"Phil, turn that trash off!" How many times I must have said that during the first couple months of college, when my roommate put his R.E.M. records on the turntable (we had turntables back then).
This was before the group's breakthrough hit album Document, and I couldn't stand the infernal stuff he had brought with him from his elite New England boarding school. I was a beach kid from Ft. Lauderdale, raised on mainstream FM radio, and my world was pretty narrow. But, sure enough, by December of that year I was really liking R.E.M., and by March they were my favorite group. Now that R.E.M. is ending an amazing 31 years, that experience stands out as an early lesson in how new markets form. Here are six lessons to take away from their story:
1. New Markets Form through Networks -- Phil had caught on to R.E.M. through his fellow boarding school students, and some progressive soul must have been the first apostle of the band there. I learned from Phil, and the summer after freshman year I proselytized about R.E.M. to my beach crowd. FM radio picked up the band afterward, in my personal opinion after its best work was already behind it (cue howls of reader protest). New markets tend to get started that way -- a narrow group of foothold users takes up the innovation, people see the new offering being used firsthand and try it themselves, and then mainstream sales channels catch on. The iPad is the exception, not the rule; personal or B2B networks are essential to the first success of truly novel offerings.
2. New Leaders Stand Out -- Really new propositions tend not to form through a slow evolution of established leaders. Rather they are heralded by a vanguard of new firms grabbing attention through being so different. If R.E.M. had done mainstream 80's rock with a few interesting twists, they might not have gotten very far. The competition was too intense. Instead, they were noted for setting off in a totally different direction, even if it took laggards like me a while to recognize how brilliant that direction was. In many markets, the established leaders manage to embrace the new wave and co-opt it. Netbooks were supposed to disrupt PCs, until PC makers started building them in droves. A musical sound is more unique than a netbook, and R.E.M. was forever associated with the tastes it helped to form.
3. Cultivate the Foothold -- Rather than taming its sound early-on for the mainstream, R.E.M. catered to its concentrated but intensely loyal fans. The band released Dead Letter Office before Document, and the former collection of B-sides and previously unreleased material was definitely not made for American Top 40. R.E.M.'s fans, like Phil, helped to popularize its sound to the point that Document could be recognized for the amazing album that it was.
4. When Success Comes, It Can Be Fast -- The design of the bicycle was tinkered with for decades before the contraption became a runaway hit in the late 1800s. Marconi created his first radio receiver 25 years before the devices became hugely popular in the 1920s. Bill Gates demonstrated a tablet computer at a trade show in 2000. Great ideas can take a while to be refined and win over their first early users, but when the idea's development and the trajectory of popular tastes intersect, success can happen lightning fast. R.E.M. patiently built its fan base and repertoire before its breakthrough; it's "overnight success" was anything but.
5. Stay Flexible -- Too many early leaders of new markets stick to the formula that first won them success. Having pioneered the smartphone, RIM kept making sleeker Blackberry models, until the market shifted to embrace something completely different. R.E.M. deserves huge credit for changing its sound with Green, the group's follow-up album to Document. Then they did it again with their next album, Out of Time, using instruments including the organ and mandolin. The group understood that it had released a genie from a bottle, unleashing a fast change in musical tastes. It kept pace.
6. Know Your Lifecycle -- So many business success stories become one-trick ponies. Think of Starbucks and Home Depot, doing what they've always done quite well but no longer generating spectacular growth. Decisions such as Netflix's recent move to jettison its DVD-by-mail business are incredibly rare. Far more frequently, yesterday's vibrant firms become today's Goliaths and tomorrow's has-beens. R.E.M. was too great to fade into irrelevance.
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NEW MARKETS ADVISORS