

When “Scratch Your Own Itch” Is Dangerous Advice for Entrepreneurs

Geplaatst op mei 20, 2014 in News

“Scratch your own itch,” is one of the most influential aphorisms in entrepreneurship. It lies behind successful product companies like Apple, Dropbox, and Kickstarter, but it can also lead entrepreneurs predictably to failure.

This approach to entrepreneurship increases your market knowledge: as a potential user, you know the problem, how you’re currently trying to solve it, and what dimensions of performance matter. And you can use this knowledge to avoid much of the market risk in building a new product. But scratching your own itch will lead you astray if you are a high-performance consumer whose problem stems from existing products not performing well enough – in other words, if the itch results from a performance gap.

Building a company around a better-performing product means competing head-on with a powerful incumbent that has the information, resources, and motivation to kill your business. Clayton Christensen first documented this phenomenon in his study of the disk drive industry, and found that new companies targeting existing customers succeeded 6% of the time, while new companies that targeted non-consumers succeeded 37% of the time. Even with a technological head start, wining the fight for incumbents’ most profitable customers is nearly impossible.

An itch can result from two very different sources: existing products lacking the performance you need, or a lack of products to solve your problem. In the former case, you already buy products and will pay more if they perform better along well-defined dimensions. In the latter, products don’t exist at all or you lack access to very expensive, centralized products and so make due with a cobbled-together solution or nothing at all. It’s the difference between needing another feature from your Salesforce-based CRM system and spending hours and hours tracking information in Excel because you can’t justify the expense of implementing Salesforce in the first place.

Consider, for example, two successful companies that at first seem to result from performance-gaps: Dropbox and Oculus VR.

Dropbox began with the difficulty of backing up and sharing important documents, and developed a system that was easier to use than carrying around a USB stick and less expensive than paid services like Carbonite. Dropbox didn’t just set out to offer superior performance; it targeted an entirely new customer set that wasn’t using existing solutions, with a business model that would undermine the incumbents’ most profitable customers. Dropbox’s business model made head-to-head competition with incumbents unlikely, since the Carbonite’s of the world sensed that they would earn less off of their best customers if they offered a free service.

Oculus created a virtual reality headset designed to be a hardware platform, primarily focusing on gaming – and recently sold to Facebook for $2.3 billion. Although envisioned as a platform that would enable any kind of virtual reality application, Oculus was created with hardcore gamers in mind. Unlike Dropbox, Oculus’s first customers would have been the most profitable customers of existing game platforms, giving incumbents like X-Box and PlayStation a strong incentive to emulate Oculus’s technology to retain their best customers and make them even more profitable.

Oculus, of course, was wildly successful. But only because Facebook felt that, despite being developed with existing customers in mind, the technology would be appealing to non-gamers for the purpose of messaging and social networking. Facebook bought Oculus to rescue it from a flawed strategy by shifting its focus from high-end customers to non-consumers.

Oculus’s founder set out to scratch his own itch by creating a new gaming platform, one that targeted a customer set of hardcore gamers who were already served by incumbent firms. Dropbox’s founder scratched his own itch by creating a product aimed at a new set of customers, who weren’t being served by incumbents. The difference matters greatly in terms of a company’s competitive position.

Before founding a business around a problem you face, first understand whether that problem is a performance gap or a product void, by asking the following questions:

  • How am I currently solving this problem?
  • Do other products exist that solve this problem?
    • Do they provide good enough performance, or is there still a performance gap?
    • Are they too expensive to use? Are they centralized and do they require special expertise?
  • Would this product make any incumbent’s existing customers more profitable?

Ultimately, if your product would make an incumbent’s best customers more profitable, you should steer clear: Facebook won’t always be there to bail you out.

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