New Venture Lab: Equipping Christian Entrepreneurs

There is a movement afoot, but it is not new.  It's actually been happening for quite a while, but it is picking up momentum given the current state of the economy and it can be summed up as follows: there is a movement towards "simple" or "good enough", call it the "flight to simplicity" if you will.  This trend shows up across a broad spectrum, whether is it simple living (such as feeding your family with a small backyard garden, a flock of chickens and a milk cow) or whether it is simplicity in your product line-up as pointed out in this recent Harvard Business Publishing tip of the day...

Today's consumers reward simplicity. They want direct connection and streamlined design. Find unnecessary complexity in your organization: is it in your product offerings, your processes, your services, or all of the above? Do you offer too many product variations? (GM has 47 brands of cars.) Or do you have costly functions that need to be better integrated? (Seagate Technology had the highest R&D costs in the industry after accumulating and not integrating acquisitions.) Find ways to cut the clutter in your business. Serve your customers how they want to be served — simply.

Simplicity is now hip, but the idea of producing a simple, low-end product or service, capturing market share at the low-end and then moving up the quality and price curve has proved very effective for decades.  Consider the following examples:

• Motorcycles in the U.S. - In the 1960's Harley-Davidson had all but sewn up the entire motorcycle market in the U.S. and just knew that the market was of a limited size and they had capture nearly all of it save for a few expensive imports from Germany and Italy.  But as Japanese executives moved into southern California, they brought with them small "run-about" scooters and motorcycles from unknown Japanese manufacturers with strange names such as Yamaha, Suzuki and Kawasaki.  Americans caught on and an entire new "low-end" motorcycle market was created and boomed in the 1970's and beyond.  The motorcycle market was far bigger than Harley-Davidson ever imagined, it just didn't have a simpler, lower-cost product that appealed to consumers.
• Technology in the U.S. - Whether it was Microsoft introducing the SQL Server database software with pricing at a fraction of Oracle's database software or cheap digital cameras creating new demand, consumers will often flock to lower-end, simpler software and devices that allows new entrants to grab share and then climb up the quality curve with more features and functionality to sustain a leadership position.  When Microsoft first rolled out SQL Server, it was no where near the power, speed and functionality of Oracle's software, but with Microsoft's customer base and marketing muscle and low pricing, SQL gradually gained and completely surpassed Oracle in the market.  The same thing has happened with nearly all of Microsoft's products.  Same with Dell Computer.  With each new product they introduced, whether it was corporate servers, printers or storage, they created "good enough" products far cheaper and simpler than the industry titans such as Sun Microsystem, HP or EMC.  Consider the following excert from a Wired Magazine article about "good enough" digital cameras and video cameras and the discoveries of one pair of entrepreneurs:

In 2001, Jonathan Kaplan and Ariel Braunstein noticed a quirk in the camera market. All the growth was in expensive digital cameras, but the best-selling units by far were still cheap, disposable film models. That year, a whopping 181 million disposables were sold in the US, compared with around 7 million digital cameras. Spotting an opportunity, Kaplan and Braunstein formed a company called Pure Digital Technologies and set out to see if they could mix the rich chocolate of digital imaging with the mass-market peanut butter of throwaway point-and-shoots. They called their brainchild the Single Use Digital Camera and cobranded it with retailers, mostly pharmacies like CVS.

The concept looked promising, but it turned out to be fatally flawed. The problem, says Simon Fleming-Wood, a member of Pure Digital's founding management team, was that the business model relied on people returning the $20 cameras to stores in order to get prints and a CD. The retailers were supposed to send the used boxes back to Pure Digital, which would refurbish them, reducing the number of new units it had to manufacture. But customers didn't return the cameras fast enough. Some were content to view their pictures on the tiny 1.4-inch LCD and held on to the device, thinking they'd take it in later to get prints. Others figured out how to hack the camera so it would download to a PC, eliminating the need to return the thing altogether.

Brisk sales combined with a lack of speedy returns destroyed the company's thin margins, and the camera failed. But the experience taught Kaplan and Braunstein a lesson: Customers would sacrifice lots of quality for a cheap, convenient device. To keep the price down, Pure Digital had made significant trade-offs. It used inexpensive lenses and other components and limited the number of image-processing chips. The pictures were OK but not great. Yet Pure Digital sold 3 million cameras anyway.

Kaplan and Braunstein also learned something important about camera retailing in general. The market had long been split into two main segments: point-and-shoots (including disposables) and single-lens reflex cameras, which use interchangeable lenses and other high-end accessories. Not surprisingly, the vast majority of cameras sold then—as now—were the handy point-and-shoots; SLRs tended to attract only serious hobbyists and professionals.

Oddly, though, there was no point-and-shoot analogue in video cameras—and that's where the pair saw their next opportunity. Home videocams were almost without exception expensive, complicated devices loaded with features like image stabilization, night-vision mode, and onboard color correction. And even with tools like Apple's iMovie, it was a hassle to get footage off the cameras and onto a computer for editing and sharing. In terms of complexity and price, the camcorder market resembled the SLR market, but with no low-end alternative. Kaplan and Braunstein suspected that there might be a place for a much cheaper, simpler video camera. So they decided to make one.

After some trial and error, Pure Digital released what it called the Flip Ultra in 2007. The stripped-down camcorder—like the Single Use Digital Camera—had lots of downsides. It captured relatively low-quality 640 x 480 footage at a time when Sony, Panasonic, and Canon were launching camcorders capable of recording in 1080 hi-def. It had a minuscule viewing screen, no color-adjustment features, and only the most rudimentary controls. It didn't even have an optical zoom. But it was small (slightly bigger than a pack of smokes), inexpensive ($150, compared with $800 for a midpriced Sony), and so simple to operate—from recording to uploading—that pretty much anyone could figure it out in roughly 6.7 seconds.

Within a few months, Pure Digital could barely keep up with orders. Customers found that the Flip was the perfect way to get homebrew videos onto the suddenly flourishing YouTube, and the camera became a megahit, selling more than 1 million units in its first year. Today—just two years later—the Flip Ultra and its subsequent revisions are the best-selling video cameras in the US, commanding 17 percent of the camcorder market. Sony and Canon are now scrambling to catch up.

The Flip's success stunned the industry, but it shouldn't have. It's just the latest triumph of what might be called Good Enough tech. Cheap, fast, simple tools are suddenly everywhere. We get our breaking news from blogs, we make spotty long-distance calls on Skype, we watch video on small computer screens rather than TVs, and more and more of us are carrying around dinky, low-power netbook computers that are just good enough to meet our surfing and emailing needs. The low end has never been riding higher.

So what happened? Well, in short, technology happened. The world has sped up, become more connected and a whole lot busier. As a result, what consumers want from the products and services they buy is fundamentally changing. We now favor flexibility over high fidelity, convenience over features, quick and dirty over slow and polished. Having it here and now is more important than having it perfect. These changes run so deep and wide, they're actually altering what we mean when we describe a product as "high-quality."

And it's happening everywhere. As more sectors connect to the digital world, from medicine to the military, they too are seeing the rise of Good Enough tools like the Flip. Suddenly what seemed perfect is anything but, and products that appear mediocre at first glance are often the perfect fit.

The good news is that this trend is ideally suited to the times. As the worst recession in 75 years rolls on, it's the light and nimble products that are having all the impact—exactly the type of thing that lean startups and small-scale enterprises are best at. And from impact can come big sales. "When the economy went south before Christmas last year, we worried that sales would be affected," says Pure Digital's Fleming-Wood. "But we sold a ton of cameras. In fact, we exceeded the goals we had set before the economy soured." And this year? Sales, he says, are up 200 percent. (Another payoff: In May, networking giant Cisco acquired Pure Digital for $590 million.)

• Cell Phone Service - When Richard Branson of Virgin decided to target the U.S. cell phone market, he did so in a way that was so simple and so brilliant, you have to wonder why no one else thought of it.  The team at Virgin Mobile noticed the trend that cheap and flashy phones were in demand: young consumers were demanding the ability to customize a phone's look and colors, but wanted a simple phone with simple camera and text features.  Through surveys they also noted that cell phone customers absolutely hated two things about their current cell phone provider: 1) the hard-to-comprehend, multi-year subscriber agreements with steep early cancellation fees; and 2) the insanity of rounding up to the nearest minute on the time charges, where a call that lasted 2 minutes and 1 second was billed at 3 minutes.  Virgin Mobile also wanted to rollout in the U.S without a lot of capital expenditure on infrastructure and they wanted to roll out fast.  The result was a fast and simple launch that captured everything positive about the U.S. cell phone market and exploited the weaknesses in a simple, low-cost service as follows:
• • They simply leased space on the biggest and best existing cell phone networks - no need for the time and expense to erect new towers when the infrastructure already existed.
  • They simply licensed existing popular cell phone "platforms" from leading cell phone manufacturers and added their own Virgin logo to the phones, created their own colors, etc. - no need for the time and expense of cell phone manufacturing facilities when plenty of manufacturing capacity existed.
  • They sold to consumers a service that was very simple to understand: 1) no contracts - all service was month-to-month and cancel at any time without a cancellation fee; and 2) no round up on connection time.  If your call lasted 2 minutes and 1 second, you were only billed for 2 minutes and 1 second.

So if you are planning a new product or service, one excellent strategy is to keep it simple, keep it cheap and capture the low-end of the market.  There is always time to move up later if needed and a lot of the market share you've captured will often move up with you.  While the high-quality, high-priced market is usually a "niche" market, the low-end of the market is usually the "mass" market and in this economy, that point of difference has never been starker.  Just think "Wal-Mart" and its "everyday low prices" and they changes they wrought in the mass merchant retail sector...