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Creating a market where none exists

The commonality of Rubik's Cubes, Freitag Bags and Starbucks

What do Rubik's Cubes, Freitag Bags and Starbucks Coffee have in common?

They are all popular consumer products and it's even possible to create a story about how you might carry your Rubik's Cube in your Freitag Bag to the nearest Starbucks Cafe. But this story is about something less intuitive and probably more useful to an executive. Each of these success stories was born of an "absent market".

An absent market is one that fails to show up on a manager's radar of market research, prediction or assessment of customer demand. It is a market that only comes into existence when it is proactively created. Otherwise, it might never come to be.

Cube creation

It's hard to believe the blockbuster toy that frustrated our childhoods and sold almost a hundred million units in its first two years just celebrated its 25th birthday.

The father of the cube was Erno Rubik, a sculptor, architect and teacher of interior design. He became the first self-made millionaire from the Communist Block. Spatial relationship problems were his business, and realising them in three dimensions, his speciality. In class he was likely to build a physical design in order to make a point. Rubik's cube was not originally intended to be a blockbuster, or even a toy. It was the presentation of a solution to a structural-design problem of surfaces in three dimensions that could be manipulated in any direction.

Without any explicit intentions, Rubik started sharing his puzzle with students and friends. Their reaction started a chain of events that introduced Rubik to a salesman for an Austrian computer company who took the cube to the Nuremberg Toy Fair. From there the cube travelled to a British toy specialist with more connections and then across the Atlantic to New York, where an order for a million of the pernicious puzzles was negotiated with the Ideal Toy Company.

But what if Rubik had convinced himself that the cube was nothing more than a teaching prop for engineering students? What if the cube had never made it to Nuremberg? What if Ideal had said no? Would consumer demand for an exasperating toy have prompted some other engineer to build a six-coloured toy with only one correct answer and 43 quintillion wrong ones? Not likely.

We were plagued by the cube because of Rubik's actions with his partners, not because we articulated a latent need to a market researcher.

Re-creating bags

In Zurich, Switzerland, Markus and Daniel Freitag saw a need. Unsatisfied with the durability of bicycle-messenger bags, the pair wanted heavy-duty, water-repellent products. So in 1993, they set up their own company. But instead of sourcing the latest high-tech materials, they made bags from old truck tarpaulins using second-hand car seat belts as straps and waste bicycle inner tubes for edging.

The recycled materials, intended to lower their production costs and create an industrial strength product, generated a completely different reaction with consumers. Freitag Bags were positioned as green, re-using industrial waste, and personal, as every Freitag Bag is as original, customised and individual as the truck that hauled its fabric in the first place. And although the bags were sold to bike messengers, the real interest came from trendy urban consumers willing to pay top dollar for a green personality.

By taking action, the Freitag brothers created a new product and genre for an application that they did not envision, a new market for consumers they did not imagine, with a value proposition they did not conceive. They currently sell more than 200,000 bags per year online, in five Freitag Shops across Germany and Switzerland and in 300 stores around the world.

A cup of creation

Rubik's Cubes and Freitag Bags are one thing, but what about Starbucks? The very fact that a Starbucks occupies the corner of every city block in the known world must indicate that the heroic founder, Howard Schultz, had strong insight into a market opportunity.

Had he actually looked at the market research when he formed the firm in 1971, he might have thought twice. At the time, per capita coffee consumption in the United States had declined from 3.1 cups in the 1960s to 2 cups per day. Further, the original Starbucks consisted of a Seattle shop that sold roasted quality beans along with tea, spices and supplies. It did not sell coffee by the cup. So neither market analysis nor a successful prototype could be credited with helping Schultz to discover the opportunity in Starbucks.

The real story of Starbucks is one based on action, learning and creation. Unable to talk the founders into offering prepared coffee drinks, Schultz built his own coffee bar, Il Giornale, which later merged with the original Starbucks. The success of Il Giornale lay less in vision and more in action. Schultz listened carefully to patrons and employees in the months after Il Giornale opened. Consumers did not like non-stop opera music. Those interested in lingering in the store wanted chairs. A menu printed primarily in Italian was not helpful. The baristas' bow ties were uncomfortable and difficult to keep looking neat after hours working the espresso machine. Schultz responded to customer and employee feedback. Il Giornale began providing chairs and playing more varied music. The baristas stopped wearing ties.

Absent to vibrant

The stories of Starbucks, Rubik and Freitag are full of feedback for growth-seeking executives. Rubik shows the importance of building from the things and the people we already know and forming partnerships that add muscle to the uncertain process of market creation.

The Freitag brothers teach us the importance of flexibility in the process of creation. It's not important what market you create, but rather that you create one at all.

And Shultz shows us that information from the so-called 'existing market' may have limited use or be downright misleading. This extends to information from other stakeholders, including investors and strategic partners. For example, while the founders of the original Starbucks would not agree to convert their enterprise into an Italian-style coffee-bar business, they did offer Schultz seed money and advice to found Il Giornale.

Similarly, of the 242 men and women Schultz approached for funding, 217 decided not to fund the venture, but quite a few did purchase equity. So although market signals tell conflicting stories, it is the actions of the entrepreneur that create the truth.

Perhaps you share Schultz's desire to stop competing for a share of a fixed cup and to start making new ones. If that's the case, stop looking and start doing.

Stuart Read is a professor of marketing at the Swiss-based business school IMD. Read more articles at www.imd.ch.

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