“Operating in a new market, particularly one which is also bound by strict legislation, is like operating in a whole new world. Not only are you emerging as an organisation, but you also a part of an industry that is emerging and this can result in constant pivots and changes of how that industry matures.”
Advisory Role: Business Strategic Advisory and Disruption Strategy Advice
Status of Product when Engaged: Prototype Built
Actual Product: Medicinal Cannabis
Progress Status of Project: Project Management
Type of Innovation: New Market
Intended Market: National
There has been a lot of media hype about the Medicinal Cannabis sector and its evolution in Australia since legislation was passed on the 24th February 2016 to legalise its use for medicinal purposes. In this project, we are navigating a relationship between a commercial cultivating operation of significant size with a start up operation that has a patented formula of Medicinal Cannabis.
From a Disruption Theory perspective, this is an intriguing case study of a completely new industry that has emerged with gusto, however as an industry, it would be termed as immature with many facets still evolving, which in turn creates new sets of challenges for those aiming to be major players. Naturally, new industries offer profit formulas that can be very attractive to individuals, small to medium size businesses, corporates and multi-nationals alike. In a way (and this is no reflection on any individual businesses in the sector), it is a bit like the wild wild west.
If you think about the current market place, identify the incumbents (the existing dominating suppliers of competitive products i.e. pharmaceuticals) and assess what type of innovation medicinal cannabis is, it is easy to conclude that it is a new market innovation. New Market Innovations have three compelling characteristics:
1) they target “non-consumption” markets; those who do not have access to the product due to cost, complexity or in this case, legal and safe means of acquiring
2) producers can make profit from lower prices per unit sold (think about the cost of pharmaceutical companies in getting their products to market) and
3) the product “may not” perform as well as traditional methods however the new market consumers are willing to redefine their measures of performance (many would argue that medicinal cannabis can outperform traditional medicines but the fact still remains that the general population would ‘trust’ traditional methods more, currently).
As a new market innovation, medicinal cannabis still has an enormous amount of work to do before it begins to disrupt the greater population of traditional medicine users. Establishing distribution networks (largely Doctors) is and will continue to be a progressive task. Building trust in the marketplace of users is another barrier. Challenges exist in Australia with supply chains, governance, investment capital required to establish efficient processes and market accessibility.
Our role in this project was not a commercialisation role; both the cultivating firm and new start up manufacturer were well under way with their plans. However, identifying the ‘go to market’ strategy under disruption strategy was an interesting exercise. As almost always, our process begins with; what is the job to be done? In this case, we defined the job to be done as “to provide pain relief through a natural organic product”. At this point, knowing and understanding the target market is fundamental in developing the commercialisation strategy. And a big part of that process is to firstly understand the customer journey of the target market and learn what the ‘compensating behaviours’ are that allow those target market customers to ‘do the job.’
The project management of this job was challenging. On one hand we had a sophisticated cultivation company backed by a highly experienced and capitalised family office. The manufacturer, as a start-up, developed signs of not being capable or having the capacity to match the supplier. As the deal was entering a critical phase, the manufacturer was also trying to bring the product to a prototype stage, putting together their board, understanding their market, marketing strategies and building marketing collateral. They were also fixated on raising capital (which was the correct strategy), pursuing their patents and developing distribution channels. In other words, they were extremely overloaded with activities and the internal disorganisation was obvious. Our frustration stemmed by seeing what could be done to help, unfortunately we were not engaged to play that role.
Commercialisation / Launch
The product is yet to launch and while the manufacturer continues to believe they will ‘hit the market’ in the next couple of months, our concerns lie with the ‘process’ that is being engaged in their strategy development. In short, while we continue to act for the cultivating firm, we are holding our breath to see if the manufacturer will learn sufficiently, and in time, to organise themselves to maximise the market opportunity and develop go to market strategies that align with disruption strategy.
- Start-up companies can be impatient in getting to market. While this is understandable as the burn rate (of cash) dictates the need to move quickly, spending time to organise your commercialisation roadmap can actually increase the speed and efficiency to market
- Operating in a new market, particularly one which is also bound by strict legislation, is like operating in a whole new world. Not only are you emerging as an organisation, but you also a part of an industry that is emerging and this can result in constant pivots and changes of how that industry matures
- Knowing your target market and understanding ‘what is good enough’ by way of product acceptance, is vital in knowing how to get to market. Do not mistake the phrase ‘good enough’ as being a phrase of unacceptable or dangerous product; products within these sorts of industries must meet strict consumer guidelines. The point here is that understanding that a new market of non-consumers WILL redefine their own performance standards.
- Focus – know the characteristics of your target market and WHY they will become consumers of your product having been ‘non-consumers’. You must become intimate with understanding HOW this market are compensating to get the job done i.e. those who detest pharmaceuticals either for health, belief or value reasons are likely using other methods to obtain pain relief, which may not be in their best interest
- Position yourself well if you intend to raise capital. Speak to those that are experienced, understand the value proposition for investors that you have and knowledge of the right investors for where you are in your commercialisation lifecycle i.e. in this case, Angel investors who can also bring experience, networks, skills and knowledge to the table would be advisable.