[This article first appeared in “Persuading People to Wear Pants: 3 Expert Tips for Creating a New Market Category” on The Huffington Post and is written by Danielle Sabrina.]
The scenario of creating a new market category can be perfectly summed up by this Quiznos Commercial from 2008. In it, the sandwich chain promotes their innovation of toasted subs by comparing themselves to the first guy that created pants – when everyone else was wearing uncomfortable bushes. The guy wearing pants is able to persuade one bush-wearer to value pants – but causes another one to run away, exclaiming “I fear change, so I will keep my bushes!”
Anyone who has created a new market category has felt like “the guy that wore pants” at one time or another. As Steve Jobs noted, “A lot of times, people don’t know what they want until you show them.”
It’s hard to believe that 10 years ago, we never would have dreamed that we’d use our cell phones to do, well, just about anything – and yet today, 80 percent of millennials say that their smartphone is the first thing they reach for in the morning. Jobs created a whole new market category by telling us what we wanted, (and even more importantly, not asking consumers what they wanted), which inspired millions of other entrepreneurial hopefuls to do the same. The trouble is, it’s never as easy as it sounds.
As an entrepreneur, it’s certainly tough to stay relevant in a sea of competition, but convincing consumers that they need pants instead of bushes (metaphorically, of course) is no walk in the park either – just ask Tom Villante, founder and CEO of YapStone.
When he founded YapStone sixteen years ago, the Fintech industry was almost non-existent. PayPal was only 1 year old and there were no digital payment options for people who wanted to purchase big-ticket items. Tom’s initial idea of offering consumers an online payment solution to pay rent with a credit card sounded entirely absurd to the multifamily industry. But despite adversity and doubt, he stuck it out; today, the company’s annual payment volume is approaching $17 billion. Today, Tom continues to be the CEO of YapStone, but is also an angel investor for startups in emerging markets.
“If you’ve done some soul-searching and have come to the conclusion that you’re, in fact, the guy wearing pants – you have an interesting journey ahead as you develop your new market,” says Tom. “Like the caveman in the commercial, you’ll find that many people don’t want to adopt change, so it’s up to you to help them make the shift almost effortlessly.”
Tom notes that there are three major aspects to starting a new market category that entrepreneurs should always be thinking of:
1. Solve an Actual Consumer Problem
There are some great products and features out there – very clever ideas. I am always impressed by people’s ingenuity. When I am evaluating a startup company or a product idea, I always ask if the product is solving a real business or consumer problem. Take WeWork for example. During a time when startups were becoming hotter than ever, the founders of WeWork recognized the need for low-cost, flexible office space that would give entrepreneurs a sense of community. It solved a multitude of real problems and today, the company has 92 locations in 28 cities.
When you are starting out, make sure that the consumer really needs “pants.” I have seen lots of ideas fail because there is not a real, addressable market for it. Entrepreneurs must validate that an actual consumer segment exists for their big product idea. Once that has been identified, the company can be built around it.
2. Check Your Emotions
Entrepreneurs are very passionate people and it’s easy to make a decision when you’re riding high or running low. Do yourself a favor—don’t.
Emotional decisions tend to yield undesirable outcomes. Logic takes a backseat, and the risk you’re willing to take may be too much. If you’re hyped up, chances are you need to take time to check your emotions, gather the facts and then make the best decision possible.
3. Focus on Building a “Real” Business
Over the past few years, the media has been obsessed with profiling “unicorn companies” – disruptive tech companies with valuations over a billion dollars. We heard about their sky-high valuations, innovative business models and super cool office space, yet we rarely hear the whole story about the underlying business. Many of these companies were burning through their cash almost as fast as it was coming in and – truth be told – had great potential but were not on a path to sustained profitability.
As we face the economic conditions shaping 2016, many startups and VC-backed portfolio companies will no longer have “easy” access to capital as VC investments look like they’ll be tightening up in the next few years. The result is that these same companies must start delivering real revenue and profitability as opposed to just growth opportunities. The days of burning through cash in the hopes of finding success are gone: investors will be more diligent and want to see a business built with real revenue and a clear path to profitability in mind.
By focusing on building real businesses, entrepreneurs will have the support they need to substantiate new funding. Simply put, take the risk out of your startup by focusing on building a real business, month over month and quarter over quarter. The ability to grow and deliver the numbers should equate to better access to capital in the short and long term.
The simple truth is that creating a new company or a new product, like “pants,” and persuading consumers to “change” is no easy task. Give yourself a running head start by using these three tips. And remember that along the way, people will inject their opinions and tell you that there is no need for new “pants,” – that the bush works just fine and they like it. At that point, Tom suggests you do the following: fall back on the immortal words of Henry Ford – “If I had asked people what they wanted, they would have said faster horses” – and keep doing what you’re doing.