There are Hidden Costs in Pursuing New Markets
Whether you are contemplating a new business or looking at new market opportunities to drive growth within an existing company, there never seems to be a shortage of ideas around the next big market opportunity.
Unfortunately, not all ideas are good ideas — nor are all good ideas a good fit for every company — and too often companies are blindsided when they pursue a less-than-stellar opportunity and don’t consider all the costs to the organization.
While there are clearly normal operating costs associated with pursuing new market opportunities, there are also some more hidden costs, like inertia and focus.
Inertia — Whenever a company makes the decision to pursue an opportunity, a certain amount of time and energy goes into turning and steering the company towards this end. This is not only costly, but creates inertia that can be hard to change after the fact, unless you are in the most intentional and mindful of organizations. And, because of this, companies often ignore warning signs and hang on to some (poor) ideas longer than they should.
Focus — In Geoffrey Moore’s book, Zone to Win, he argues that the pursuit of transformative business initiatives cause a crisis in (scarce) resources that demands aggressive prioritization in order to succeed. Because of this, he argues, a company can probably only handle one, or possibly two, transformative initiatives at any point in time.
While some will argue with the number of major initiatives that a company can handle, intuitively the concept makes sense. A company only has so many resources and at some point additional pursuits are a distraction (whether that be one major initiative or five).
Every company has its limits and once you exceed these limits, the extra priorities fragment the attentions of the company in such a way that not only is the new initiative likely to fail, but it could negatively disrupt existing, core areas of the business by pulling attention away from them in the form of engineering resources, sales resources, distribution capacity, and even the focus of executive management.
Given the opportunity cost of pursuing a new idea, smart companies
- carefully evaluate what they can take on and when,
- optimize their pursuits, avoiding “bad” opportunities at all costs,
- continuously reassess assumptions and progress, and
- do not continue to throw good money after bad.
A successful outcome of any market evaluation is to intentionally decide to abandon the market — and these decisions should be celebrated as the company moves on as quickly as possible.
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