Five rules of opportunity design

Originally published in Advertising Age.

The fastest growing global brands today did not exist ten years ago. They achieved their scale and valuations through a smart combination of product design and marketing, and then by their crystal-clear brand promise. Airbnb’s “Belong Anywhere” creates codes of conduct for both sides of its marketplace — hosts and guests — and makes it easy to understand and buy into. It is not hard to know what to expect from Uber or Net-a-Porter, which sees itself as “Fashion that Delivers.”

Upstarts like Airbnb, Uber or Net-a-Porter not only emerged as viable disruptors because of their superior understanding of consumer needs and technology. They succeeded because they seized the opportunity unrecognized by the market they ended up disrupting.

Seeing hidden connections missed by others is the definition of entrepreneurship. Where people saw a bunch of empty apartments, Airbnb’s Brian Chesky saw a profitable business. Where others define the customer need as “I need to buy a dress,” Rent-the-Runway’s Jennifer Hyman and Jenni Flieiss read it as “I need something to wear tonight.” Where others promote glasses as a pricey item, Warby Parker’s Neil Blumenthal delivers an affordable lifestyle.

All these companies have in common the unorthodox way they define, create and distribute the value they provide, the original way they think about the business they are in, and the empathy as to who their customers really are and how they go about solving their problems. In retrospect, they all pursued one or more of directions below.

1. Do not bog yourself down by the need to define the business you are in. Instead, smart brands defy conventions of traditional industries and create a new category of their own. If Uber defined itself as a taxi company, it would not only be the most valuable taxi company without vehicles, it would also narrow its business to transportation of people. By positioning itself as a “global urban infrastructure,” Uber now successfully competes in a number of markets, ranging from on-demand flu vaccinations to delivering Christmas trees to providing same-day shopping service.

2. Simultaneously create social and economic value. For modern companies, social responsibility isn’t a marketing gimmick. It is a core part of their value chain and manufacturing process. Patagonia open-sourced its plant-based Yulex wetsuit formula. The hope is that more companies will start to manufacture it, bringing the supply up and the price down, thus effectively building a sustainable market. Tesla similarly open-sourced its battery technology to grow the market for EVs. Rather than following the traditional competition-based business playbook, these companies enforce collaboration as the new market dynamic.

3. Zoom in on black markets.Edge economies or black markets refer to self-organized forms of market exchange, organizational forms and services that appear outside of the established structure of an industry. Often, those edge economies emerge as a response to a market inefficiency. Black markets rest on existing consumer behaviors, and come to existence because they better serve consumer’s unmet needs than the established industry players. Black markers are sure indicators of how rife a category is for disruption. Think spare apartments, maternity wear or idle cars.

4. Uncover an underserved demographic. The beauty industry’s adopted strategy is to provide its most profitable and demanding customers — the top 20% — with ever-new and improving products and services. This strategy ignores its less-demanding customers, or the silent majority of the beauty market. That’s where Birchbox came in. It zoomed in exactly on this overlooked customer segment: the “discerning multitasker” who feels underserved by the beauty companies and as a result opts out of spending. By offering a simple solution to the barriers to consumption this audience has — the high price and overwhelming product choice — Birchbox propelled itself as a highly viable and desirable option for the silent beauty majority.

5. Close the value loop. Companies like Warby Parker, Harry’s or Patagonia have full control over the value they are creating, distributing and capturing. They do not narrow down this value to the actual physical products they create. Instead, they wrap them into attractive service offerings along the entire customer journey. This allows them to ensure superior end-to-end customer experience and excellent customer service. It also allows them to win in their industries based on competitive pricing and high-quality products.