While on my way back on a trip from Sierra Leone working with the team at Water4, which provides affordable access to safe and clean water for thousands of Sierra Leoneans and across Africa, I had the opportunity to re-read The Innovator’s Solution authored by Michael Raynor and the late Harvard Business School Professor Clayton Christensen. This was one of the first books that I read that made me really interested in the work at the Christensen Institute, and I continue to refer to its insights as I continue my work with some of today’s most impactful innovators.
This book is based on Professor Christensen’s definition of Disruptive Innovation, or the process whereby a smaller company with lesser resources is able to successfully challenge established incumbent businesses. These incumbents focus on improving their products and services for their most demanding and most profitable customers—exceeding the needs of some segments and ignoring that of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments (nonconsumers, who are those for reasons due to unaffordability, inconvenience, or lack of expertise do not purchase or utilize products or services), gaining a foothold by delivering more-suitable functionality—frequently at a lower price. When mainstream customers start adopting the entrants’ offerings in large amounts, then disruptive innovation has occurred.
Harnessing this theory, this book is a guide for managers in large companies on how to continue to innovate and become disruptors themselves by focusing on nonconsumers.
As COVID-19 restrictions loosen in most parts of the world, companies both large and small are finding possible paths to stay afloat and build a successful enterprise in the long term. This book may just be the guide for those companies in growth markets. Here are three lessons that are worth sharing from the book.
Lesson one: Competing against nonconsumption is a winning strategy
There is immense economic opportunity in growth markets if businesses target nonconsumption. Companies and entrepreneurs who invest in making goods or services accessible to nonconsumers typically receive significant economic benefits after they create a new market. Not only will they have dominance in that market in the short term, but they are more likely to maintain a competitive edge for the foreseeable future. For example, Tolaram introduced instant noodles to the Nigerian market. At the time, most Nigerians had never eaten or even seen noodles; it was an example of introducing a product to nonconsumers with little money in their pockets. Tolaram now sells more than 4.5 billion packs of noodles and grosses over one billion dollars annually. In addition, the company has a significant market share of the instant noodle market in Nigeria.
Another example is MicroEnsure, now called MIC Global, which provides health insurance to millions, which was grossly under-consumed by many in low-income countries. MIC Global has insured more than 50 million nonconsumers of insurance in Bangladesh, Ghana, Kenya, India, Nigeria, and several other countries. More than 85% of its customers had never purchased an insurance product until MIC Global entered the scene.
Lesson two: New markets create exponential growth by serving new consumers
New markets turn out to be attractive primarily because nonconsumers outweigh consumers.
(Courtesy of Efosa Ojomo, from Market-creating Innovation Bootcamp sessions)
The table below showcases the opportunity to build your business around the nonconsumer market.
|Characteristics||Consumption economy||Nonconsumption economy|
|Growth potential||Growth is limited by the number of existing consumers||Potential to create exponential growth by serving new consumers|
|Competition||Incumbent firms||“Workarounds” or nothing|
|Market size||Defined and easily quantifiable||Not defined and difficult to quantify but very large|
|Value network||Relies on established value networks||Necessitates the creation of new value networks|
Nonconsumer markets have the potential to create exponential growth by serving new consumers, and even though they are ‘workarounds’, and it’s hard to quantify, they provide an immense opportunity for businesses to make significant profit while providing products and services for millions of people. The most important component of building around a nonconsumer market is creating a value network.
Lesson three: The role of value networks is vital in creating new markets
In creating a new market, creating a new value network is essential. A value network is the context in which a company defines its cost structure. For a product to go from farm to grocery store, there are several components in its value chain that will increase its cost. Because most businesses are targeted at existing consumers, their cost structures prevent them from targeting nonconsumers. Creating a new value network enables companies to redefine their cost structure so that their products can be afforded by nonconsumers.
In summation, there is much to learn from this book, especially for entrepreneurs in growth markets. With a vision to create new markets, innovators can build profitable, disruptive companies with long-term sustainability, while also generating inclusive wealth for millions of people.
Have you read The Innovator’s Solution? If so, what are some insights you find powerful, informative, or interesting? Leave your comments below, tag us on Twitter, or send us an email—we’d love to hear from you!