Mining for entrepreneurial gold: Discovering market-creating ideas in emerging economies

By: and

Aug 11, 2020

Since the onset of COVID-19, investors have withdrawn ~$103bn from emerging markets, seeking a safe haven for capital in a highly uncertain environment. However, the best opportunities often arise when fear is widespread, and the current environment is no different. Investors who abandon emerging markets now may find that they have missed the chance to invest in innovative new businesses that will grow for years to come.

In particular, our research suggests that investors would do well to fund innovations that target nonconsumption. Nonconsumption occurs when people would benefit from using a product or service, but are prevented from doing so because the available options are too expensive, time-consuming, or are otherwise inaccessible to them. In many emerging economies, the population of nonconsumers for most products and services far surpasses that of consumers. As a result, innovations that create new markets by transforming complicated, expensive products into simpler, more affordable ones can become powerful new growth opportunities. These new markets are doubly attractive because they lack entrenched competitors to stymie new entrants.

But addressing nonconsumption is not as straightforward as launching into an existing market. When entering an existing market, companies can engage in traditional traditional research steps like market sizing, market share analysis, and customer research to understand how a new product will fit the competitive landscape. To come up with a winning idea that addresses nonconsumption, entrepreneurs have to dive below the surface of typical economic activity to see how unmet needs arise in everyday life. Because these needs do not leave a transaction record in the economic ledger, they appear “invisible” to the outside observer. In truth, they are just as real and present exciting opportunities to create new markets in which innovators have the pole position amid limited competition.

Developing these types of innovations is no easy task, but there are ways to do the difficult work of searching for promising ideas for new ventures. Our research has uncovered four techniques entrepreneurs and investors can use to discover and tap into nonconsumption.

A roadmap for predictable success in unpredictable economies

1. Identify common barriers to consumption

One way innovators can identify pools of nonconsumption is to observe existing products and services and ask, “what are the barriers preventing someone from consuming this?” In the book  The Innovator’s Guide to Growth, the authors identify money, skill, access, and time as the main barriers to consumption. Our research confirmed this—of the 100 innovators we studied, each had to overcome at least one of those barriers in order to make their products available to nonconsumers. It’s the innovator’s task to find unique and creative ways to reduce these barriers to tap into the latent demand from nonconsumers.

For example, one of the innovators we studied, MicroEnsure, removed the cost and access barriers that prevented many from participating in the insurance market, despite a near universal desire to mitigate risk. In doing so, the company has managed to sell its insurance products to more than 65 million customers—85% of whom had never purchased insurance before. Unlike many tech unicorns in wealthy countries, MicroEnsure is profitable in more than 80% of countries where it operates.

2. Look for workarounds 

When commercial products are unavailable to meet the underlying needs of consumers, people will sometimes cobble together homemade solutions and compensating behaviors. For example, in the absence of financial services, such as affordable loans, millions of people practice Osusu. It’s a form of microfinance where a group of roughly ten people pull money together daily, weekly, or monthly, and then rotate who takes the money in the pot. By identifying  workarounds like Osusu, innovators gain visibility into the daily struggles people need solved, equipping them to design commercial products that meet the same need more efficiently than the workaround.

3. Consider common aversions

Many people like the idea of being healthy, but how many avoid seeing a doctor or visiting a hospital, even when they’re sick? Situations that expose aversions are excellent sources of inspiration for innovative solutions because the built-in desire to avoid a costly or painful alternative creates a natural pull to the new product.

Another innovator we studied, Clínicas del Azucar, recognized many diabetics in Mexico had an aversion to seeking comprehensive diabetes treatment because it required them to schedule and travel to appointments with multiple providers across town. By bringing all the specialists a patient needs to see under one roof, Clínicas designed a solution that addressed these pain points, and that has proven effective for thousands of patients. 

4. Examine your life and experiences

Perhaps the most straightforward way to find high-potential opportunities to address nonconsumption is for an innovator to note the products and services they enjoy that aren’t available to as many people, as well as the things they don’t enjoy that are shared experiences. 

NuBank, for instance, is a Brazilian financial services company that was based on founder David Velez’s frustrations navigating Brazil’s cumbersome banking system. David had such a difficult time engaging with banks, that he correctly intuited it must be even more challenging for those with fewer resources. NuBank designed a business model that eliminated most bank fees and removed the need to physically visit branches, expanding the market for banking services to previous nonconsumers. 

None of these strategies in isolation is sure to surface a winning idea for unlocking the oceans of demand found in nonconsumption, but they provide fertile ground to mine for potential opportunities to create new markets. With a new set of lenses to view opportunity, innovators can create shared prosperity for their organizations—and the countries most devastated by the pandemic. 

To learn more, see:

Avoiding the prosperity paradox: How to build economic resilience in a post-COVID world.

Efosa Ojomo is a senior research fellow at the Christensen Institute, and co-author of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. Efosa researches, writes, and speaks about ways in which innovation can transform organizations and create inclusive prosperity for many in emerging markets.

Rich Alton is the director of emerging research at the Clayton Christensen Institute. He is responsible for training new visiting research fellows, advising them on research questions, and helping them drive their research to publication.