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Head-on collisions: Lessons from the storage industry
Building a new product or a service is a challenging endeavor. As an entrepreneur you will need to figure out why customers care about your product — it’s value proposition. You’ll also need to figure out who your customers are, how to reach them, how to price your product and so forth. You’ll also have to understand the competitive landscape: who are the other players in your market and what if any are the substitutes facing your product. You might find yourself selling into a new market with very few competitors, or conversely in a crowded and hyper-competitive market with powerful incumbents. In this article, I will focus on market dynamics that I dub a head-on collision.
Before I define what a head-on collision means, I want to first present a very simple value-chain model. Companies build products, which they then place in distribution channels to ultimately reach their customers. These channels could be physical like retail stores, virtual like websites and could include all sorts of intermediaries like re-sellers, consultants, partners and so on. There are obviously many other aspects of the product value chain that this model ignores.
You can apply this model to almost any market. Ford makes trucks, sells them to dealerships all over the country. The dealerships then ultimately sell cars to you and me. Microsoft makes software, some of which it sells to Dell which places them on laptops and then resells them online or in stores to consumers and enterprises. And so on.
A head-on collision is when a new company (NewCo) tries to enter a market whereby the following three conditions are satisfied:
- NewCo’s product is no different than that of incumbent
- NewCo and incumbent share the same channels
- NewCo and incumbents sell to the same customers
If the above three conditions are satisfied, then NewCo is about to enter into a head-on collision with the incumbent in this market. That head-on collision could pose a significant hurdle into NewCo’s ability to sell its product, especially if the market is not growing…
