It’s extremely rare to find wholly new business opportunities. For the most part, entrepreneurs need to attack existing markets.
Yet this is far from easy. Let’s face it, incumbents are getting much better at dealing with disruptive threats.
“When you are starting a new venture, count on having to take money from somebody else,” said Frank Slootman.
And yes, he should know. During his career, he has lead fast-growing companies like Data Domain and SeviceNow, which have disrupted massive markets. Consider that ServiceNow has a value of $34 billion.
OK then, so what should entrepreneurs focus on when taking on incumbents? Well, according to Frank, you actually need to understand your own disadvantages. “Incumbents have home field advantage,” he said. “They are the devil the customer knows. You have unknown quantity written all over you. When challenging incumbents, do not go after well liked products and vendors. Find pockets of anger and frustration with the status quo. That’s always where innovation strikes first.”
Net New Users
When pulling off a disruption, there also needs to be a deep understanding of the market. How big can it get with a new approach?
This is how Dean Stoecker looks at things. He is the CEO and co-founder of Alteryx, which is disrupting the data science and analytics category. “You want to find an opportunity where you can unlock many net new users,” he said. “This is what we have done with my company. We are about making it much easier for 30+ million analysts to have access to top-of-line analytics technologies. This means building a code-free and code-friendly platform that makes it easy for anyone to use.”
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Now this goal has not been an easy one. Bear in mind that he launched the company 20 years ago.
Although, Alteryx has certainly gotten quite a bit of traction. It came public in March of 2017 and the shares have since jumped by over 300% — putting the market value at $3.5 billion.
Design the “Helper App”
Nir Polak, who is the co-founder and CEO of Exabeam, is targeting the SIEM (security information and event management) market for disruption. Some of his rivals include Splunk, McAfee, HP and IBM.
All in all, he’s been making great strides. For example, Nir has recently raised $50 million from investors like Venture Partners, Aspect Ventures, Cisco Investments, Icon Ventures and Norwest Venture Partners.
“You don’t want to go full frontal assault against a big vendor,” said Nir. “They will crush you, their partners will ignore you, and customers may lack the confidence to try out a new vendor. The trick is to design what we call the ‘helper app.’”
The strategy involves finding a gap in an incumbent’s product line and create something that will augment it. This essentially makes you a friend, not a foe.
To this end, Nir initially built an analytics layer on top of existing platforms to help with cyber fraud. “And it worked out,” he said. “We became partners with the major players. We talked to their partners, sold to their customers.”
But of course, this strategy must go to the next level if a company is to get to scale. “We poured the profits from the helper app back into engineering, building our next-gen SIEM platform,” said Nir. “Not only did the sales fund development, but we had access to customers who were using all the major SIEM platforms. We had a front-row seat and saw all the problems these customers were having with the legacy products. Needless to say, the big SIEM vendors weren’t pleased, but we had enough sales and momentum to go it alone. Also, we knew from experience how much better our next-gen platform was. When we launched our SIEM, we already had customers committed.”
When it comes to the product, there are three key areas to differentiate on: speed, cost and east-of-use. Keep in mind that it is unrealistic to score high on all. Yet you still need to have at least one where you standout.
“Think of Uber,” said Frank. “It isn’t that much cheaper, and sometimes actually costs much more with surge pricing, but the ease of use and the assurance of actually getting a car is dramatically better than hailing a cab. The digital experience is so compelling that it can in part overcome issues such as cost. Modern consumers pay much more for way less hassle.”