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Entrepreneurial Marketing: How to Develop Customer Demand

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DOI: 10.4324/9781003010197

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Entrepreneurial Marketing

How do you sell an innovative product to a market that does not yet exist?
Entrepreneurial businesses often create products and services based on radically
new technology that have the power to change the marketplace. Existing market
research data will be largely irrelevant in these cases, making sales and marketing
of innovative new products especially challenging to entrepreneurs. Entrepre-
neurial Marketing focuses on this challenge.
Classic core marketing concepts, such as segmentation, positioning, and the
marketing mix undergo an ‘extreme makeover’ in the context of innovative pro-
ducts hitting the market. Edwin J. Nijssen stresses principles of affordable loss,
experimentation, and adjustment for emerging opportunities, as well as coop-
eration with first customers. Containing many marketing examples of successful
and cutting-edge innovations (including links to websites and videos), useful lists
of key issues, and instructions on how to make a one-page marketing plan,
Entrepreneurial Marketing provides a vital guide to successfully developing cus-
tomer demand and a market for innovative new products. This third edition has
been thoroughly expanded, including:

Expanded content on leveraging digital technologies and their new busi-

ness models

More practical tools, such as coverage of the Lean Canvas model

Updated references, cases, and new examples throughout; and,

Updated online resources

This book equips advanced undergraduate and postgraduate students of

marketing strategy, entrepreneurial marketing, and entrepreneurship with the
fundamental tools to succeed in marketing.

Edwin J. Nijssen is Professor of Marketing at the Eindhoven University of

Technology, the Netherlands.
Entrepreneurial Marketing

How to Develop Customer Demand

Third edition

Edwin J. Nijssen
Third edition published 2022
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2022 Edwin J. Nijssen
The right of Edwin J. Nijssen to be identified as author of this work has been
asserted by him in accordance with sections 77 and 78 of the Copyright,
Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilised in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in any
information storage or retrieval system, without permission in writing from the
publishers.
Trademark notice`: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
First edition published by Routledge 2014
Second edition published by Routledge 2017
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Nijssen, E. J. (Edwin Jacob), 1963- author.
Title: Entrepreneurial marketing : how to develop customer demand /
Edwin J. Nijssen.
Description: Third edition. | Milton Park, Abingdon, Oxon ; New York, NY :
Routledge, 2022. | Includes bibliographical references and index.
Identifiers: LCCN 2021012355 (print) | LCCN 2021012356 (ebook) |
ISBN 9780367445317 (hardback) | ISBN 9780367445324 (paperback) |
ISBN 9781003010197 (ebook)
Subjects: LCSH: New products--Marketing. | Marketing--Management. |
Entrepreneurship. | Small business marketing.
Classification: LCC HF5415.153 .N52 2022 (print) | LCC HF5415.153
(ebook) | DDC 658.8--dc23
LC record available at [Link]
LC ebook record available at [Link]

ISBN: 978-0-367-44531-7 (hbk)

ISBN: 978-0-367-44532-4 (pbk)
ISBN: 978-1-003-01019-7 (ebk)
DOI: 10.4324/9781003010197

Typeset in Times New Roman

by Taylor & Francis Books

Access the Support Material: [Link]/9780367445324

Contents

List of figures viii

List of tables x
List of boxes xi
Preface xiii

1 Using marketing to create a new business with radically new ideas 1

1.1 Entrepreneurship and radically new ideas: the need for
effectuation 1
1.2 Developing your business model 4
1.3 Defining marketing and sales 10
1.4 Beyond stereotypes 13

2 Identifying an application and market 15

2.1 Entrepreneurship as opportunity seeking 15
2.2 Evaluation criteria of the experienced entrepreneur 17
2.3 The role of marketing knowledge 19
2.4 Developing your bowling alley model 20
2.5 Products don’t sell, solutions do! 22

3 Detailing the market: segmentation and positioning to maximise

the value of the product application 25
3.1 Conceptualising the market 25
3.2 Customer segmentation 28
3.3 Understanding customer value for the initial target segment 29
3.4 Targeting using effectuation 31
3.5 Developing a positioning statement 34
vi Contents

3.6 Validation: initial customer feedback 35

3.7 Different customer roles and co-creation 39

4 Adoption, diffusion, and understanding lead customers 43

4.1 The technology adoption life cycle 43
4.2 Penetration and diffusion 48
4.3 Understanding lead customers 50
4.4 A detailed view of the adoption decision 52
4.5 Anticipating and preventing chasms 55
4.6 Reasons why customers postpone or resist adoption 58

5 Important competitive and market considerations 61

5.1 Strategic considerations 61
5.2 Different levels of competition 61
5.3 Change from inside or outside the industry 63
5.4 Anticipating competitor reactions and avoiding head-on
competition 64
5.5 Network products and their impact on marketing decisions 66
5.6 Establishing your competitive edge 69

6 Market research in entrepreneurial context 71

6.1 Reasons for market research 71
6.2 What kind of data is needed? 72
6.3 Primary versus secondary data 73
6.4 Organising and analysing your data 75
6.5 Qualitative versus quantitative research 76

7 The customer development process 79

7.1 The need for creating customer buy-in 79
7.2 New product development versus customer development 81
7.3 Steps of the customer development process 84
7.4 The relationship with the business model 88

8 Developing a marketing and sales programme 91

8.1 A one-page marketing and sales plan 91
8.2 Content of the plan 93
8.3 Marketing instruments 97
8.4 Product: designing a product application and product line 98
 Contents vii

8.5 Price: how to set your price 102

8.6 Promotion: creating awareness and communicating with a
limited budget 107
8.7 Place: obtaining market access 115

9 The role of sales in customer development 121

9.1 The sales learning curve 121
9.2 Sales as the motivated knowledge broker for innovation 122
9.3 Initial solution selling activities 126
9.4 Developing the sales roadmap 128
9.5 Developing the sales message 131
9.6 Managing customer expectations 134

10 Developing the new firm’s marketing and sales capabilities 137

10.1 Developing the commercial capabilities of the new firm 137
10.2 Marketing and sales capabilities for survival and growth
stages 140
10.3 From customer development team to marketing/sales
department 142
10.4 Implement, evaluate, and improve the one-page plan 142
10.5 Concluding remarks 144

References 147
Index 154
Figures

1.1 The business model concept 5

1.2 Business model Lean Canvas (adapted from Maurya 2012) 6
1.3 My personal T-shirt design 9
2.1 Thinking about market opportunities 16
2.2 Set of market opportunities for EBC technology (adapted from
van Bommel 2010) 17
2.3 Interaction between prior entrepreneurial experience and
marketing experience (adapted from Gruber et al. 2008) 19
2.4 Experienced entrepreneurs navigating for the solution 20
2.5 The bowling alley model (adapted from Moore 2006) 21
3.1 Abell’s market definition and domain assessment: an example of
the lighting market 26
3.2 Disruptive technologies and their performance effects (adapted
from Christensen 1997) 30
3.3 Choice of target segment: how digital cameras penetrated the
market 32
3.4 Customer value determination and targeting process 33
3.5 Questions for developing a positioning statement 34
3.6 Framework for segmenting, targeting, and positioning for the
entrepreneurial firm 36
4.1 Technology adoption life cycle (adapted from Rogers 2003;
Moore 2006) 44
4.2 Diffusion patterns (adapted from Moore 2006) 48
4.3 Adoption process of the venturesome customer (adapted from
Wouters and Nijssen 2012) 52
4.4 Chasms in the diffusion curve due to psychological differences
(adapted from Blank 2007; Moore 2006) 56
4.5 Hierarchy of innovation rejection by innovators (adapted from
Kleijnen et al. 2009) 59
5.1 Reinforcing mechanism between direct and indirect network
effects (adapted from Lee and O’Connor 2003) 68
 Figures ix

5.2 Framework linking launch strategy and performance for

network products (adapted from Lee and O’Connor 2003) 68
7.1 The complementary processes of new product and customer
development 82
7.2 Customer development process and marketing and sales
activities per stage (adapted from Blank 2007) 85
7.3 Relationship of customer and product development with
business model development 88
8.1 Extended AIDA communication model 108
8.2 Customer dissatisfaction and advertising the benefits of the new
product 115
9.1 Salesperson involvement in new product development process
(based on Kuester et al. 2017) 125
9.2 The selling process as a funnel 129
10.1 Impression of the Bell-Mason diagram of ideal distribution of
capabilities [vertical axis] per stage of the start-up’s development
[horizontal axis] (adapted from Bell and McNamara 1991) 138
10.2 Marketing and sales capabilities and the effects on survival and
growth 140
Tables

1.1 Juxtaposing traditional and effectuation marketing 12

2.1 Contrasting the evaluation criteria of novices and experienced
entrepreneurs (based on Gruber et al. 2008) 18
2.2 Product versus customer orientation 23
3.1 Customer involvement biases and mitigation techniques 38
3.2 Different customer roles in a start-up’s development (based on
Coviello and Joseph 2012) 40
5.1 Different levels of competition 62
6.1 Sources of market information 74
7.1 The result of different marketing efforts in combination with
quality of an innovation 81
8.1 Content of the one-page marketing and sales plan 94
8.2 Illustration of the product attribute model for hybrid (electrical)
cars and the environmentally conscious consumer target
segment 100
10.1 Sample of marketing-relevant tasks in core business processes
(adapted from Srivastava et al. 1999) 143
Boxes

Key issues 1
Doing it right – Check your business model 8
Example – The Internet and new business models 9
Example – Exploring alternative business models 10
Summary 13
Key issues 15
Example – Searching process for applications for electronic
beam control for LEDs 16
Summary 23
Key issues 25
Doing it right – Advice on using Abell’s market concept 27
Doing it right – Check your segmenting 29
Doing it right – A positioning that customers remember 35
Doing it right – Involving lead customers: how to identify them 40
Summary 41
Key issues 43
Example – The importance of ensuring correct product
categorisation by customers 46
Example – Differences between early and late adopters of Total
Quality Management (TQM) 47
Example – Leveraging your first lead customer 54
Example – Effectively addressing chasms 58
Summary 59
Key issues 61
Doing it right – Can you answer these questions about your
rivals? 65
Example – Failing to become the new standard will hamper
start-up existence 69
Summary 70
Key issues 71
Summary 78
Key issues 79
xii Boxes

Doing it right: stakeholder management 87

Summary 89
Key issues 91
Example – GoPro’s product line development 101
Example – Ludwick Marishane, targeting the bottom of the
pyramid 103
Doing the right thing – Anticipating competitive moves 106
Example – Tesla: building positive brand associations 111
Example – Free publicity 112
Doing it right – Internet as promotion and business model
option 113
Doing the right thing – Avoid channel conflict 118
Summary 119
Key issues 121
Doing it right – Creating the right governance mechanisms for
engaging lead customers 123
Doing it right – Research support for value-based selling as
guiding mechanism 128
A basic format for a sales message 131
Doing it right – Prepare sales presentations well 132
Doing it right – Three important guidelines for approaching
your prospects 133
Example – CTRL Eyewear’s handling of delay 135
Summary 135
Key issues 137
Summary 145
Preface

Entrepreneurs often are unfamiliar with concepts of target market, price/quality

relationships, price thresholds, distributor margins, and sales promotion techni-
ques, and the importance of these factors in creating awareness and demand.
Their lack of adequate knowledge in these areas results in a simplistic view of
marketing problems. Many believe, for instance, that the only condition neces-
sary for a sale is an innovative product or service. But the problem is, of course,
that most new products are far from excellent, to say the least. Moreover, even
excellent products will benefit from getting the price right, creating customer
awareness, and ensuring availability.
However, for radically new products, the challenge is even greater. Never
having been seen before, these products require customers to change their cog-
nitions and behaviours. This explains why traditional marketing does not apply,
and why a so-called ‘effectuation’ approach is required. This approach starts with
the technology and the new product, and uses experimentation to find the right
market segment and make inroads in the market. This book explains the effec-
tuation approach and demonstrates how to use it in a creative way for marketing
innovative new products.
The content of this book is the result of working with entrepreneurs and
teaching graduate courses in Marketing and Innovation as well as Entrepre-
neurial Marketing at the Eindhoven University of Technology. The ideas have
evolved over time and reflect emerging insights from entrepreneurship, new pro-
duct development, and marketing literature. These ideas have been identified and
integrated to create a coherent method. In contrast to traditional marketing, the
effectuation approach adopted begins with the product and looks for market
segments that fit, optimising options during the process. It builds on ideas from
effectuation theory and the Lean Start-up approach but is rooted in and uses
relevant marketing and sales concepts.
The method promoted complements new product development by combin-
ing it with a customer development process. Although regular new product
development models include some attention to the link between the new pro-
duct and (latent) customer needs, customer testing, and launch, typically the
technical issues dominate the model and receive most resources. To compensate
xiv Preface

for this, we suggest organising the customer development process separately, as

a complementary activity. This achieves a better balance and higher level of
success for the entrepreneurial firm and its new product or service.
In this third edition, the text has been edited, and new references and exam-
ples added. The most important changes are a separate chapter on market
research (Chapter 6) and a clear link with the Lean Start-up approach, in parti-
cular Lean Canvas. However, the chapters on sales and marketing capabilities
have also been reworked. Although some suggestions had been made to aban-
don the traditional marketing instruments, I decided to keep them. They are
more actionable than most alternatives and help people with a basic marketing
training see the relationship more easily. The three challenges of customer value
creation, building market presence, and developing customer relationships are
used to tie things together.
This book and new edition would not exist without the help of many people.
First, thanks to the anonymous reviewers whose feedback provided ideas for
developing this third edition. Second, I want to thank my wife, Martha Chorney,
who motivated me to make this new edition and helped manage the revision. She
helped improve the structure, the content, and the original text, making it more
appealing.
I hope this book offers the reader some new and exciting ideas and helps
entrepreneurs to find their product-market fit.

Ed Nijssen
Chapter 1

Using marketing to create a new

business with radically new ideas

Key issues

Define market opportunity and tech-entrepreneurs.

Compare radical to incremental innovations

Identify required changes in customer behaviour as an important barrier to
entrepreneurial success.

Discuss the importance of identifying a sustainable business model.

Define marketing and sales and explain the effectuation marketing approach.

1.1 Entrepreneurship and radically new ideas: the need for

effectuation
Every day, people come up with new ideas. Sometimes small, but every now and
then, such an idea concerns something extremely innovative that can be developed
into a radically new product or service: a new product or service that has never
been seen before, but that is exciting and may even create a whole new product
category or market. Such a new product or service represents a market opportunity
that may become a financial success for the entrepreneur who came up with the
idea and decided to develop it into a business. While new products are important,
the trend of digitalisation and rise of the Internet of Things (IoT) have stimulated
interest in and opportunities for developing smart products and their related ser-
vices. Consisting of a combination of hardware and software, these products
involve product-service systems that are often accompanied by performance con-
tracts or subscription services and can be customised and optimised based on data
collected across customers and use situations. Examples are inner-city mobility
solutions, animal health monitoring solutions, and smart doorbells. Consequently,
complexity increases and the distinction between products and services blurs.1
Entrepreneurs are people who act on a perceived market opportunity. They
develop the opportunity into a business by creating a new product or service
for a group of customers not served well by existing alternatives in the

DOI: 10.4324/9781003010197-1
2 New business with radically new ideas

market. They are aware of the uncertainty but willing to take the financial
risk involved.2 They often feel the need, or even the urge, to pursue their luck
and build their own businesses.
Many entrepreneurs aim to improve existing products and compete in existing
markets. Their markets involve familiar products that are clearly delineated. Con-
sequently, these new entrepreneurs know who their customers and competitors are.
They can rely on traditional marketing, which focuses on identifying and targeting
a particular customer segment and positioning a product to address this segment’s
stated (or latent) needs to grow sales. Its systematic and goal-oriented approach can
help the nascent entrepreneur specify the features of the product or service, develop
a pricing strategy, and create the right message and adequate promotional support.
In contrast, people with radically new ideas based on new technology are better
defined as (high-)tech entrepreneurs. Based on new technology, their application
often redefines existing markets by creating a new or altering existing product
categories (e.g., action cameras, electrical and hydrogen cars, smart refrigerators or
doorbells, fitness gadgets and Apps, and customised 3D-printed shoes). These
entrepreneurs generally are engineers, data analysts or technology enthusiasts who
have developed something unique that no one has seen before or that people have
only dreamed about. They see the potential of their idea and confidently go about
making a business out of it, even when first customers’ reactions are sceptical.
However, particularly if the new concepts they come up with are new for the
market, convincing prospects to become buyers can prove extremely difficult.
Lack of experience and business knowledge generally does not scare these
entrepreneurial minds away. They seek financial support from venture capitalists to
help finance their new business. However, they usually have to invest heavily them-
selves, and take major personal risks too. Given the fact that nine out of ten start-
ups fail, and because lack of customer demand for young firms’ value offer is the
number one reason for failure,3 better understanding the marketing challenge
involved is of the utmost importance. Only if the entrepreneur can create a product
or service and a customer will the idea fly and a business take shape. To turn a new
idea into a business requires, first and foremost, being able to create a product-
market fit.
Based on the level of ‘newness’ of a technology, three types of new products
are generally distinguished:

(1) New versions of existing products: (i.e., me-too products or line extensions)
modestly new products that have been around for some time but, with a
different marketing approach or minor change, can be revived and enjoy
sales growth. Organically grown tomatoes in supermarkets is an example.
(2) Incremental innovations: extensions of existing products. These products
fit current knowledge and market structures but bring something new to
the equation offering extra value to the customer. LED displays or electric
toothbrushes are examples. They generally do not require much beha-
vioural change.
 New business with radically new ideas 3

(3) Radical innovations:4 these draw on new technology to produce products

people have not seen before. These new products can often change markets,
alter existing product categories or even make them obsolete. Examples
include the light bulb and the telephone. These products do require learning
and behavioural change to enjoy their value.

So, the more radical a product idea, the more likely people will need to change
their perceptions and behaviours, and probably even need to update their defi-
nitions of product categories. The marketing challenge of these different levels of
new products increases, exponentially, moving from extensions to radical inno-
vation. Of course, the required marketing and sales investments (time and
money) to achieve customer adoption and build the market will increase too.
For instance, tablets and smart televisions were easy to adopt because they
represented simple extensions of functions already available on smartphones
and computers. In contrast, the introduction of robots and instant diagnostics
in the operating theatre has greatly improved the precision and success in
tumour removal but its adoption is moving more slowly. It requires important
new knowledge and behavioural change. Surgeons see their role diminished
and have to work with new medical staff who understand and can operate
this new, essential, medical technology. This new and useful technology is
bringing about substantial change in the profession.
As the previous examples suggest, marketing for radically new products differs
from marketing for line extensions and incremental innovations. The challenge to
sell a radical new product is much greater. First, because radical new products
affect existing product categorisations, existing market data often do not apply.
Consequently, the business plans for these products or services are more uncertain.
(For example, the anticipated market size for smartphones could obviously not be
computed by simply combining or adding up the market data of computers,
phones, and cameras.) Second, radical new products or services often involve
behavioural change at the customer end; they require users to seriously change
their behaviour to enjoy their benefits and thus derive value. Because people prefer
to be efficient, they will only make the investment if they are dissatisfied with
existing alternatives on the market or if the innovation offers something new that
persuades them. Because most new products and services are far from perfect at
introduction, their producers struggle to convince potential customers who are
sceptical in response to ‘eager sellers’ who typically overvalue their products.5

Effectuation
Radical innovations require a novel marketing approach that embraces the
uncertainty caused by the new technology and focuses on customer discovery
and creation. The unpredictability requires talking to and experimenting with
innovative customers to identify the required product-market fit.6 This con-
scious approach of ‘transform the unexpected into opportunities’ is called
4 New business with radically new ideas

effectuation. 7 Effectuation theory suggests that the future cannot be predicted

or controlled. But, by using small steps and experimentation, one can uncover
and control the path of development. The iterative cycle of updating the
status quo with new information relies on experimentation to address and
control the uncertain environment and future. Aspirations and goals can be
updated in the face of new information about market conditions and poten-
tial gains achieved in the process. Experimenting in this way helps young
firms discover and build customers; in so doing, they can thus develop their
product or service’s advantage and achieve a sustainable market position for a
particular group of customers, that is, customer segment. Effectuation
explains how entrepreneurs think and learn in this process of discovery.8
Effectuation inverts the fundamental principles of predictive rationality, which
consider the environment exogenous but predictable and assumes that foresight
and planning can be used to adjust to trends and capture opportunities in the
market (which underlies traditional marketing). In contrast, in the effectuation
view, the environment is endogenous to the actions of ‘effectuators’ (which can
be either firms or individual entrepreneurs) that can apply their resources in an
attempt to contribute to and shape the future through commitments of their
network of partners, investors, and customer contacts.9 Consequently, the starting
point in the effectuation are the resources the entrepreneur has or can gather via
his or her network. These means are actively used to discover product-market fit.
While effectuation logic stimulates young companies to utilise all their avail-
able resources, effectuation marketing and value-based selling guide them in
designating and exploiting their limited resources effectively to create value for
customers.10 Similar to solution selling, value-based selling focuses on using the
sales function as a critical interface for co-creating with customers to enhance
the value-in-use of a product or service, whereas effectuation marketing draws
attention to the fact that markets are not homogeneous but consist of customer
segments with different needs and sensitivities, which may change over time.
Effectuation marketing and value-based selling help the young firm focus on
discovering and building customers rather than just creating products or services.
The effectuation approach is closely related to the method of the lean start-up
developed by Eric Ries.11 Inspired by Lean Manufacturing, he proposed an
approach of early market validation using repeated experimentation to prevent
entrepreneurs from engaging in activities that added no value. Consistent with
effectuation logic the lean method rejects pure analysis and long-term planning
in favour of generating customer data to learn and mitigate uncertainty.12 How-
ever, the focus of the method is on the product development process rather than
the marketing and sales activities.

1.2 Developing your business model

What distinguishes an entrepreneur and start-up from existing firms is their
search for product-market fit and a business model. Although a good product
 New business with radically new ideas 5

(or service) idea is important, a start-up’s viability and survival depend on

whether users or customers can be found, and a viable business model can be
developed. A business model explains how a firm makes (or will make)
money.13 It explains why and how the market opportunity translates into the
entrepreneur’s business opportunity.
Figure 1.1 shows the business model concept at an aggregate level. On the
left-hand side, we see the value creation and delivery system of the start-up.
On the right-hand side, we see the customers’ consumption system; it involves
customers recognising the value put forward by the start-up and their will-
ingness to pay for this value with, for instance, their data or – most of the
time – with currency. If these two parts of production and consumption are in
balance a sustainable system will exist. A third part of the model concerns the
value exchange system displayed at the bottom of the figure. It includes
the negotiations and transactions between the two market parties, that is, the
entrepreneur and its (prospective) customers. Only if the entrepreneur’s results
from sales (and other income related to the exchange) exceed the cost of value
creation and delivery will a profit be made, which can be used to compensate
shareholders for the risk they took and make future investments to maintain
or expand the business.14 The anticipated market size and market share

Start-up/seller Customer
Needs and
Selling wants
Value creation Validation
value by
of

and delivery customer

process
Customer
loyalty

Sustainable
sales and
proits
Money
Consumption
R&D,
product exchange process
Purchasing
concept

Value exchange
process
Figure 1.1 The business model concept
6 New business with radically new ideas

matter also, as this is an indication of how sales volume can develop. This
impacts (decreases) cost price because with increasing volume, cost of raw
materials will decrease and efficiency increase. A final question is whether the
firm will be able to defend its business. Sustainable competitive advantage
depends on the assets and skill needed, being hard to copy. Therefore, a
patent or unique skill (e.g., product leadership or extremely valuable customer
knowledge and relationships) is important.
The role of marketing and sales is to align the two core processes of the
business model and facilitate the process of exchange. Marketing and sales, as
boundary functions, are customer and market oriented and have many con-
cepts that can help create the necessary product-market fit.
A business model concept that focuses on early market validation is Lean
Canvas (see Figure 1.2).15 The tool was adapted from Alex Osterwalder’s popu-
lar Business Model Canvas16 and focuses on finding customer problems worth
solving. It consists of nine basic building blocks that direct an entrepreneur’s
attention to the most fundamental business questions. These include: What is
our product (service) and how does it differ from existing alternatives in the
market? Who are our target customers and what solution do we offer them?
How will we distribute the product, that is, reach these target customers? Why
and how much will these customers be willing to pay for our product (service)?
Does it cover all costs? And, how can we defend our business from competitor
attack? Finally, the model emphasises key measures. Because it adheres to the

Problem Solution Unique value Channels Customer

customer top 3 features proposition how will you segment
problem worth top 3 Unique deliver/reach who are your
solving. Selling Points customers? target
customers?

Key metrics ‘Unfair’

key activities you measure to advantage
track your experiments why it is hard to
copy and thus
sustainable?

Cost structure Revenue

customer acquisition cost revenue
manufacturing cost customer life-time value
overhead gross margin
etc.

PRODUCT MARKET

Figure 1.2 Business model Lean Canvas (adapted from Maurya 2012)
 New business with radically new ideas 7

lean approach, at each stage of development a validation is required which

should be qualified and /or quantified.
For a business model to work, three requirements should be met:

1 the start-up’s new product should have substantial customer value;

2 a sufficiently large group of (target) customers is convinced that the new
product outperforms alternatives in the marketplace;
3 this group should be willing to engage in exchange at a price that com-
pares favourably to the development, production and distribution cost
involved.

Customer value, from the customer’s perspective, is the difference between

the benefits a product delivers and the cost a customer incurs (customer value
= benefits - cost). The benefits extend beyond functional benefits to, for
instance, emotional benefits. The costs include but are not limited to the price.
It also includes customer switching costs, for example, customers’ time and
mental effort required to learn how to use the new product. These costs can
prove a real barrier for customers. Entrepreneurs often overlook these
‘hidden’ economic and psychological costs when pricing their products and
predicting the speed of market penetration. If the customer value is positive,
the product’s chances of being adopted increase. If the value also compares
favourably to that of existing alternatives in the market (called ‘unfair
advantage’ in the Lean Canvas model), things look bright.
Different business models can be developed for similar situations or new
products. Understanding the pros and cons of each model before making a
choice is useful. We identify a few different types.
First, there are the integrated business models, where a firm designs, develops,
manufactures and sells its goods or services. Many firms rely on this model (e.g.,
traditional bakeries). A second model has firms focus on a particular role, for
instance, brand and customer relationship management. Today, many firms own
and sell a brand but outsource most other activities. Many fashion designers and
clothing companies, for example, develop and market the new products for their
brand but rely on Asian partners to manufacture and ship them. Third, there is
the so-called razor blade model, where substantial amounts of income are
earned on a particular derivative facet of a product system. The name refers to
the success of Gillette, the razor company. It is based on the idea of giving the
handle away and earning money selling the blades. Firms applying this model
include telephone companies that offer a new telephone for free (or at a very low
price) and make money selling minutes of calls, or copier firms that sell printers
at a very low price and make money on cartridges, and professional document
flow specialists that live from servicing their machines rather than from the
margin on the machines themselves. Finally, there are the subscription and
advertising models. These rely on periodic (e.g., monthly) fees, or paid advertis-
ing to users to make money.
8 New business with radically new ideas

Doing it right – Check your business model

A useful test for any business model involves a combination of a narrative and numbers
test:17

1 Narrative test. This test asks: ‘Does the story make sense?’ and ‘Does the
proposed product or service indeed represent unique value to a group of
prospective customers, and will this group be interested?’ It should also
address the questions of: ‘Why is the start-up in a unique position to
develop this value and how well is it able to protect its position?’ ‘Why will
intermediaries also cooperate?’ When the story is told, it should make sense;
using this critical reflection and basic questions, the story’s validity can be
assessed.
2 Numbers test. ‘Do the profit and loss add up?’ ‘What kind of resources are
necessary, and how does this affect cost?’ ‘Is the anticipated stream of revenue
and cash flow a sufficiently healthy basis for sustainability?’ By checking
assumptions of production cost and perceived customer benefits with experts
one can simply see whether the numbers add up.

In each episode of the BBC television programme Dragons’ Den, we see how venture
capitalists evaluate and scrutinise the pitch of entrepreneurs (narrative test) and ask for
the general numbers of market size, cost, and sales to check whether these numbers add
up for the proposed start-up. Dragons’ Den and its international variations can be found on
YouTube.18

The Internet, with its instant communications and interactivity, has intro-
duced completely new business models. For instance, many firms in the game
industry started by first posting games for free and then making users pay for
updates. eBay and YouTube get their income from advertising rather than
from selling auction and video space. Two excellent examples are the T-shirt
company Threadless, which offered customers the possibility to design their
own T-shirt and enter a competition to have it produced (see example), and
Spotify, which offers music in paid or free-with-advertising subscriptions.
Although we have stressed the importance of paying customers, we should
recognise that the business models of several disruptive innovators generate
cash flow in a different way. They initially focus on generating users. These
so-called tech unicorns’ company value is primarily based on their growth
potential and expected development. Recently The Economist raised questions
about the validation of many of these young firms, suggesting that many of
them may be overvalued.19
 New business with radically new ideas 9

Example – The Internet and new business models

Threadless is a Chicago, Illinois-based company that sells T-shirts. The firm has been
making millions from ‘crowd sourcing’ before anyone knew what the term meant. The
firm excels in social media and web marketing and it has more than 1.5 million fol-
lowers on Twitter and more than 133,000 fans on Facebook. Their T-shirts typically
cost $18. Founded in 2000, the start-up had immediate and huge success. In a 2008
Newsweek article, revenue was estimated at $30 million (for 2007). The organisation
has an interesting business concept. What sets this firm apart? T-shirt designs are sub-
mitted by visitors to the website, voted on by the user and designer communities, and
the top-ranked designs are produced, then sold online (Figure 1.3).

The A r t
of
Entrepreneurial
Marketing

Figure 1.3 My personal T-shirt design

The unique feature of Threadless’s business model is the customer involvement.

Customers are co-creators, and, as a result, they feel very empowered and extra
satisfied. Co-creating and voting on the designs increases the positivity of their attitude
towards the company and its T-shirts. It also increases customers’ willingness to buy
the shirts, as recent academic research shows. Visitors even prefer the crowd-created
designs over those of famous fashion designers. This confirms that the dynamics and
logic behind the model differ from those of regular fashion houses and stores.20
The emergence of peer-to-peer sites has been another intriguing Internet develop-
ment and business model innovation. Firms such as Airbnb, Uber, Blablacar and Eat-
With are overhauling the traditional business model by teaming up with consumers
who are willing to rent their apartments, cars, or culinary skills for cash. This sharing
economy has created markets out of things that would not have been considered
monetisable assets before. These new providers are lean organisations offering con-
sumers the opportunity to become businesspeople on a part-time and flexible basis.
They have created ingenious infrastructures that allow people to find and interact with
each other, and to engage in exchange for a fee. These infrastructures or platforms
wield great power as brokers between buyers and sellers of the services.
10 New business with radically new ideas

The new collaborative models offer more affordable services to consumers, but
are arguably more resilient too. While hotel and taxi supply are limited and any
increase involves large-scale work, peer-to-peer accommodation and capacity is
agile, limited only by the willingness of people to offer up their empty rooms or
offer a ride. Customers are attracted to this peer-to-peer model for economic,
environmental, lifestyle but also personal reasons. A key factor in the marketing
approach is assuring trustworthy reviews, high service quality at a low price and
attractive extra income for the person renting out his/her apartment or car.21

Example – Exploring alternative business models

Start-ups often adopt a certain business model, but in the process of looking for their
best business opportunity, they shift to another model.22 It is part of the experimentation
stage to discover customers and validate the value of the new product for the market at
large. For instance, the start-up company Inmotio began selling a monitoring device for
sport teams. The product included jackets with sensors (for each player) and receivers
that were placed at the four corners of a playing field to monitor several vital functions of
the players and to measure their position and movement. The information gathered by
the system helped coaches fine-tune individual players’ efforts and team performance.
However, after a while, Inmotio realised that the materials could also be rented out to
teams and that the new firm could make money assisting teams by analysing the data and
selling advice and consulting. In this structure, sports teams did not have to make a large
initial investment and, as a result, were more willing to try and buy the service.

1.3 Defining marketing and sales

Historians have argued that marketing is a combination of the words ‘market’ and
‘getting’.23 Two interpretations of marketing exist: (1) marketing as a function or
set of specialised activities performed by a (group of) specialist(s) and (2) market-
ing as a philosophy. 24 The former refers to the marketing person (or department)
and their activities, such as market segmentation, advertising, and pricing. Two
levels of marketing activities are generally distinguished: strategic and tactical
activities. Marketing strategy deals with issues such as: Which customer groups to
target? When and how to reach them? Tactics involve activities related to price,
place, product, and promotion, so for instance, determining the actual product,
setting its price, developing channels of distribution for it, and creating product
information and advertisements. Tactical decisions should be aligned with strate-
gic decisions and are used to detail and implement the marketing strategy.
Marketing philosophy refers to the need for firms to have a market-oriented
culture which promotes all employees to systematically use market information
 New business with radically new ideas 11

and make market-informed decisions in each of its business processes. Market

information can help employees understand the mechanisms underlying custo-
mer behaviour and understand the drivers of success in the marketplace against
the backdrop of competitors and their behaviours. Because markets are places
where customers and providers meet for exchange, customer and competitor
information are important. Customer and competitor information should be
collected, disseminated, and used systematically. By discussing such informa-
tion, a joint mindset is developed; by using the information in decision making,
the organisation will act in a market-oriented way. A firm’s marketing specia-
lists are expected to facilitate the creation of a market-oriented culture and
behaviours in an organisation.25 If marketing performs its task well, it will
create satisfied and loyal customers. Consistent with this, marketing has been
defined as identifying and developing lasting customer relationships, and a
marketer’s time horizon is generally long term.
By discovering the ‘right’ customer segment and using arguments that resonate
with this group, a customer base can be created and then extended. Yet, in the case
of a start-up, this customer development is not straightforward. The main question
is whether the newly developed product has properties that are recognised by cus-
tomers and are valuable enough for them to switch from their current product and
supplier to the new product and provider. The more radical the new product, the
harder it will be to find the relevant group of potential customers. More experi-
mentation or probing of the market will be required to make things work. By
engaging in co-creation with innovative customers of the target segment and using
rapid prototyping, an entrepreneur quickly finds out whether the original idea of a
new solution or product makes sense and can be developed into a new business.
This brings us to the difference between traditional marketing and effectuation
marketing. Traditional marketing focuses on existing markets whose future can
be predicted and uses a planning approach to grow the business.26 Existing
businesses set goals to sell more to current customers, or acquire new customers
for its products. In contrast, effectuation marketing is geared to entrepreneurs
and their start-up firms which are unproven and first need to establish product-
market fit and find their business model. It begins with the entrepreneur’s new
technology or product idea and, through experimentation with innovative cus-
tomers, tries to find a product and thus solution to a problem of a certain (maybe
emerging) customer group. Because the outcome cannot be predicted, small
iterative steps are used to discover the future. The aim is to find and/or create a
new market. Effectuation marketing thus is about experimentation with innova-
tive prospective customers and ensuring that the application that is developed
will also resonate with other (more average) customers in the marketplace.
Sales is the operational task involving prioritising and meeting potential cus-
tomers as well as closing new deals. Consequently, salespeople generally have
shorter time horizons than marketeers. Sales is an important function because it
generates cash flow. Sales should ‘hunt’ for new customers to expand business
and turnover and ‘farm’ existing customers to ensure the firm’s ‘bread and
12 New business with radically new ideas

butter’. Satisfied customers are important because they may make repeat pur-
chases and become loyal. Moreover, they may act as references to persuade other
potential customers. Identifying potential customers, educating them and pro-
viding input to the firm’s engineers to improve the product based on customer
feedback are critical tasks.
Existing frameworks for selling typically assume that the salesperson has a
ready, or fully developed, product to offer, and can focus all efforts into making
the sale. Although this may involve listening to the customer carefully, the
goals – making sales and generating income – are straightforward. Yet, in the
case of a start-up, the fully developed new product is a myth.27 Consequently,
extraordinary sales capabilities are required, such as collecting detailed infor-
mation about potential improvement and redesign. This resembles more solu-
tion- or value-based selling than so-called transaction selling. The former two
selling approaches focus on understanding a customer’s business processes, and
related problems, and helping develop a solution together with the customer.
Discovering those customers who most appreciate the new product solution
and working with them to improve it to a level where additional customers will
accept it too is an important task of the salesperson in an entrepreneurial set-
ting. Once this validation stage has been successfully completed, sales efforts
may be stepped up and extra salespeople can be hired.28 Then, the firm can
switch to regular or traditional selling practices.
In conclusion, effectuation marketing, rather than traditional marketing, is
necessary for entrepreneurs of radically new ideas to enact market opportu-
nities and convert them successfully into a new business. It is not linear and
planned, but relies on creativity, iteration, and searching for suitable partners
to seize the new opportunities as they emerge. It concerns a process of con-
tinuous experimentation to reduce risk and compress time to discover and
build customers and create competitive advantage. Table 1.1 summarises dif-
ferences between traditional and effectuation marketing.

Table 1.1 Juxtaposing traditional and effectuation marketing

Traditional marketing Effectuation marketing
Market situation Known market Unknown market
Approach Planning, predict change and Experimentation to reduce
adapt uncertainty
Aim Growth, leverage or extend Survival, find business model
business model
Market insights Formal market research and Informal co-creation with
intelligence innovative customers
Resources Well-planned budgets and Limited resources, creative
anticipated effects use of means
 New business with radically new ideas 13

1.4 Beyond stereotypes

Many entrepreneurs are sceptical about the value of marketing. Stereotypes
about it prevail. Why? First, many entrepreneurs are engineers. In general, they
tend to consider only the technical issues as the challenges to be met and as
worth spending time on. Everything else is ‘soft’ or ‘not concrete enough’. This
attitude leads to a polarised market view and to in-group–out-group thinking.
As many marketeers lack technical backgrounds, they are part of the out-group.
Second, many engineers have limited understanding of marketing and sales.29
They lack adequate knowledge about the commercial disciplines and may, for
example, confuse marketing with advertising. This limited understanding results
in a simplistic and incorrect evaluation of marketing’s contribution. Even advo-
cates of lean start-up frequently make this mistake. They often mention that
marketing is no help, without explicitly stating that they mean “traditional
marketing is no help for entrepreneurs selling radical new products”.
Third, a lack of knowledge about the commercial aspects often results in
entrepreneurs having a too simplistic view of marketing and sales problems.
They may believe that the only condition necessary for a sale is an innovative
product or service. They fail to see or understand that the product’s unique sell-
ing points require carefully designed communication using a customer point of
view and considering the decision-making unit of the customer. As a result, they
may oversimplify or perform the market research and develop the marketing
themselves, often making obvious mistakes in the process.
Discussion between engineers and marketeers or salespeople may help to
resolve these issues. Through measurable activities that demonstrate the contribu-
tion of marketing activities to the bottom line, marketeers are most likely to per-
suade others, including the engineers involved. This may include tactfully
explaining that although excellent new products might ‘sell themselves’, most new
products are, unfortunately, far from excellent. They can point to the important
role marketing can play in establishing product-market fit and creating customers
for the new firm, and the fact that most start-ups have been found to fail not due
to problems with the technology or engineering but from inability to find and
persuade customers.

Summary

Entrepreneurs are people with new ideas who develop their own businesses.
These business ventures are referred to as ‘start-ups’.

Radically new ideas differ from incremental innovations because they typically
require substantial behavioural adjustment from customers and often change
product categories, making prior market data largely obsolete.

The first task of a start-up is to find this business model. It explains how (the
product–market fit) and why a start-up will make money (unique value pro-
position, and sustainability of its competitive advantage).
14 New business with radically new ideas

Effectuation marketing and solution- or value-based selling are important busi-

ness functions for creating a customer.

Effectuation marketing differs from traditional marketing by using experi-
mentation rather than prediction to find and build customers.

Notes
1 Porter and Heppelmann (2015); Ulaga and Reinartz (2011).
2 McMullin and Sheperd (2006).
3 [Link]
4 Guiltinan (1999).
5 Gourville (2006).
6 Lynn et al. (1996).
7 Sarasvathy (2001).
8 Sarasvathy and Dew (2005).
9 Read et al. (2009), p. 14.
10 De Jong et al. (2021).
11 Ries (2011).
12 Teece (2010); Ghezzi and Cavallo (2020).
13 Foss and Saebi (2017); Magretta (2002).
14 An exception to this logic are the so-called tech unicorns that aim for a large customer
base although they keep burning money. The investors hope that eventually these
firms will dominate their market and turn a profit. The Economist (2019).
15 Maurya (2012).
16 Osterwalder and Pigneur (2010).
17 Ibid.
18 [Link]/programmes/b006vq92 (accessed 16 December 2016).
19 The Economist (2019).
20 See [Link]/2010/07/t-shirts-and-social-media-how-threadless-gets-it-
right/#.WJBJe9xhnX4 (accessed 31 January 2017); and Fuchs and Schreier (2011),
respectively.
21 [Link]/business/the-sharing-economy-shakes-up-traditiona
l-business-models (accessed 16 December 2016).
22 Ehret et al. (2013).
23 Kotler and Keller (2006).
24 Moorman and Rust (1999).
25 Li and Calantone (1998).
26 Read et al. (2009).
27 Onyemah et al. (2013).
28 Leslie and Holloway (2006).
29 Lynn et al. (1996).
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