Guide: Innovation Curves

The ideal market opportunity is one which scores highly across all the MARKET measures we include in the Business Assessment Rating:

DEMAND

  • Large market size
  • Strong growth
  • Healthy margins
  • Fast cash-cycle

SUPPLY

  • Fewer competitors
  • Small competitors
  • Slow competitors
  • Strong barriers to keep new competitors out
  • Low substitute threat

The problem is that every other business wants this too. This is why it’s crucial to have these strategic tools at your disposal that your competitors don’t.

Remember too, that competition can come from anywhere, especially suppliers to the left and business customers to your right in the value chain. If they notice the profits you are making they will often try to cut you out of the equation (also called “disintermediation”).This is especially true in the relationship between manufacturing and retailing e.g. supermarkets doing house brands, Amazon copying their suppliers’ best sellers by making them direct in China.

Whatever the competitive structure, supply always catches up with demand in the end (see diagram below). The reality is it’s hard to gain a new competitive advantage, and sometimes even harder to hold onto it.

The key is to get in early, be the best to commercialise it, and extract profits as fast as you can for as long as you can. You have to move fast, because in a world of 8 billion humans, there is always someone else with a similar thought (but often not with any urgency).

Once profits start to shrink you should have your next strategic play lined-up e.g. Apple replaced declining iPod sales with rapidly increasing iPhone sales.

One of the main reasons the innovation curves move this way is because technology moves very fast, businesses move very slow, and individuals lie somewhere in between. By the time some businesses have caught up with their offerings, the game has already moved on.

That said, don’t be put off an idea just because you aren’t the first to think of it. Many business owners think that way at first and write off an idea too soon. What matters is who does it best e.g. MySpace beat Facebook to market and we know what happened there.

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