Here at the Christensen Institute, we recently began a research project to better understand what makes successful market-creating innovations so that we may guide entrepreneurs and investors. The remarkable power of these innovations, which transform previously expensive, complicated products into ones that are simple and affordable, is the central theme of The Prosperity Paradox. Our research, drawing on ideas from The Innovator’s Guide to Growth, points to this type of innovation as a core driver of growth and prosperity in low- and middle-income countries and communities.
Market-creating innovations create new markets because they target nonconsumers—people who previously did not consume products they would otherwise want because some kind of barrier, such as cost, prevented them from doing so. When innovators find ways to successfully break down such barriers, thereby democratizing access to products and services to new segments of the population, they create a win-win scenario for themselves and for communities and countries as a whole. The new markets they create generate jobs, improve infrastructure, and bolster institutions, while often capturing vast profits for the innovators who create them.
But how, exactly, should market-creating innovators go about targeting these nonconsumers? We’re discovering that step one is addressing the barriers that have kept nonconsumers from participating in the market.
The four barriers to consumption
There are a variety of reasons why a person might want or need to purchase a product but remain unable to do so. Generally speaking, these reasons can be sorted into four basic categories: cost, access, time, and skill. As we explore each one, we’ll see how innovators we’ve researched have found ways to break them down, thereby unlocking new markets.
None of us can afford every product or service we might want, and many people can’t afford even the ones they need. For example, in rural Uganda, as in many other low-income areas, something as basic as a floor is often unaffordable for the average household. Consequently, more than 75% of rural Rwandan households have dirt floors, exposing occupants to disease and making cleaning a time-consuming and difficult task.
In response to this problem, EarthEnable developed a process to install oil-sealed earthen floors at just a fraction of the cost of conventional cement floors. The company has provided flooring to more than 8,500 people and has trained hundreds of employees. It’s still early days for the company, but more than one billion people live in homes with dirt floors around the world, meaning the new market EarthEnable has created has the potential to grow exponentially.
Many people, particularly those living in rural communities, can’t consume needed products or services simply because they are not physically available. For example, despite the fact that Arabic is the world’s 5th most-spoken language, until recently finding books written in Arabic was surprisingly difficult. People often had to travel to buy them directly from publishers at infrequent book fairs.
Amman-based Jamalon is addressing this barrier by leveraging the internet to vastly increase access to Arabic literature throughout the MENA region. By breaking down the access barrier, Jamalon tapped into a vast new market of previous nonconsumers. In just a few years it has grown to become the largest online book retailer in the region and has even launched its own publishing company. And with more than 400 million Arabic speakers worldwide, Jamalon is just getting started.
Time is yet another major barrier that prevents potential consumers from using products or services they want or need. How have entrepreneurs overcome this barrier to create successful new markets?
In early 19th century America, sewing clothes and textiles was a laborious and time-consuming process, and as a result, most people didn’t own more than a few pairs of clothes. But in 1850, Isaac Singer developed a sewing machine that could sew 900 stitches per minute, vastly reducing the time it took to make clothes (skilled seamstresses sewed at a rate of 40 stitches per minute). People could suddenly make clothing and textiles much more quickly, and the industry boomed as a result. Singer became one of the most financially successful businessmen of his day, growing the Singer Sewing Company into one of the world’s first multinational corporations, with operations extending across the Atlantic to Europe.
Today, many of us take so many pictures with our phones that we don’t have the time to go back and look at them. However, up until the late 19th century, very few people could enjoy photography, even though the technology for it was well-established. Since cameras were difficult to operate and developing film required a knowledge of chemistry, people had to hire professional photographers to take and develop their picture.
That all changed when George Eastman began developing cheap, easy to use cameras and simplified film-developing processes in the late 1800s. His innovations sparked a photography craze as it suddenly became a hobby for the masses. Eastman’s company, which he called Kodak, became one of the world’s most valuable, both directly and indirectly creating vast profits and hundreds of thousands of jobs in photography and related industries.
For any innovator seeking to create a new market, it’s important to remember that multiple barriers to consumption likely exist simultaneously. Entrepreneurs need to assess their specific circumstances and deliberately address each of the relevant barriers keeping nonconsumers out of the market. It’s no easy task, but when done right, the payoff can be immense for both the entrepreneur and the region as a whole.