List member Ben pointed me to this, and it’s quote interesting.It’s a short piece from AngelList on the opportunity in the funeral business and how some startups are moving on that opportunity.
It causes one to think: what creates opportunity in the first place?
Not what created this specific opportunity, but what creates opportunity in general?
In the case of the ~20 Billion funeral market, two things had to happen: 1) broad changes in customer sentiment and 2) changes in legislation. It’s possible the former drove the latter, but even if not, changes in sentiment and legislation both had to happen in order to create the kind of opportunity we’re seeing today.
That opportunity, by the way, can be very simply thought of as “green burials”; burials done without as much or any preservation and durable hardware.
I’m getting very speculative here, but it’s interesting to try to imagine how one might have seen this opportunity coming and moved on it just early enough to build up a leading market position, but not too early, because that often doesn’t work out well. To build a model of how one might spot opportunity coming, let’s first think about market awareness.
The more aware a market is, the less education cost you’ll bear.
Circa 2006, the consumer market was largely unaware of the value of a $600 pocket-sized computer that could also make phone calls. This meant that Apple and other smartphone pioneers had a lot of expensive education and awareness-building work to do. You could think of this as an investment that lowered their future cost of sale, you could think of it as a cost that early movers have to bear in order to earn their first-mover advantage, or you could simply think of it as a cost that’s unavoidably bundled with innovation. But what you can’t do is ignore this cost, because it can be significant enough to kill innovations that are too early. The short 5-year lifespan of Apple Newton MessagePad was certainly not a single-factor failure, but the state of awareness of the circa 1993 market certainly played a role. Even at an inflation-adjusted $1129 price, it would have been extremely expensive to educate the market on the value of the Newton and acquire customers beyond those who already “got it”.
So this first part of our model is market awareness. This is critical.
The second part of our model for spotting opportunity coming at the right time is… well, I don’t have a great term for it, so let’s think of it as adjacency or context.
Sometimes new opportunity in Industry X is created by changes that originated in… Industry X. And sometimes, it’s not.
Sometimes new opportunity in Industry X is created by changes that originated outside Industry X. This is what I mean by adjacency/context. Sometimes the changes that create opportunity originate elsewhere, in either an adjacent industry or in the larger cultural context.
The reading I’ve done on the opportunity in the burial business suggests that it’s broader customer sentiment about “green” issues that’s driving the current opportunity in the burials business. This is a change in the larger cultural context. It effects not just the burials business but also retail, auto, CPG, and a multitude of other sectors. And this change did not originate within the burials business. It came from the outside.
A quick recap of our model:
- Market awareness: Increases in customer awareness (awareness of the value of a new innovation) drive down the cost of selling that innovation.
- Adjacency/Context: Change that creates opportunity can come from within an industry, but–quite importantly–it can also come from adjacent industries or the larger cultural context.
- Curiosity: Your ongoing curiosity drives a recurring process of inquiry into the above 2 factors.
Back to our larger thought experiment here: How might one have seen this funeral business opportunity coming and moved on it just early enough to build up a leading market position, but not too early?
In a general sense, and following our model here, I think you might have paid attention to broad changes in the culture and repeatedly asked of each change: “I wonder how this might effect my customers?”
It might seem like I’ve made an argument against specialization here, but I don’t see it that way because specialization is not myopia, it’s strategic focus. This kind of focus doesn’t magically deprive you of the ability to pay attention to the big picture.
In fact, specialization makes this “opportunity early warning system” work better. If you don’t have deep insight into a specific vertical or horizontal, you won’t see the full potential of adjacent or broad-based cultural changes to impact your area of specialized expertise. Specialization gives you the ability predict or imagine how external changes could effect your area of specialization. Without the specialized expertise, you might see the external changes just fine, but you won’t fully grasp the implications of those changes for your area of focus (because you haven’t chosen and pursued a single area of focus!). 
This process of repeated inquiry from our innovative funerla business person might have looked something like this:
- “Huh, seems like every third article I read about these days is about the green movement.”
- “What would the funeral business look like if our customers insisted we were ‘green’ also?”
- “I suppose they might want fewer chemicals and less hardware involved in the process. I wonder what that might look like?”
- “OK, I’ve taken this as far as I can inside my head. I need to talk to customers and get their perspective on this. I especially need to understand their state of awareness and whether they need to be educated about the value of a burial with fewer chemicals and less hardware, or whether they just ‘get it’ already because of the broader cultural green movement.”
Is this process economically efficient? Not in the short term. You might burn through quite a few non-starter ideas because the adjacent/cultural change is insufficiently relevant to your clients, or because the market awareness isn’t high enough.
But in the long term, I can’t imagine running a great expertise-driven business without regularly investing in this process. Because this kind of thing is what keeps you creating new, exceptional value over the long haul.
1: I didn’t have time here to go into the notion that as a more profitable specialist, you can simply afford more time to pay attention to adjacent/contextual changes. In other words, you’re not working so damn much, so you can read and learn and inquire more broadly.
Recent Daily Insights
- [PMC Daily Insight] Some useful market research tools - I've been meaning to share a few useful tools for getting a quick and easy market size. First, this from Rob in the UK (shared with his permission): I’m really getting a lot of value from your work. Thank you. Thought I’d share this with you. It’s the UK industry classification framework which might be…
- [PMC Daily Insight] The 2019 Meeker Report, interpreted for consultants - Here's what struck me from an initial read of Mary Meeker's 2019 Internet Trends Report, seen from the lens of how these trends might be interesting or useful to the indie consultant. Slides 28 - 30: "Effective + Efficient Marketing = One's Own Product + Happy Customers + Recommendations" This section tells a story of…
- [PMC Daily Insight] Unfortunately, you’re in a relationship business - This is really interesting, and although I'm linking you to what appears to be the full academic paper, you can read the whole thing in probably 3 to 5 minutes: rsa.tandfonline.com/doi/full/10.1080/21681376.2019.1588155 I'll summarize the key points if you'd rather not read the paper right now (even if you don't read the paper, please look at…