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The growth of talented, high-quality Korean social ventures

by Sy-Hyun Berg

Photo by Daniel Lee (https://unsplash.com/photos/isMorfbwRZ8)

With one of the fastest mobile internet speeds (52.53Mbps, January 2019), highest mobile penetration (84%) and government initiatives, Korea continues to invest in cultivating small businesses and the startup ecosystem.

Since 2010, the Korean government recognized the urgent need of new economic growth source and to reform job creation. It started to engage in the startup incubation process and invested billions in early stage startup funding and small business in grants, subsidized loans, and provided tax incentives. It also provided match funding with international investors, and established international entrepreneurship programs at universities.

Primer was the first startup accelerator in Korea and was founded by successful venture entrepreneur, Taekkyung Lee (co-founder of Daum). Primer engaged in the startup incubation process and invested in mobile application and Internet startups, and then facilitated their entry into the global market.

Currently, there are over 50 co-working spaces, 100 accelerators, incubators, and Innovation Centers in Korea. The start-up scene is strong and growing: the number of startups was close to 30,000 in 2017 with over 100,000 startup employees. Over $600 million USD has gone to late-stage startups funding in 2018. The steady growth is partly a result of the government’s steadfast commitment to fostering the startup ecosystem. The Moon Jae-In government has kept up support for startups through the creation of the Ministry of SMEs and Startups with a funding budget of $800 million USD. Major venture-capital investment in South Korea stems from the US, Japan, Singapore and Israel, especially in areas such as meditech, biotech and fintech. Other potentially strong areas include life science, information electronics, cryptocurrency and aerospace.

There is an increasing drive in Korea to meet global challenges while targeting the Sustainable Development Goals (SDGs) through a multi-dimensional approache. It embraces innovative technologies to tackle the problems more effectively by supporting tech based social ventures. Some of the companies I am working with are shown below.  All these social ventures are currently supported by Korea International Cooperation Agency (KOICA), a government agency responsible for the Official Development Assistance (ODA) through its Creative Technology Solution (CTS) Programme, and the Bill and Melinda Gates Foundation.

1. Mand.ro

Mad.ro distributes 3D printed light weight, low-cost myoelectric prosthetic hands for Syrian refugees. Its innovative hand costs one tenth of existing prosthetics and weighs less than 1kg. Mand.ro uses 3D printing and scanning technologies for parts and circuits.  By using open source parts and circuits, it ensures that its product can be manufactured and maintained easily by virtually anyone. Mand.ro also provides workshops in Jordan and Korea to   teach   people   how   to   manufacture   myoelectric prosthetic hands using 3D printing. 

Sang Ho Lee (Founder of Mand.ro)

Photo: courtesy of Yoon Seung Shin (http://www.snunews.com/news/articleView.html?idxno=15504)

2. LabSD

LabSD created a comprehensive community eye health solution, EYELIKE Platform, which allows health professionals – such as government agencies, NGOs and international institutions engaging in eye care projects – in developing countries to conduct screenings with minimum training at international standards. They can diagnose diseases such as diabetes retinopathy, glaucoma, or Age-Related Macular Degeneration (AMD) with considerably reduced time and cost, while sharing the information with the entire referral system. EYELIKE Platform comes with a fundus camera, its operating system and pattern recognition algorithm. The sensitivity and specificity of screening on EYELIKE Platform is better than 85%. Patient information can be stored, analyzed and shared with implementing partners for monitoring and evaluation. By using Artificial Intelligence based Clinical Decision Supporting System (CDSS) for blindness-causing eye diseases, it strengthens efficiency and effectiveness of its eye care.

A portable, non-mydriatic retinal camera attached to smartphones

Photo: courtesy of Holden Yoon Seung Kim (https://www.iapb.org/news/korean-startups-innovate-with-braille-technology-diagnostic-tools/)

3. Braillist

 Braillist developed a Portable Braille Dictionary Device that supports the visually impaired to use smartphones more independently and conveniently, so improving productivity and their quality of life. The company will also be introducing a compact electronic braille dictionary for the visually impaired to make learning braille easier and faster. The dictionary is aimed at decreasing the illiteracy (in Braille) rate among blind people in Colombia.

Photo: courtesy of Holden Yoon Seung Kim (https://www.iapb.org/news/korean-startups-innovate-with-braille-technology-diagnostic-tools/)

These examples show that the role of institutions in entrepreneurship development is best secured through economic and social value creation embodied in growth-oriented, early stage social enterprises. This can be accomplished when technology acts as the mediator between the institutions on the one hand and value creation on the other.  The strength of such value creation enables dynamic, socially motivated entrepreneurs to cross borders to secure social and cognitive legitimacy. Furthermore, the cases show that a focused attention on high technology need not be driven by commercial imperatives alone. Social motivation and objectives are equally strong drivers for the scaling up process of these startups. The pro-active role of government and other institutions such as foundations, industry associations and universities were significant elements of this development.

Does well being lead to more successful businesses?

by Nick Hixson

It has been proposed that there is a link between well-being and small business success and that link extends beyond the entrepreneur or business owner to the team, although in academic literature the team element appears to have been overlooked. The premise is that small businesses have a better ability to produce well-being in the team than their larger cousins, and that well-being contributes to innovation, sustainability and growth.

Well-being has been defined to include happiness at work, meaning and purpose, and complex mental tasks such as creativity, flexibility, and innovation. All these aspects are highly prized in businesses of any size. However, if we consider the annual Gallup survey, we see that employee engagement is very low and getting worse despite the efforts and expense that larger businesses go to.

The 20th century Fordist economy and the rise of bureaucracies

The economy of the 20th century was shaped by standardisation and the production line. To maintain growth ever more bureaucracy was needed, which created a sort of force field – an external carapace – that enveloped the business. The plethora of internal procedures meant that team members spent most of their time dealing internally. The consequence was that external forces, such as customers, became more of a distraction and annoyance no matter what management said about customer focus, described in this short post, elegantly entitled Arse Time. We all have stories of customers whose wishes were not matched by the bureaucracy of the “machine” such that the customer had to accept what the machine deigned to produce.

Improved creativity and wellbeing through reduced bureaucracy

Psychologically, losses are more real than the prospect of gains, so this encourages bureaucracy as the solution to loss minimisation. But this demotivates people, who are reminded every day that they are perceived more as a threat to the business than an asset.

There has to be a higher trust model if your business is to operate with reduced bureaucracy and higher accountability. Less bureaucracy enables a better working relationship between team members (including management), and a more customer friendly attitude.

Further, team members, being the expert in their tasks, see any issues and opportunities at a granular level that often escapes management, and feel empowered to raise matters quickly and easily. They are also more motivated to fix issues that directly impact them, and also the customers they interact with.

This contributes to a greater sense of job satisfaction and well-being.

Small business approach

This is very much a small business approach. Small businesses are closer to customers, suppliers and other stakeholders because there are fewer layers of management. Entrepreneurs and their teams are clearer as to the consequences of their actions on third parties. This leads to more a transparent and customer focused approach, and teams, freed of bureaucracy, are able to make decisions which directly impact people, whether customers, other team members, or other stakeholders, so they are seen to be responsible and accountable for their actions. This of itself produces more meaning for the individual team member.

Objectives and goals (personal vs business)

Still there is a disconnect. In most of the literature and in practice the only objectives and goals that are mentioned are business- centred. Case studies are based on larger businesses, even well-known ones such as Morningstar, which has a culture where any individual is enabled to make capital expenditure suggestions, or process improvements. This study talks almost exclusively about corporate goals and not personal ones. The employee engagement strategies adopted by larger businesses also focus exclusively on corporate goals but fail to realise that work is part of an individual’s life and only fulfils some of their personal goals. No one has ever or will ever go to work to fulfil a corporate objective! Yet personal objectives are seldom discussed or integrated into business.

Moving from what should happen to how it might

In my practice, we spend considerable time with entrepreneurs to ensure that their personal and business objectives are congruent and remain so. We have a framework for discussing strategy that ensures individuals’ needs are properly explored and incorporated into the overall strategic plan. The first element is a discussion to determine the entrepreneurs personal goals and objectives. By that I mean their life goals and objectives, not exclusively their business ones. They soon come to the realisation that business objectives are merely a subset of their personal ones. This is the disconnect so well illustrated by the Gallup results. Our experience is that it is detrimental to the individual if their business and personal goals do not remain congruent. Maintaining that healthy balance is critical.

Congruence and growth

When there is congruence, growth tends to happen naturally and organically. We have had significant success in helping businesses grow where the owners have maintained this alignment.  Entrepreneurs naturally reflect this attitude towards personal objectives in their dealings with their team. Business owners come to realise that what is good for them is good for others too. We have a team objectives tool in beta version which is designed to help the individuals discover their personal objectives and how they fit with the business.

In our studies, there is empirical evidence that improved communications in this way leads to better results, be that team retention, customer retention, innovations or profits, although causal measurements have eluded us. Indeed, I wonder if the mantra “if you can’t measure it you can’t manage it” has led to simplistic measurements based on what can be measured, rather than what should be measured. This may lose a more nuanced view of the overall context of the organisation and its place in society, as part of an ecosystem with customers, suppliers, team and other stakeholders. We accept that humans are complex organisms; perhaps it time to accept that our businesses, comprised as they are of people, are organisms too, incapable of strict measurement at every level, but still detectable.

The wellness of the individuals, being the community of the business, become the wellness of the business. Instead of a top down bureaucracy, we need to look for management to enable individuals to flourish.

Judgement work is the new Knowledge work

Enabling is the new Management

Serving is the new Leadership

In Our Well-Being Lies Entrepreneurial Sustainability: The basics of applying sustainability for dynamic small businesses,

By Neha Gopinath and Jay Mitra

A decade or so of stormy economic weather, social fragmentation and institutional failures around the world, has focused people’s minds on possible solutions. Thus inequality, demographic changes, rapid technological development, environmental pollution, climate change, poverty, and migration, are issues which need urgent resolution or mitigation. The resolution, so public and scientific punditry suggests, may be found in a pronounced effort at sustainable economic and social development, controlled globalisation, ecological husbandry, socially driven enterprise, fair working conditions, and the measurement of social impact The United Nations has set seventeen Sustainable Development Goals (SDGs) to encapsulate ways and means to transform our world. The interventions of many may address, and hopefully achieve, some of these goals.

How do macro dynamics affect people?

Our interest is in how these large macro level dynamics of sustainability play out in the lives of people, in particularly, their creative environment at work, in their roles as entrepreneurs and workers, especially in small, innovative firms, which form the backbone of most economies. This has led us to examine two ostensibly unrelated phenomena which have captured the imagination of public policy makers, private business practitioners and academic researchers, namely, entrepreneurship and well-being. These issues find their sustainable development home in SDGs 8 and 17.

What do we mean by entrepreneurship?

By entrepreneurship, we refer to the identification, development and implementation of economic and social opportunities to produce new goods, provide novel services, and establish new ventures, essentially through the creative mobilisation of human, financial and social capital. Since the latter half of the last century, much store has been set by the ‘elixir’ of entrepreneurship in creating most new jobs, using new technology to produce new goods and services, and generally improving business and social ventures in our societies. Perhaps excessive attention has been given to the talismanic capabilities of entrepreneurs to drive such change, while ignoring the contributions of those around them and their well-being in generating creative, innovative outcomes. Smaller firms depend, more so than their larger counterparts, on the creative combinations of ideas, resources and the endeavours of both the entrepreneurs and the small team of employees and associates in their networks.              

What do we mean by well-being?

By well-being, we consider the positive emotions and feelings of happiness people experience, or the feeling that we are doing something meaningful and purposeful in life.[1] In an entrepreneurial context, we could interpret a range of behaviours and psychological process linked to entrepreneurial success, including positive self-perceptions, belief in others, and intricate mental tasks, such as creativity, flexibility and innovation. [2]

Well-being and work

The wellbeing of people at work has dominated the headlines of numerous business and research publications. Popular appraisals of the ‘best companies to work for’ show, for example, that while giants such as Safeway and Haggen in the USA, Morrison and Tesco in the UK, Infosys in India, have announced declining profits and layoffs in a climate of distrust, skulduggery, and limited concern for general welfare of all its stakeholders (employees, customers and other stakeholders), smaller, family-owned, private companies such as Publix has never made an employee redundant in its 86-year history while increasing its revenue to $30.6 billion from a previous sum of $24.5 billion. The absence of such well-being at work has tarnished Uber’s image as one of the most successful unicorns in the world, reflecting in part the human cost of a dystopian reality of entrepreneurial management practice.

Researchers have indicated that well-being acts as a natural motivator, improves physical health and longevity and promotes positive relationships, which can act as a catalyst for success for the organisation, and in turn, the economy. The literature on entrepreneurial and innovative organisations (especially small and medium sized enterprises) refer to the need for shared vision, the importance of creativity, autonomy and self-efficacy; but they are directed towards the locus of control of the entrepreneur. The concept of dynamic capabilities[3]  focuses on the abilities to introduce new or re-shape firm’s resources and routines in the image and vision of its entrepreneur(s) and, in some cases the management team. We know less about the dynamics of interactions between the entrepreneur(s) and the rest of the team. Continuous, adrenalin fuelled environments may not be conducive to creative, innovative outcomes and the well-being of both the entrepreneurs and other team members. The development of organisations can be hampered if individuals are unable to achieve their aspirational goals.

We see the nexus of people, structure, organisations and environment enabling entrepreneurship.[4] Each of these components entails the various relationships between individuals, the structures within a firm and the environment. The current limitations in the use of the human element in the literature suggest the need for ‘stretch’ and new conceptual combinations.

What people want to achieve

Amartya Sen has proposed the idea of ‘functionings’ as what people want to achieve in their lives).[5] We adapt Sen’s ideas to argue that ‘functionings’ are what people (both the entrepreneur and his employees) want to achieve in their organisations as individuals. These functionings are facets like autonomy, environmental mastery, personal growth, self-acceptance, creativity, freedom to grow, training and development, many more which enhances their sense of purpose and wellbeing as individuals in entrepreneurial organisations. We ask:

  • Is there a probable relationship between entrepreneurial organisational culture and employees’ mental health and well-being?
  • What are the factors that affect employees’ well-being in an entrepreneurial organisation? How and why are they important?
  • How does the need to become and sustain an entrepreneurial organisation affect employees’ wellbeing and mental health at work?

Research on three types of firm

Our research adopts an interpretivist approach to gain in-depth insights into how people perceive wellbeing at work in small entrepreneurial firms. We examine three types of entrepreneurial firms – high technology businesses, social enterprises and networked, community-based firms. Our early findings indicate that entrepreneurial organisations are better able to understand what hinders the well-being of their people. However, their entrepreneurial capabilities could be jeopardised when dysfunctional relationships, procedures, policies and compromises with the creative process breeds a culture of stress, anxiety and negative well-being. Perceptions of negativity could damage the individual’s self-worth, his/her ability to make a worthwhile contribution, and impede entrepreneurial outcomes.

Propositions and framework

Based on the questions above and our initial exploratory research finding we have developed six propositions and an analytical framework with which to examine in more detail the significance of the relationship between well-being and entrepreneurship. Given the growing importance of sustainable entrepreneurial ventures, better working conditions and decent work for economic growth and social development, we believe continuing research on this relationship could have profound effects on how new or established, entrepreneurial ventures could foster a new model for work and enterprise, stimulating sustainable economic growth and social development.       

Figure 1: A Framework for analysing the relationship between the Well-Being of People and the Entrepreneurial Firm

We look forward to working with all who are keen to safeguard the value of entrepreneurial talent and those who help foster and support such talent to promote the search for innovative solutions to overcoming barriers to sustainable working lives. Both sustainability and entrepreneurship are dependent on negating the idea of things remaining the same; both act as instruments for transformation of people’s lives now and in the future.

_____________________________________________________________________________________

Neha Gopinath: Doctoral Researcher, Essex Business School, University of Essex, UK. Email: ngopin@essex.ac.uk

Jay Mitra: Professor of Business Enterprise and Innovation and Doctoral Supervisor, Essex Business School, University of Essex, UK. Email: jmitra@essex.ac.uk / jaymitrauniverse@hotmail.com

References

  • Lyubomirsky, S. and Dickerhoof, R. 2005. Subjective well-being. Handbook of girls’ and women’s psychological health: Gender and wellbeing across the life span, 166-174.
  • Mitra, J. 2012. Entrepreneurship, Innovation and Regional development: An Introduction, , Abingdon, Routledge
  • Sen, A. 1984. The living standard. Oxford Economic Papers, 36, 74-90.
  • Sen, A. 1993. Capability and Well-Being73. The quality of life, 30.
  • Sen, A. 1997. Human capital and human capability. Pergamon.
  • Teece, D. J. 2017. Dynamic Capabilities and the Multinational Enterprise. Globalization. Springer.
  • Tkaczyk, C. 2016. ‘My Five Days of ‘Bleeding Green’; Empowering Employees in Fortune,’100 Best Companies to Work For 2016’; Europe Edition; Vol. 173; No. 4; March 15
  • Robertson, I. and Cooper, C. 2011. Well-being: Productivity and happiness at work, Springer.
  • Robeyns, I. 2005. The capability approach: a theoretical survey. Journal of human development, 6, 93-117.
  • Ryff, C. D. and Keyes, C. L. M. 1995. The structure of psychological well-being revisited. Journal of personality and social psychology, 69, 719.

[1] Robertson & Cooper, (2011); Ryff & Keyes, (1995).

[2] Lyubomirsky et al., 2005

[3] Teece, 2017

[4] Mitra, 2012

[5] Robeyns, 2005; Sen, 1997,1993, 1984

Entrepreneurial Ecosystems around the World

By Zoltan Acs

Over the past dozen years we have witnessed a new approach to improving the world’s economy.The story goes something like this. If we could get more cooperation and integration between economies then the economy might improve. The answer seems to be found in something called an entrepreneurial ecosystem. The ecosystem shows how well we integrate the institutions and people in an economy. Of course this is not new. We have had such focuses in the past but never has the focus been so clearly on the role of entrepreneurs in the ecosystem.   If we could get better cooperation betweenuniversities, governments, venture capital foundations and other relevant institutions we could improve the economy of all countries.

This new focus on ecosystems has bought a new and concerted effort to create entrepreneurial ecosystems and tools to measure existing systems.One such tool is the Global Entrepreneurship Index (GEI).  The GEI measures how institutions and individuals interact across four sub-indices and fourteen pillars. The GEI then ranks economies across the globe on their ecosystem performance.  Thus, we have a way to measure the ecosystem that is more or less useful for the task at hand. However how will improving the entrepreneurial ecosystem in a country lead to better economic performance? And if so, how will better performance manifest itself? Before we can answer this question we need to lay a little ground work.

Over the years we have moved from a focus on more startups, to more high growth startups and finally to more high tech startups. What we know is that more startups are negatively correlated with growth and not positively. In other words what we need is fewer startups and fewer small firms to grow an economy.  However, the question of the ecosystem is less clear. We do not know if improving the ecosystem will improve the economy or by how much.

Perhaps the first point that should be made is that economic growth does not equal productivity. Economic growth basically refers to the capacity of countries to produce more goods and services, irrespective of how higher production is achieved. The positive variations in GDP or employment over time are the usual suspects among those interested in studying economic growth figures, mostly because they represent the desired objective of most policy makers, as a measure of economic prosperity.

Productivityis a more complex concept. At the country level, total factor productivity(TFP) deals with two highly interconnected economic aspects. First, TFP has to do with the capacity of countries to allocate and exploit available resources efficiently (P = productivity effect). The notion that markets are good at directing resources is a good catch-all explanation concept; but for many businesses it is hard to find all that is required to perform in the market and to keep pace with industrial and digital revolutions that not only equip businesses with new resources, but also change the ways to exploit them.

The second component of TFP deals with the capacity of organizations to channel innovations to the economy (I = innovation effect) that, consequently,  translate into higher levels of output per input unit (in the case of countries, GDP per worker). Maybe we all are too used to link innovation to technological inventions that are successfully commercialized. However, our definition of innovation is not restricted to engineering (such as the driverless car) or to medical advances (such as nerve stimulation or non-invasive procedures), and is open to other, equally valuable, types ofnon-technological innovations related to product and processes.

In plain words, the combined effects of productivity and innovation shape total factor productivity (TFP = P * I). However, the capacity of countries to produce GDP is bounded by their available resources and their transformative capabilities. This way, total factor productivity defines the countries’production frontier and captures productivity variations that originate in differences in both production factors (P) and technology linked to innovation activities (I).  

What we would like to do is to measure the relationship between the quality of the entrepreneurial ecosystem in a country and TFP and its components. However, first we want to clarify two more ideas. A country can either be on the technological frontier or trying to get to it. For example a country like Switzerland is almost certainly on the technological frontier and a countrylike Egypt is certainly not on the frontier but is trying to get there. Broadly, countries that try and push the frontier are trying to be more innovative, and countries that are not on the frontier are trying to be more productive or more efficient with existing resources.

  We can argue that the entrepreneurial ecosystem impacts total factor productivity (TFP) via two differentiating effects (TFP =P * I): productivity (P) and innovation (I). This suggests that a superior entrepreneurial ecosystem does not necessarily make a country richer but,  rather, shapes economic and market structures as well as cultural aspects of societies, all important factors of the entrepreneurial ecosystem that improve total factor productivity.

We first explored the relationship between the GEI index and total factor productivity (TFP), paying special attention to the productivity (P) and innovation (I) effects. To do this we used data made available by the International Monetary Fund (IMF) to compute, for each country, the total factor productivity values (TFP = P * I)—defined as the capacity to produce GDP(output) using the capital stock and the labor force as inputs—as well as the productivity (P = use resources more efficiently) and the innovation (I = do new things to shift the production frontier) effects.

We found a significant, relatively strong positive correlation between entrepreneurship and total factor productivity (0.35). We also noted that entrepreneurship correlates weakly positively with the productivity effect(0.09).

Variables Correlation
GEI vs. total factor productivity 0.35
GEI vs. productivity effect 0.09
GEI vs. innovation effect 0.39

The strongest positive correlation was found between entrepreneurship and the innovation effect (0.39). This is not surprising. Just like we cannot imagine progress in the 19th century without the creation and development of steam engines, it is hard to imagine entrepreneurship in the 21st century without the power of technology-driven inventions. With the new millennium industries and markets from around the globe are witnessing drastic transformations that are the result of a digital revolution in which entrepreneurs are taking an active role by creating new businesses that are responsible for this revolution. The result is a good sign that reinforces our argument that the creation of ‘new things or new ways to do things’ definitely constitutes the vital force driving economic development. 

The conclusion for countries and public policy is that improving the entrepreneurial ecosystem helps countries push out the technological frontier that are already on the frontier! If your country is not on the technological frontier then improving the entrepreneurial ecosystem will help very little to improve your economy.

Save Your New Business – Avoid The Chasm by Nick Hixson

There is an issue with any new product launch. It’s commonly described in Figure 1: Innovation Adoption Life Cycle

Chasm

Figure 1: Innovation Adoption Life Cycle

The first people to buy your new product or service will be innovators and early adopters (I+EA) – people who like new things. But then you have to start selling to the rest of the market – The Early Majority because you have sold to all the innovators and early adopters that you can find. And that’s when you hit a problem. It’s described by the chasm. A place where suddenly sales dry up. And losses mount.

Product marketing strategies

Your sales can dry up because your marketing to I+EA does not work with The Early Majority. And you don’t know exactly where that change occurs. So, you still use the same marketing strategy for the I+EA group but you are running out of them. You need to use a different marketing strategy for the rest of the market.

Innovators and early adopters like new things but the rest of the market – the Early and Late Majority – wants proof. Proof your solution will work for them, which typically comes in the form of other people having bought it and used it already, liking it and reviewing it. Then you’re into a market which is full of competitors. And your marketing needs to address this.

It’s difficult to know when this change occurs so you tend to use the wrong strategy for too long. Because your idea is new, there’s no data to tell you when you’re running out of I+EA customers. You may feel that it is getting more difficult – speed of sales starts to fall off, the time to convert a lead starts to increase, but it won’t be enough to tell you definitively you are at The Chasm. However, it is enough to tell you to start marketing for the Early Majority as well as continuing your marketing for the remaining I+EA.

Now, for ‘product’ read ‘business’

What is less well understood among small business owners is this concept works for a new business as well as for a new product or service. With any new business, its first customers are taking a chance as they have no track record to rely on, no-one they can ask – and there are no reviews for something which hasn’t existed before. But they will take a chance and often offer the new business far better terms especially in paying its invoices, than any existing business can get. Your first customers (I+EA) are invested in your success and will change the normal rules to help that happen. Recognising this, the business will treat those first customers incredibly well as they are providing some feedback that the business has got an idea with some merit that somebody will pay for.

As the new business starts to run out of I+EA customers it needs to switch its marketing in the same way as if it were selling a new product. It needs to market to the Early Majority. The business needs to provide proof which it has from the testimonials and case studies based on the I+EA customers.  Service levels to the I+EA group still need to be high though, and it’s very easy for service levels to drop as the business changes its target markets. This needs careful management otherwise I+EA customers will not provide the proof needed for the Early Majority.

Planning for The Chasm

Figure2: The Product Life Cycle chart shows the sales and profits (and for profits read cash flow) of a new product or service.

Product Lifecycle

Figure 2. Product Life Cycle: Sales vs Profits

Usually a loss is expected in the early period from investment in product development, acquisition of assets and structure to enable sales to take place, which naturally starts later. This is the dip in profit shown underneath the horizontal axis at the beginning. Again, the analogy is accurate for a new business as well as a new product or service. The new business needs to invest time and resources, which create a loss before it can sell anything. The business generally accounts for this in its business plan, but what it doesn’t often do is plan for The Chasm.

Realisation of the risks

The general rationale of most businesses is that customers are all much the same so that more marketing effort will simply result in more customers in a linear way. Wrong! Business plans may have built-in some sensitivity and SWOT analyses but they tend not to produce anything which recognises the necessary change in marketing method to address the change in market when the new business or the new product changes from I+EA to Early Majority.

The first realisation is that all customers are not the same. Failing to recognise the differences between I+EA customers and the rest of the market will slow sales and impact cashflow negatively, possibly fatally.

The second realisation is that overlap marketing may well be necessary to bridge The Chasm quickly.

Double dip losses

If the new business has insufficient cash resources, either through trading or through funding to invest in the necessary overlap marketing to soak up the remaining I+EA with the initial marketing strategy, whilst simultaneously spending on the new marketing strategy for the Early Majority, there is the real risk of a double dip of losses just at the time when that Chasm appears. So, it is quite possible that the double dip together with a lack of sales can cause the business to fail. This is illustrated in Figure3: The Double Dip

Chasm +P+L

Figure 3 : The Double Dip

Avoid The Chasm for survival

To avoid this double dip the new business needs to retain enough resources to fund the double marketing effort so that the chasm is reduced or eliminated. You need to review your planning and check you have enough marketing budget.  Bridging the chasm quickly by reducing its timespan and impact is critical to business survival and enables you to scale the business faster.