How Are Markets Made?
Received wisdom in economics suggests that markets exist either as obvious or latent demand and market competition acts as a discovery procedure to develop technological and other forms of innovation to provide solutions to both (Hayek, 1984). Historical evidence does not always support this for demand does not always pre-exist even in a latent or dormant form (Lancaster, 1971). Moreover, a market is more than demand and supply (Fligstein, 2002). Markets are complex webs of relationships and logistics involving the entire spectrum of organizational challenges from individual initiative to collective action (Olson, 1996). Neither theories of free markets nor governmental and institutional theories are sufficient to explain the coming into being of new markets. According to Santos and Eisenhardt (2009), entrepreneurs use "soft power" strategies to co-construct organizational boundaries in order to dominate nascent markets. Histories of well-known ventures from Wedgwood to Estee Lauder suggest that creativity, wile, and chutzpah have to combine with serendipity and endless extended efforts in creating and sustaining new social networks (Koehn, 2001). That is why most new markets are surprises--highly improbable and hence difficult to predict before they actually come to be (Sarasvathy & Dew, 2005).
Two sets of evidence attest to this: Negative evidence provided by the sheer abundance of failed predictions (including those by entrepreneurs whose own endeavors helped falsify their own predictions) and positive evidence from unanticipated new markets. Here is a list in no particular order:
Even entrepreneurs celebrated as prescient and visionary after the fact often had to build their markets brick by brick, long after the proverbial light bulb of discovery went off over their unsuspecting heads. When Howard Schultz came back from Italy wanting to build his first coffee shop based on Starbucks, the original founders of Starbucks would have none of it. At the turn of the twentieth century in India the Kirloskar brothers could not sell their six metal plows even though they clearly increased productivity tenfold over wooden plows. Not until they worked with social reformers and the independence movement to educate a large swathe of farmers on the links between economics and patriotism could they grow their venture into the enduring firm it is today. Edison had to learn similar lessons in marketing the incandescent bulb in the United States. Preachers inveighed against its use as the work of the devil--how else could the abominable separation of heat from light have been accomplished? (Baldwin, 2001). And Grameen Bank was no exception in having to change the world before it could grow its market for what might seem the easiest product to sell--uncollateralized loans--because Bangladeshis had a taboo against women touching money--literally (Yunus, 2009).
In most cases, successful entrepreneurs appear like visionaries after the fact, persistent, almost pig-headed visionaries at that, steadfast in the single-minded pursuit of their vision in the face of skeptic naysayers and in the absence of resources within their control (Tellis, Golder, & Christensen, 2001). But a microscope on their early actions highlights another story--one of doing the doable and stitching together a variety of stakeholder commitments, many from folks who self-selected into the process (2) in return for a shot at shaping the vision (Sarasvathy & Dew, 2005). Often neither entrepreneurs nor their stakeholders had quite articulated a coherent vision of the market until after it came to be. In fact, it is the co-creation of the vision, a vision that concurrently gets embodied into the components of the new market emerging from the process that is the primary result of the entrepreneurial process. Here the familiar story of uncommitted prospects haggling over a mouthwatering pie is replaced by the reality of self-selected stakeholders actively engaged in shaping committed ingredients into unanticipated new confections. So who is actually the "entrepreneur" in this process of market creation, if not the prescient, persistent visionary hero who makes it all happen against incredible odds?
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