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.