When seeking opportunities for growth, too many companies follow a common-sense rule that’s all too common but deeply flawed: they make the size of the market their most important priority. “That is a fallacy,” said Prof. Mohan Sawhney, co-academic director in Kellogg Executive Education’s Delivering Business Growth: an Actionable Framework. “It’s not the size of the market. It’s the size of the market that you have a legitimate claim to — the part of the market you have the right to play in and win. Instead of going broad, you need to go deep.”
Sawhney pointed to analytics firm Saama Technologies, a company for which he consulted, as a case study. He met Saama’s CEO and founder two years ago, when the company was marketing their fluid-analytics engine as a tool for solving analytics problems for any industry. “Their offering seemed to be fairly generic,” he said. “But when we started talking about life sciences, it became far more focused and interesting.” Saama worked with companies to help manage their clinical trial operations — the process for bringing a drug to market. They developed the Life Sciences Analytics Cloud — a set of products for improving clinical trials — from finding patients for trials to designing the trials themselves and other key steps along the way. “Their value proposition for life sciences companies was differentiated and clear. They could knock valuable months off the time it takes to bring a drug to market, saving their clients millions of dollars. Even within life sciences, I advised them to focus only on pharma companies as these companies spend more time and money than medical device companies on clinical trial. Saama’s CEO was initially worried that their market opportunity would be far smaller than the market they had been pursuing. However, he quickly realized that they would be able to get a greater share of the smaller market. As I told the CEO, no market is too narrow if you go deep enough!”
Sawhney recently received an email from the founder saying he’d taken those ideas to heart. The results: the company has grown 50 percent year over year for two years and is projecting similar growth in future years. The company’s valuation in its most recent round of funding has quadrupled, putting it within unicorn range.
The bigger the market, the more focused a company needs to be, Sawhney added. “You want to row in the ocean? If you’re on a paddleboard without a GPS, the ocean is a great place to drown!”
How can you tell if the market you’re pursuing is too broad? Ask yourself if you’re able to address everyone in it. “Can you confidently say that for every segment of that market, you have a differentiated and defensible value proposition that’s head and shoulders above the competition?” said Sawhney. “You can try to be everything to everybody, but then you end up being everything to nobody. You’re much better off being everything to somebody.”
Microsoft provides another solid example. “They’re entirely focused on being an enterprise company and have zeroed in on the cloud,” Sawhney said. “All of their products are cloud-enabled, and their Azure business is growing one hundred percent year over year. They got out of smart phones. They’re not trying to chase every rabbit they find.”
The key to analyzing your potential market is to determine how much one customer will pay you and then multiply by that in order to judge whether your target is adequate. “It’s from the ground up as opposed to from the top down,” Sawhney noted. “If you know you have five customers paying this much money, now you can see what that’s worth. These are people who are actually paying. Now, can you find other people who look like that? You’re not just going for some random percent of a large market. It’s validated demand rather than conceptual demand. To grow profitably, go deep, build domain expertise and forecast demand from the bottom up.”
|Prof. Mohan Sawhney teaches in a variety of Kellogg Executive Education programs, including Leading and Sustaining a Culture of Innovation and Kellogg on Branding. He has written seven management books as well as dozens of influential articles in leading academic journals and managerial publications. In addition, Prof. Sawhney has won several awards for his teaching and research and advises and speaks to Global 2000 firms and governments worldwide. He holds a Ph.D. in Marketing from the Wharton School of the University of Pennsylvania; and a Master’s degree in Management from the Indian Institute of Management, Calcutta.|
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