Getting in on the ground floor, when something is just about to take off, can seem like an attractive opportunity. But, is it?
Spotting a new trend early can put a company ahead of potential rivals who have not yet taken notice that something new is emerging. But, identifying a trend early is not enough. Being prepared to compete in the emerging area is just as important, in fact more so, than merely taking notice of and acting early upon the up and coming trend. In some cases, a company that is well suited to compete in an emerging area, but acts upon it later can far outperform an early entrant that is not necessarily set up to compete in the area. Companies are especially well suited to compete in areas that build upon their strengths, so those strengths should be considered when evaluating new opportunities, such as what comes from early spotting of an emerging trend.
Even though technology often changes rapidly, it does not mean companies that notice and pursue trends early are able to capitalize on them quickly. II may be quite a while after a trend might be identified before a company that noticed it early can thrive from it. A good example of this is GE’s endeavors with digital transformation and the internet of things.
According to Reuters Alwyn Scott’s August 28, 2017 article published in Business Insider, “GE is shifting the strategy for its $12 billion digital business,” GE’s former CEO “spent six years and more than $4 billion transforming 125-year-old GE into a ‘digital industrial’ company. But, GE has had technical problems and delays with its software platform, known as Predix, which connects equipment like turbines and elevators to computers that can predict failures and reduce operating costs.” As the article says, GE has been fixing the problems and altering its strategy to concentrate on its “existing customers in its energy, aviation, and oil-and-gas businesses.” The article explains that GE Digital “so far has not delivered the revenue investors wanted,” and that GE’s new CEO seems committed to the company’s digital vision, but he is likely to push for lower costs and better profitability.
The article points out that GE’s former CEO “was among the first executives to spot the industrial internet wave nearly a decade ago and positioning the company to catch it became one of his signature strategic moves.” But, as I said near the beginning of this article, spotting the emerging trend early is not necessarily enough to generate a thriving business from it. Granted, as the Business Insider article points out, GE has had some success with this, but “some analysts and investors say...its current growth rate is too slow.” According to the article, competition is intensifying, but GE says its product offers advantages that start-up competitors don’t have. Yet, as the article explains, start-ups may be better able to customize.
It is beyond the scope of what I’m writing here to predict how GE Digital will ultimately fare. But, it is worth noting that once a company identifies an early trend (such as the growth of the industrial internet), it is important to determine what needs to be done to profit from the trend, as well as to evaluate whether the company is suited to pursue the opportunity, and if so, to determine what the company’s approach should be. GE has spent heavily on its digital transformation. But, identifying a trend early and spending heavily on it is not enough. They have to position themselves to compete and be able to do it.
Furthermore, another red flag can arise when identifying a trend early: there is a very real possibility of being blinded by big numbers that paint the market potential as extremely attractive. As the Business Insider article says, “GE estimates that the industrial internet market will be worth $225 billion a year by 2020.” When pursuing new lines of business, it is very easy to get wrapped up in the attractive size of the potential market. But, companies should not forget that there are more important factors for success than market potential. Determining whether a company is suited to compete and figuring out how to win in the market are far more important than estimating the market’s potential size. This doesn’t mean that market size does not matter at all. And, companies certainly should not pursue areas where there is no market. But, it does mean companies should not be overly enamored with a market’s potentially large size and instead need to assess how well suited they are to compete in that market.
I can recall the early days of my career when I worked on estimating the market potential for new lines of business my employer was pursuing. Back then, I wondered how important those market potential numbers were in determining whether the new ventures would succeed. That, combined with my early work experience in data analytics where I saw the limitations of computer models, led to my 25+ year quest to research the factors that really do drive business success. As a result of my research, I found that matching opportunities with a company’s strengths is far more important than calculating estimated market potential.
Thus, in conclusion, identifying a trend early and estimating its market potential are not enough.
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