Listen to the authors present their findings (source: March 2019 JM Webinar)
Venture capitalists are constantly on the prowl for new startups to invest in, and research labs are their hunting grounds. Labs at universities, public research organizations, and high-tech firms incubate early-stage technologies that venture capitalists can help take to market. Startups can generate the next billion-dollar idea, driving growth and industry disruption. But many brilliant ideas also fail due to issues that could have been prevented.
A new study in the Journal of Marketing explores the process of market scoping, or identifying market spaces, for early-stage technologies, which is a critical, but underexplored marketing challenge of science commercialization. Many times, an emerging technology fails not because of the idea, but because of how it is applied and delivered.
Startups are associated with significant market ambiguity. Their technologies can be applied to multiple industries and applications, offering varying prospects for success. Venture capitalists and startup managers know that the wrong choices can lead to significant resource misallocations and expensive failures.
Our team focused on university technology transfer, a hotbed for early-stage technologies associated with significant market ambiguity. We assembled a unique longitudinal database of email trails and archival records, spanning several years, for six high-profile technologies to develop granular insights into market-scoping decisions. The email trails offered an unprecedented window into the nature of market scoping from the vantage point of major stakeholders involved in early-stage technology commercialization.
Our research found that managers can take one of two market-scoping mindsets—avoid or accept market ambiguity.
Managers who adopt a “market ambiguity avoidance” mindset prefer to resolve market ambiguity quickly, prioritizing market-specific inputs from the external environment. These managers make the following market-scoping decisions:
- First, they pursue a strong downstream orientation and focus attention on end-users and end-use scenarios, which we call downstream anchoring of the market space.
- Second, they test the focal technology against user requirements and expectations relative to specific end-use scenarios, which we call confirmatory substantiation of the market space.
- Third, they seek to establish direct access to well-defined end-user markets, which we call closed-end claiming of the market space.
Surprisingly, these market-scoping patterns are associated with unfavorable outcomes. They result in a lower value appropriability, fewer commercialization opportunities, delayed initial investment, and less efficient market-scoping resource allocation.
Managers who adopt a mindset that we describe as “market ambiguity acceptance” prefer to resolve market ambiguity gradually and prioritize technology-specific inputs. These managers make the following market-scoping decisions:
- First, they pursue an upstream orientation and focus attention on relevant technology benchmarks and technology regimes, which we call upstream anchoring of the market space.
- Second, they leverage upstream technology assets to further explore a focal technology’s capabilities, which we call exploratory substantiation of the market space.
- Third, they seek to establish broad, extendable market spaces that transcend specific end-use scenarios, which we refer to as open-ended claiming of the market space.
We found that these market-scoping patterns are associated with higher value appropriability, more commercialization opportunities, faster initial investment, and more efficient market-scoping resource allocation.
In addition, we examined whether managers may shift their market-scoping mindset in response to unfavorable market information. We found that mindset shifts may occur, but only under certain circumstances. Specifically, we found that team dynamics and boundary-spanning ties play an important role.
On the one hand, teams (managers and inventors) may establish formalized, long-term boundary-spanning ties with a small number of external industry experts who influence the market-scoping process. We found that such ties may increase the likelihood of team conformity, including the reinforcement of initial market-scoping mindsets of team members. The end result is that teams entrench their mindset.
On the other hand, teams may establish flexible, informal boundary-spanning ties with a broader set of external industry experts. They may cycle between different experts, involving them on an ad hoc basis, depending on the specific issues at hand. We found that such ties are more likely to lead to team conflict and disagreement, creating greater heterogeneity among team members’ market-scoping mindsets over time. This process facilitates mindset shifts.
Our findings have important and potentially disruptive implications for practitioners. The conventional wisdom in marketing education and practice is strongly downstream-oriented. Managers are encouraged to put end-users at the forefront of decision making and consider their needs above all else. Our research suggests that this thinking is misguided in the context of early-stage technologies when managers face significant market ambiguity. It provides an illusory sense of direction and increases the likelihood of failure. Rather, managers should leverage upstream technology assets to explore the focal technology capabilities, while allowing the relevant market space to reveal itself gradually over time. Furthermore, other actors in innovation ecosystems, such as consultants and investors, also have to rethink their approaches toward early-stage technology commercialization. They should encourage managers to increase their awareness of what the external environment may offer to benefit their technologies, rather than the other way around.
From: Sven Molner, Jaideep Prabhu, and Manjit Yadav, “Lost in a Universe of Markets: Toward a Theory of Market Scoping for Early-Stage Technologies,” Journal of Marketing, 86 (March).
Go to the Journal of Marketing