I’ve discussed the challenges of being an innovator in the New Product New Market (NPNM) quadrant and the risks associated with that. I’d like to take a few minutes today and expand on some of the risks and challenges.

The band Kraftwerk is widely considered to be one of the cornerstones, innovators, pioneers and essentially the inventors of electronic music. The genre these days is massive and includes everything from House and all it’s variations to Ambient and everything in between, with Pop and even Rock drawing heavily from electronic. Kraftwerk were just getting started in 1970. To put that era in perspective, both Jimi Hendrix and Janis Joplin passed away that same year at the peak of their careers. A year earlier, Hendrix was the worlds highest paid rock musician and headlined at Woodstock.

Along came Kraftwerk. Kraftwerk as a band were formed in 1970. Their music was experimental and electronic from the outset. They had a new product, and there was no market yet because the audience for electronic music didn’t yet exist. So new product meets new market, or NPNM.

This was one of their first ever gigs in 1970 and the audience’s introduction to electronic music. The faces in the crowd say it far more eloquently than I can:

 

Kraftwerk is not well known outside of fans and music historians and aficionados. The highest any album climbed was Man-Machine which peaked at number 9 on the UK charts. And the song Autobahn peaked at 25 on the US Billboard Hot 100 chart.

Kraftwerk were hardcore innovators. Watching the video above, you can imagine the courage it took to perform an entire set of brand new NPNM music in front of a crowd, even though the crowd is amazingly supportive. It’s clear that the crowd are early adopters who want to believe in the artists and their new kind of work. In fact as you watch the video, you can spot the real early adopters, and those who are a little dubious and unsure – those folks who need more context and more groundwork laid before they’re prepared to become fans.

Kraftwerk released Computer World in 1981, and the sound on the title track is far more recognizable:

 

A year earlier, Depeche Mode formed, and in that same year of 1981 Depeche released Speak & Spell on which the first track is New Life. Notice how similar the sound is and how Depeche have built on Kraftwerk’s work.

 

Depeche released a series of albums during the 80s with electronic as the substrate for all their work, culminating in Personal Jesus being released in 1989 and becoming the biggest 12 inch single hit for Warner Records to date.

Most people have heard of Depeche Mode, who have enjoyed massive commercial success. Most folks haven’t heard of Kraftwerk. We’ve seen this same pattern repeated in technology:

  • Gopher and Archie protocols superseded by HTTP and HTML
  • Infoseek, AllTheWeb, Excite and others superseded by Google which now owns 86% of search market share.
  • Friendster to MySpace to Facebook
  • Hotmail to GMail
  • Mapquest to Google Maps
  • Nokia’s handsets to the iPhone and then Android
  • Perl to PHP as dominant web programming language

I’ve thrown out a few potentially controversial examples for fun, but the general idea here is that an innovator paves the way with a NPNM product, does a ton of work educating the market and preparing the ground for a competitor who comes in and cleans up. As you can tell, Google is very good at this. In my opinion, Google is the all time greatest imitator of them all in the tech space.

You may argue that the Soviets were the NPNM space pioneers, followed by NASA who scrapped their X program to focus on vertical launch when they saw the success the Soviets were having. SpaceX are continuing the game by figuring out that if they add incremental innovation, like reusable first stages, on top of NASA’s work, they can reduce launch cost by a factor of 10. Thanks NASA for taking huge risks and spending over $1.1 Trillion dollars since your inception, we’ll take it from here at a fraction of the price, says SpaceX.

So as you’re thinking about your business idea, it’s worth considering if you’re targeting:

  • A new market with a new product? – NPNM with insane risk level. You’re creating something totally new and then having to invent the market for it, just like the Kraftwerk video above – and then defend it against emerging competitors who are farming ground that cost you money to prepare.
  • An existing market with a new product? – Less risky but you’ll need to educate the market on why your product is needed and is better.
  • A new market with an existing product? – At least there is an existing product you can point to, but you’re dealing with a market who has never bought this before.
  • Or an existing market with an existing product? – Low risk, but you have to ask yourself how the heck you’re going to compete with all the existing players targeting the same customers who have had years to get good and have years of experience to draw on, which you don’t have.

Google launched an existing product to an existing market that earlier search engines had taken pains to create. Their differentiator was PageRank which produced demonstrably superior results – and the sheer performance of the product caused everyone to flock to Google.

SpaceX launched an existing product to an existing market and their differentiator is being able to do the same thing at one tenth of the price, or less if you consider Shuttle launches and their cost.

As a creative technologist entrepreneur, you probably have a new killer idea every few weeks. Many of these are probably things the world has never seen before and doesn’t yet know it needs. You may see success, like Kraftwerk did, or do even better and become the next Depeche Mode or Google. But you may also be doing a lot of work laying the groundwork for someone else to come in and clean up. You may find you need to choose between being a historic figure, remembered for being first, or being commercially successful.

Best of luck!

~Mark