much it departs

from existing businesses in terms of value proposition, target market,
assets and competencies employed, and how it defines what a
customer is buying.

• An innovator has an advantage because it can build up a core loyal

customer segment and because competitors, committed to their own
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business, may lack the motivation and capability to respond.

• Successful market leaders envision a mass market, are persistent,

make a commitment, continue to innovate, leverage firm assets, and
manage category perception.
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Chapter 12 – Creating New Businesses PPT 12-10

 Key Learnings
• Transformational new business arenas can be based on offering a
dramatically lower price point, analyzing alternative industries to find
white space, offering systems rather than components building on
customer insights or market trends, and by collaborating with other
people and firms.

• Established firms tend to be focused on their own business and regard

new ventures as a distraction that is unlikely to help their financials and
may make them worse. To overcome these biases they need to create a
space for entrepreneurial initiatives and a mechanism that ensures new
ventures will get the resources they need.
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 Ancillary Slides
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 “The most effective way to cope with
change is to help create it.”
- I.W. Lynett
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Chapter 12 – Creating New Businesses PPT 12-14

 “Only the paranoid survive.”
- Andrew Grove,
Former CEO Intel
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 “The unexpected is the best source of
inspiration.”
- Peter Drucker
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Chapter 12 – Creating New Businesses PPT 12-16