How to Find Promising Hotspots for Business Development (part two: the clues)
Ewoud Liberg, September 15th 2015
It is good to know what a hotspot is from a business developer’s point of view. The next relevant question is if a hotspot is present under your organization’s base on top of which you can design and develop new product or services or renovate existing ones. Finding a hotspot can trigger new answers to old problems and create competitive advantage.
“Is there a hotspot under my
organization’s base and how
do I get this on my radar?”
There are signals in the market that indicate the presence of a hotspot or indicate a hotspot is being formed under your organization’s base. Like the volcanic hotspot, these signals are not easily plotted into a predictive model. It would be a nice thesis for a doctorate’s research. For now, see these clues as “chance enhancers”. These clues are the building blocks of the model I will share with you in part four.
Substantial increase of sales activities
Companies or entire industries which sell obsolete products or services notice a decline in their sales figures. There are basically two things they can do: (1) increase sales and marketing activities and/or (2) innovate the product or service itself. Increasing the sales and marketing budget is far safer, easier and gains results rather swiftly. Rationally this is the better choice to start tackling issues of deteriorating sales. The larger the problem (over time), the more increase in sales and marketing activities we usually see.
A striking example is the substantial increase in sales activities in the industry of printed newspapers. Every Saturday in different locations in my hometown we are asked if we are interested in a free newspaper. I even see newspaper commercials proclaim that if I buy a newspaper on Saturday I will receive a free DVD about the origins of the dinosaurs. Should the DVD convince me to buy a newspaper? They are caprioling to get their sales figures to rise. The printed media have been situated right on top of a big hotspot for years now. The question is how long this industry will remain in its current form.
Cost reductions combined with scaling
The next step in the spiral down is that organizations want to compensate for deteriorating profit by implementing cost reduction programs. This is fully in line with deteriorating value delivered to their customer groups; a rather obvious economic principle as a consequence of reduced attractiveness of products or services. This is not a trend due to an increasing number of suppliers or an outbreak of competition, but due to changing market dynamics and changing customer preference.
This clue is getting stronger if we see that cost reduction programs are combined with scaling such as mergers, acquisitions or strategic partnerships. Again, we are looking for clues in finding hotspots. We should be aware that there are many other reasons why organizations start with cost reductions or scaling.
Rapid technological change
This clue has been tested for years. Important technological developments such as new discoveries, new combinations or new inventions have radically changed many industries. Think about the invention of the internet, online payments, GPS, WordPress, nano technology, 3D printing and so on. The video store owner goes out-of-business and daily newspapers are under stress.
Important government measures
The government can take measures or change policy that can turn a market on its head. The stable market with its regular players and the old-boys network… Everyone is suddenly in turmoil. The establishment sees that the rules of the game have changed significantly and that it must fight to maintain its market position, while new players see opportunities to enter the market. An example with major impact is that of the Dutch government banning the use of commission for financial service providers. A more recent example is decentralization of elderly-care from central to local governments.
Changing supply chains
Whether this is an effect of rapid technological development or not, the fact is that we see major change in supply chains throughout nearly all industries. Ten years ago consumers were only gathering information on the internet about products they wanted to buy. Today purchasing over the internet is more and more common. Only five years ago consumers were influenced by traditional advertising only. Today various social media channels are taking over. Be honest… would you have expected Google to start building cars two years ago?
An ‘old school’ but clear example is the mail-order companies which blossomed in the eighties while they stuffed their thick catalogues into our letterboxes. Then we saw the emergence of Amazon.com in 1994. During their first decade of business their figures were deep in the red, but since 2003 the company has performed pretty well. Today retailers cope with an increasing number of online stores, and vacant retail premises have become an integral part of our streets.
In this case the owner of the problem is not only the retailer, but also the owner of the premises, the local hospitality industry, and probably the city council. They are all in it together. Right on the same hotspot. Each with their own reasons to worry and each with their own reasons to look for something fundamentally different.
All articles in this series:
- Promising Hotspots for Business Development
(part one: introduction)
- How to Find Promising Hotspots for Business Development
(part two: the clues)
- When to Engage in Promising Hotspots for Business Development
(part three: the enablers)
- How to Model Hotspots for Business Development
(part four: the finish)