Check Industry themes prior to placing your bet
A good friend texted a link to an article a few days ago. I finally had a chance to open it and within the first few minutes of reading the article I had more questions. You see, my friend knows I work for a company that operates in the nascent drone industry. This is why he forwarded the article to me. What he didn’t realize is he helped me see a few broad themes that should be important to the company I work for. I’m sharing this because if you work for an under-resourced (limited time, low investment capital, small number of personnel) company, then you need to learn how to look at industry themes and determine where you want to ‘place your bet’ (i.e. determine where and how you want to play/win in the market). Here’s a back of the napkin approach to determining how to place your bet:
1. Gain a high-level overview the market
Here’s the drone market ecosystem from 2016:
Crowded eh? Irrespective if it’s crowded or not, there’s still a few organizational plays you can make as a company in a crowded market. Especially if the overall market is growing at an outrageous rate. I’ve talked to several entrepreneurs that solely focus on growing industries so they can ride the momentum of the industry to a profitable outcome. I’ve been told countless times that you can build an average company in a hot industry and the reap an above average exit. I’ve seen this happen in the IT security and energy sectors. I’m a believer now!
Bottom line: There are several players in the space and the number of companies and the amount of capital invested will increase in the coming years. So…of course you want to play in this game.
2. Determine where you’ll play and if you have an advantage
Take a look at this 10,000 ft. view of the drone industry:
Fairly quickly you should notice there are companies trying to win specific verticals and other firms pursuing a horizontal play. And one of the first thoughts you should consider is 1) where do you sit in the industry ecosystem? And 2) do I have the resources to win or lead in that specific space. I work for a drone services provider that can produce competitive deliverables compared to the software firms listed in this graphic. However, these software firms have a big head-start on us and they have raised in excess of $565M, and it doesn’t appear to be slowing down anytime soon. Let me cut to the chase. We shouldn’t play in the drone software space. We don’t have the money or personnel to win or lead this software ‘arms race’. We don’t have an advantage here.
3. Can you win?
Can we win a specific subset of the vertical or horizontal space? That’s the next question we need to ask. We employ some of the most talented people in the construction drone insights space. And I’ve seen the problems we’ve solved for clients in a shorter time period than our competitors. We’ve also led the way in terms of delivering new products that our competitors tend to imitate a few months after our product release. So, can we win? Well, and I hate this answer to…”It depends”. If we’re going to win or lead in a specific vertical, say construction, then the prospects need to buy our innovative technology products/offerings now. Unfortunately, construction and innovative technology are an oxymoron. Tech adoption in the construction space is slow.
The upshot of this KPMG survey of construction firms is as follows:
- 8 percent fall into the “cutting-edge visionary” category
- 69 percent are considered either “followers” or “behind the curve.”
This means that the firms playing in this space will need to wait for sales to occur. And if you have to wait for sales to occur because the industry needs to be educated and ensure the value of drones outweigh the risks, then you better have a ton of money to survive the adoption curve. Or you can use resources to ‘buy the market’. We’ve seen this occur as firms reduce prices below the cost of providing the service. The intent is to lock in the customer and sell higher margin products/services in the future. Bottom line: It will be very difficult to win and/or lead in this specific vertical without the financial wherewithal to overcome slow adoption rates and the need for vertical education.
4. Find your core. Compete.
Before you make a final decision about where your business will play within the ecosystem you should determine ‘who you are’. What I mean by this is to decide if you are a sales driven company selling technology in your DNA (e.g. CDW) or a marketing company (e.g. Dropbox), or are you a sales company driven by technology (e.g. Groupon). The easiest way to quickly determine who you are is to understand why people buy from you and what value you truly provide to them. When people purchase your product/offering simply ask them why they bought from you. This provides you with key insight about who the customer thinks you are in the marketplace. Notice this is letting the customer tell you who you are, not the other way around.. And if a paying customer is telling you that your company is “X”, then you ought to really consider this input. Because regardless of the market you’re playing in, your value and your ability to sell that value to a prospect, is what will ensure you win or relegate you to a losing situation.
When I consider why prospects are excited about the company I work for it revolves around one thing: our reach (nationwide network of pilots). So the question for the company I work for is, ”Can we use this capability to play in a crowded market?” I believe the answer is a resounding “Yes”! We should compete against the 2-3 other network operator firms. We have a decided advantage and the field is less crowded than the other segments of the drone ecosystem. And if, as a network operator, we can tightly integrate with software providers then we increase switching costs to another network provider. Given limited resources we don’t have a strong chance to win or lead the market when competing against the software or hardware players.
The network operator appears to be our best play at the moment considering available resources, the ecosystem, industry adoption rates, our core, and our ability to compete.