In the world of entrepreneurship, the journey of creating and scaling new markets shares striking similarities with the process of caring for infants in their earliest stages of development. Fresh off paternity leave, I have been reflecting a lot on these similarities and how an innovation theory called interdependence and modularity helps connect the dots.
Babies, with their adorable innocence and vulnerability, rely entirely on their caregivers for every aspect of their well-being. From feeding and dressing to bathing and soothing, parents or caregivers shoulder the responsibility of meeting their every need. This nurturing also extends beyond basic care to encompass the critical task of introducing them to the world, teaching them language, behavior, and safety. Essentially, parents must attend to virtually every aspect of a baby’s early development to ensure their healthy growth.
As children grow, parents gradually delegate various tasks to them. Sometimes children, often before they are ready, demand to take on certain tasks. For instance, as youngsters mature, they begin to feed themselves, master potty training, read, and develop awareness of basic hazards in their environment. None of this is new information when thinking about a child’s development.
Now, let’s draw parallels with the process of market creation. As a new market emerges, the entrepreneur must take on a multitude of responsibilities—from crafting the new product and educating the customer on its benefits to building out distribution and often establishing the entire value network. This is sometimes referred to as vertical integration.
For example, when Ford Motor Company was creating a new automobile market for hundreds of millions of people who couldn’t afford cars, the company “ran coal and iron ore mines, timberlands, rubber plantations, a railroad, freighters, sawmills, blast furnaces, a glassworks, and more. Capping it all was a giant factory at River Rouge, Michigan, which built the parts and assembled the cars.” Similarly, when Tolaram, makers of Indomie noodles in Nigeria, began the process of creating the market for noodles in the country, the company built manufacturing plants, distribution networks, retail shops, and invested heavily in customer education. The same process happened for the telecommunications sector across Africa. Early companies and entrepreneurs needed to invest in building out the entire cellular infrastructure if they were going to successfully create the market.
Just as infants rely on their parents or caregivers for every aspect of their care and development in infancy, markets depend on entrepreneurs and investors to undertake every essential task in their creation. Over time however, as markets (like infants) mature, specific tasks and activities can be reliably outsourced to suppliers and partners.
The interdependence and modularity theory provides insight and guidance as companies consider what activities to manage in-house or outsource. Modularity theory is a framework for explaining how different parts of a product’s architecture relate to one another and consequently affect metrics of production and adoption.
A product is modular when there are no unpredictable elements in the design of its parts. Modularity standardizes the way by which components fit together — physically, mechanically, chemically and so on. The parts fit and work together in well-understood, crisply codified ways.
A product is interdependent when the way one part is made and delivered depends on the way other parts are made and delivered. Interdependency between parts requires the same organization to develop both components if it hopes to develop either component.
Organizations perform a myriad of connected activities such as design, sourcing of raw materials, manufacturing, testing, distribution, marketing, sales, after-sales service and support, and so on. Each step adds some value to the finished product.
Before an organization chooses to outsource any of these activities to outside suppliers, it should start by asking itself whether the activity meets the following standards:
Specifiability: The standards must specify all the critical design elements for producing desired outcomes.
Verifiability: There must be a way to verify that the standards are met.
Predictability: A system that is verified to meet the standards must produce the desired outcomes with a high degree of predictable success.
If the interface isn’t specifiable, verifiable, or predictable, then the organization must integrate that particular operation by handling it in-house. For example, if the organization cannot rely on distribution companies to get its product to retail stores for sales in a specifiable, verifiable, and predictable manner, then the organization is better off developing its own distribution channel. Alternately, if the organization cannot depend on external retail outlets to sell its products in a specifiable, verifiable, and predictable manner, then the organization is best served by developing its sales channel.
As babies progress through infancy and into childhood, they gradually assume greater responsibility for their own needs and development. Caregivers progressively entrust them with tasks, allowing them to become more self-reliant over time. This evolution continues until they reach adulthood, where they become fully accountable for their own growth and well-being. Similarly, in the early stages of market creation, entrepreneurs, investors, and policymakers bear the burden of nurturing and shaping the market. As the market matures, various responsibilities can be outsourced to suppliers, partners, and other stakeholders within the ecosystem.
