Already a Bloomberg.com user?
Sign in with the same account.
Zipcar, Novo-Nordisk, and Samsung have done it. Here's how to discover a "BEMI" that'll let you go large
Why was Segway's two-wheeled vehicle a commercial failure while Zipcar's car-sharing service enabled its provider to raise $174 million following an initial public offering? Both companies offered affordable green transportation. Unlike Segway, Zipcar (ZIP) had what we call a BEMI—a "big enough market insight." As we conducted research for a recent book, we discovered that high-performing companies tend to be able to identify and leverage a BEMI, an insight that serves as the foundation for the creation of a major new business. For Zipcar, the insight was that many people in urban areas occasionally, or even regularly, need a car for less time than the 24-hour period typically offered by car-rental companies. Zipcar also believed that its ecologically sound proposition—the company reports significantly fewer car purchases made and miles driven by its members—would appeal to an increasingly green-conscious consumer. In the case of global health-care giant Novo-Nordisk (NVO), the insight was that the risk of diabetes would grow in emerging markets such as China as people adopted less-healthy diets. Novo-Nordisk first recognized this impending shift in the late 1990s, when the company was lagging behind market leader Eli Lilly (LLY). Today, Novo-Nordisk is the global leader in the insulin market, with more than a 50 percent market share. To identify a BEMI, companies must answer three questions. Is the insight big enough for your company? Obviously, "big enough" is a relative term. Consider how two very different companies, Samsung (000830:KS) and Ovideon, successfully acted on the same BEMI: that advancements in plasma and liquid-crystal display technologies would lead to the development of sleeker TVs with superior picture quality, thus motivating consumers to replace perfectly good sets with more-expensive flat-panel display models. Samsung, the Korean consumer electronics giant, does its own TV manufacturing to control both quality and costs for its high-volume operations. So far, the huge investment in manufacturing capability has paid off. In 2009, Samsung controlled about 17 percent of the total TV market, shipping more than 27 million LCD models and more than 3 million plasma sets. Ovideon's share may be minuscule in comparison, but that's just fine with the Aurora (Ill.)-based startup. Because it outsources manufacturing and concentrates on small niche markets, such as applications in offices and public spaces like airports, it doesn't need the huge volume Samsung requires. Is the insight valuable enough? What will customers be willing to pay for the new product or services—and how many customers will exist? Not many executives could have predicted the prices millions of consumers would pay for bottled water or a cup of coffee prepared by a barista, but those who did anticipate these trends built huge, profitable businesses. Companies need to test their assumptions, regularly and over time, regarding the prices potential customers might be willing to pay. Iridium (IRDM), the satellite telephone service, is a case in point. In 1985 the system was envisioned by a Motorola (MOT) engineer whose wife complained she couldn't reach clients by cell phone from the Bahamas. His insight had plenty of value: There was a lack of good cell phone service in many of the destinations visited by traveling business executives, soon-to-be Iridium's target market. By 1998, advances in cellular technology had rendered the insight ineffectual. In 1999 the company filed for bankruptcy. Is the insight certain enough? Fads come out of nowhere and disappear just as quickly. A genuine BEMI comes from a wise reading of technological, geopolitical, or demographic trends. BEMIs don't necessarily require huge technological innovation. Nor does such innovation guarantee a BEMI opportunity. The Segway, which deploys a sophisticated self-balancing mechanism based on gyroscopes, is perhaps one of the most inventive devices in recent memory, but it is essentially a product still looking for its BEMI. Segway knew there were many customers who could value its product, but the company failed to connect with a market trend that would ensure increasing demand from at least one segment large enough to drive substantial growth. Finally, two notes of caution about the BEMI: While it's tempting to think "big," remember that the market insight merely needs it to be big enough. Any company that has a brilliant idea but isn't capable of executing it runs the danger of damaging its reputation when it can't deliver. Bear in mind that BEMIs will rarely lead to a growth surge in the short term. Indeed, 11-year-old Zipcar has yet to show a profit. Today's high performers are looking beyond current business conditions. They recognize that the real opportunities lie in seeing where a market is likely headed over a longer time horizon. Attacking incumbents head-on under stable business conditions is not the soundest strategy. The real winners look for major trends that could disrupt those conditions. Those who see those trends and anticipate how they might intersect can find their BEMI.