Entrepreneurship: Exploring (or Building) Adjacencies

Because I write and teach about innovation and strategy, friends and students often ask me to evaluate their new business ideas. A relatively large percentage of these business ideas are about a product the individual somehow identifies with, but in an area in which the individual has no work experience. The mythology of entrepreneurship is that it’s all about great ideas. The reality is that great ideas are a dime a dozen; successful entrepreneurship is much more closely linked to the ability to execute. How do people learn to execute? In general, it’s through having deep experience somewhere in the value chain. In other words, most successful entrepreneurship is accomplished through exploring (or building) something adjacent to where you already are or have been. If, for example, you have worked for an interior design firm for several years, and you travel to South Africa and see beautiful and unusual textiles you would like to be able to use in your practice, but no one is importing these textiles, you are in a much better position to create such an import business (and to know what it’s worth, and how to reach the target market) than another tourist who sees the beautiful textiles and wonders why the interior designer she has hired hasn’t shown her anything so unique.

Adjacent positions give you insight into the value chain of your target area (Who are the likely suppliers? What is their cost structure like? Who are the buyers? How are they used to being presented with goods to choose from? How big is the market? How are the logistics typically handled?). Adjacent positions can also help you identify valuable problems to solve (What aspects of the currently available products or business model are inefficient or irritating? What new innovation would exceed customer expectations, and how much more would they pay for it?). Perhaps most importantly, occupying an adjacent position means you are more likely to have valuable network contacts to lubricate your entry – for example, already having a relationship and credibility with distributors will usually have a big impact on the rate at which you can enter a market.

What if you love an idea, and are motivated to execute on it, but aren’t in an adjacent position? Build one. Consider working (or interning) for a firm that is either upstream or downstream in the value chain you will be entering. If you can offer up your effort at a low cost (preferably free) for at least a few hours a day, you can usually edge your way into just about any business. You could also consider working for someone who will ultimately be your competitor, but working for someone who will be your supplier or your customer is more likely to engender goodwill in the value chain, and help you accrue valuable contacts that you will use in your new business.

A case in point: My good friend, Rick Alden, founded a company called Skullcandy in 2003 that makes, primarily, headphones with an edgy, extreme sports aesthetic.  I was initially skeptical of his idea to enter headphones – to me it was a commoditized product category dominated by companies that operate in countries with significantly lower production costs. Rick, however, was deeply embedded in an adjacent industry – snowboarding. He had founded National Snowboarding Incorporated in the 1980s (which promoted the sport of snowboarding and offered lessons and competitions), and had designed and patented the first ever step-in snowboard boot and binding system. His brother Dave was a pro-snowboarder for Burton, and his father Paul Alden had been one of the founders of the North American Snowboard Association which helped to create guidelines for teaching snowboarding and developed the snowboarding World Cup. In short, Rick knew snowboarders – he knew their aesthetic, and he knew their habits. He knew most of the major snowboarding manufacturers, snowboard shops, and snowboard pro-riders. So when Rick launched Skullcandy, he was not only in a great position to evaluate what design features snowboarders would respond to, he was also able to get endorsements from the most famous snowboarders, and get on the shelves of the best snowboard shops. Once he had captured that market, the mass market (Best Buy, college bookstores, etc.) eagerly demanded product. Within two years Skullcandy had surpassed a million in sales, and by 201 1 Skullcandy’s sales had reached $231 million.

Had Rick started by developing a mass market product and approached Best Buy, it is unlikely the story would have turned out the same. It is equally unlikely that someone outside of the extreme sports industry could have replicated what Rick did. It was Rick’s adjacent position that gave him the knowledge, the contacts, and the credibility to enter and succeed in this market.

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9 Comments on “Entrepreneurship: Exploring (or Building) Adjacencies”

  1. RussCoff says:

    Interesting Melissa. There is a lot of research about prior experience but this is usually couched as prior experience in the industry or as an entrepreneur. I think you are talking about a different type of experience that may not be the focus.

    That said, given the example you offer, it sounds like the adjacent experience may be more important for opportunity recognition than it is for execution, per se. If someone knowledgeable of earphones fully understood the opportunity among snowboarders, they could probably execute it.

    (there, now you have your first comment ;-)

    • maschilling says:

      From my conversations with Rick, I got the impression that he thinks his biggest advantage was that he could walk into a snowboard shop at a mountain and say “Guys, you should carry this” and they would, because they knew him and trusted him.

    • Peter Klein says:

      But Russ, also consider the Lazear-type story about how a diverse background increases the likelihood of entrepreneurial activity. Melissa isn’t quite talking about jacks of all trades, but Rick is at least a jack of more than one trade!

      That said, there are probably trade-offs — adjacent expertise makes it easier to recognize and exploit opportunities, but functional expertise may help with other aspects of exploitation/implementation. I’m sure Postrel is already working on the formal model. :)

  2. srp says:

    Actually, the post adressess both recognition and execution. Adjacency makes it easier to weed out superficially appealing but actually illusory “opportunities” AND it makes it easier to start executing on a real opportunity.

    The only practical issue with this distinction comes in if one wants to follow the post’s advice to build adjacency–it’s probably a lot easier to get an internship/job/apprenticeship that will let you evaluate opportunities than it is to get one that will help you execute. Somebody who works at a ski resort and gets the idea of cool headphones for snowboarders is one thing; attaining the level of prominence Mr. Alden possessed is something much more demanding.

  3. Deb Brahma says:

    I found an interesting post in Gallup you may like this very similar to your experience.

    http://businessjournal.gallup.com/content/150707/why-entrepreneurs-matter-innovators.aspx

    With Warm Regards

  4. [...] Cheating Business Minds: How To Break the Cycle (Fortune) Finance Needs Stewards, Not Toll Collectors (John Kay) Exploring Adjacencies (Strategy Profs) [...]

  5. Ayo Sanni says:

    This is a fantastic article and I will use it a lot as I live in Nigeria where unemployement is in the high twentieth percentile and I often get the question – what business do I do?

    However in my opinion adjacency as you expleined it does not teach the art of execution as much as it helps to identify opportunities. Focus, discipline and self-confidence are key to execution.

    Importing fabric is an opprotunity somewhere else in the value chain which you recognized because of your experience as an interior decorator. But this teaches you nothing about the fabric importation biz. So you’ll have to learn it on the job or by building adjacency.

    First sentence in the second paragrapgh starts – Adjacent positions give you insight into the
    value chain – this means adjacency allows you to identify opportunity.

    In the third paragraph, Rick’s all round working knowledge of the snowboarding industry allowed him to see an opportunity to create a niche. Not how to make cool headphones.

    You do also buttress one of the principles of lean management systems – you must see/experience the work process yourself and if you don’t then encourage your workers who do(with adjacency) to suggest how to improve it.

    Great Post!!

  6. [...] @StrategyProfs, “Entrepreneurship: Exploring (or Building) Adjacencies” [...]


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