The Business Domain Your Company Should Target

The challenge: the symptoms caused by the absence of a strategically defined target domain

When the question is "let's think about new businesses," the discussion of "where we should focus" is naturally necessary. If the target domain is not defined and the process is left entirely to bottom-up generation, many ideas that happen to come up in everyday life are submitted, and they tend not to align with the company's strategy.

The very fact that the business domain has not been defined likely points to the absence of a long-term strategy in the background. A long-term strategy says, in effect: "Our company's goal is X. The capabilities we have today are Y. To achieve X, succeeding in business domain Z means making real progress."

Without a long-term strategy on the table, business proposals end up being presented to the executive team in highly random, scattered domains. When the domains are scattered, information, knowledge, and customer base cannot be shared across each business under consideration, and we end up debating, case by case for each individual proposal, whether or not to enter that particular domain.

Since the probability of the company deciding to enter a domain without strategic validity is not high, proposals are frequently rejected with the reason "we don't see why our company should do this," and the proposers lose motivation.

The effects gained by narrowing down the business domain:

1. Faster decision-making:

Once management defines the business domain in which it intends to invest, the next point of discussion becomes "can we win with the approach proposed?"
The debate about "should we go into this domain in the first place?" has been settled, so we can focus on the entry strategy. The professionals working through it can also reduce the waste of considering an entry strategy for a domain in which the company has no intention to enter in the first place.

2. Bottom-up insight discovery

To draw up an entry strategy, repeatedly engaging in dialogue with actual customers and incumbents is necessary. It is not realistic for the executive team of a large enterprise to do this themselves.
It is more appropriate for the sales and development professionals who work on the front lines to build it up. By clearly defining the target business domain, you can encourage these appropriate professionals to discover insights on their own initiative.

3. Sharing of managerial resources

Inside companies, a surprising amount of exploration takes place — but information and networks are rarely shared across the various projects. To begin with, the probability that any one project moves from initial review to actual entry and is then established as a fully fledged division is not high. Many projects come to a halt midway.
That said, halted projects are not entirely a waste. In the process, the team should have acquired plenty of information, knowledge, networks, and technology. To utilize the resources built up through working on multiple such projects as actual resources, the target domain must be narrowed down.
Even if the business does not ultimately succeed, you can hand off those resources to other businesses.

How to discover the domain:

Unfortunately, it is not the case that organizing a waterfall-style project using a particular method will automatically surface a promising domain. Defining the target domain means drawing up a long-term strategy that includes the vision, so it is appropriate that no claim such as "running a specific analysis will derive it" can stand.

The ways the companies interviewed in the book defined their own domain were also the result of largely serendipitous processes.

Some companies were prompted by learning about an incumbent that was profitable (this method is, in fact, extremely practical); others discovered structural change through research; and still others started from their own personal passion. The book mainly covers four discovery methods.

What is rarely covered in other books, but which I see as highly practical, is **"starting only after you understand the inner workings of a profitable incumbent."**

Books aimed at startups in particular tend to emphasize a problem-led approach. In environments where competition is so fierce that any time spent observing incumbents would mean the entry opportunity is immediately closed, being led only by the customer to enter is conceivable. Under normal competitive conditions, however, there are incumbents who give you abundant hints.

An incumbent being profitable and growing means that in some domain, demand is sufficiently strong, and that the incumbent has discovered a highly profitable business for you. The process of considering how your own company can leverage its capabilities to capture this "strong demand" — already proven to exist — is appropriate. Also, in high-demand domains, "selling a service entirely different from any competitor" is not a prerequisite for entry.
On the contrary, over-emphasizing differentiation often sacrifices the perspective of value seen from the customer. "Different from competitors (i.e., differentiated)" does not necessarily guarantee "sells (i.e., the customer perceives value)."

One word of caution: if you are going to "start from personal passion," you should be prepared to stick with it for at least 10 years. What I found striking in remarks by Mr. Kataishi of Yutori was: "Through a simple study, it is difficult to continuously launch products at a level that can be called profitable. I myself have been steeped in the world of apparel since the age of 15, and a simple study cannot substitute for that."

I expect you will agree that in a domain crowded with people of this kind of passion, a new entrant who thinks "I happened to get interested in everyday life and did some research — let's enter on a trial basis" (with a project window of three to six months) simply will not work.

Starting not from current capabilities but from personal passion means that the only competitive strength you can use at the outset is your passion itself. Is that at a sufficient level? If you can say it is, you may be able to realize the passion-led entry that Yutori, Progrit, and Akatsuki achieved.

The details of each method and the corresponding cases are covered in the book, so please use it as a reference for "how to discover the business domain that is right for your company."