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English Subtitles

Some of the most exciting and valuable entrepreneurial opportunities are based on innovations that combine ideas from existing product categories

What I'm interested in is trying to understand what are the advantages of being an established firm from one of the established product categories in those kind of innovations, versus...

...the advantages of being a startup

Consumers and buyers bring to the market there established understandings of existing products.

And those understandings serve as lenses through which they interpret new products.

It is the way in which they make sense of those new products

So, on the one hand, in many settings...

...established firms might have an advantage, because...

Their association with an established product makes it easier for consumers to understand what the new product and the innovation does.

In other settings startups might have an advantage

In part, that's because they don't have an existing identity...

...to create confusion

Because sometimes what happens is that the new product is sufficiently different from existing products that if you try to interpret it through the existing product lenses you're going to misunderstand

and you're not going to see the potential of the product

When established firms are trying to move into a new market...

So, for example, they come up with a new innovation in their labs, they face a challenge which is...

Consumers already associate us with our existing products.

And so, how do we now think about getting them to understand...

...the product that we're offering...

Given that they're going to understand the product which we are offering through the lens, or through the category, that they already associate with us as a producer

So this is an important element of an entrepreneurial strategy

You have to make a bet on which identity do you think is going to be the one which is going to be one to be best able to help make consumers make sense of the product which you're bringing to market

So if I'm Nikon and I produce a digital camera people again understand a digital camera in terms of their understanding of me as a producer of film cameras.

So what they going to bring to bear on that is: how does a film camera work? what does it do for me and is that as virtue or liability in terms of their ability to understand my product is a digital camera?

If I'm Nikon, it's probably an advantage.

And, in fact that's what my research shows

It is an advantage.

But if I'm HP it's actually a disadvantage, right, because...

...when I'm HP you look at me and you think 'computer'

And if you think of 'computer', well does a digital camera really do what I computer does?

One of the mistakes that I think a lot of entrepreneurial firms make in that kind of situation is they make appeals to a lot of different product categories at the same time.

So they say our product is a little bit like this, and it's a little bit like that, and it's a bit like that.

It combines the best elements of all these different kinds of things together.

What the research shows though is that when you combine lots of different elements from lots of different categories together...

...what it creates in the mind of the buyer, of the consumer, is confusion.

And when they get confused they ignore you

So it can be a problem for the entrepreneur to have this kind of of confused identity.

When in fact it could be an advantage to have a much more crisp and clear identity going into the market.

The problem with that, of course, is you don't know ahead of time, necessarily, which identity is going to be the best.

Introduction

A professor at Stanford Business School explains the advantages and disadvantages of being an existing business when entering anew market.  Is it better to be an existing business, or do startups have an advantage?

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Stanford Graduate School of Business

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