Martin Roscheisen has been a key figure in Silicon Valley’s tech startup scene since the 1990s. Since that time, he’s founded, co-founded, or been otherwise involved in the launch of numerous successful startups, most notably including FindLaw, eGroups, and Nanosolar. In 2015, Roscheisen took on his biggest challenge yet: breaking into the diamond industry.

Coating machine

Consumers in the western world, particularly in the American market, are still very attached to the image and tradition of diamond jewellery. While their dominance has waned somewhat, diamonds are still by far the most popular gem for engagement and wedding rings. However, they have become increasingly concerned about the origins of their diamonds. Reporting on the conditions faced by diamond miners, as well as fictional films such as Blood Diamond in 2006, helped to raise awareness about the very real ethical issues surrounding diamond supply chains.

Recognising the potential for disruption, Roscheisen and co-founder Jeremy Scholz launched Diamond Foundry in 2015. By capitalising on a new process for growing gem-quality diamonds in the lab, they could produce diamonds that would not only be less expensive than mined diamonds, but would also have a 100% traceable and ethical source. In doing so, they not only established a successful company, but also managed to unbalance an oligopoly to create a new niche in the diamond industry.

Taking on an oligopoly

Consumers might be hungry for disruptions, but entering the diamond markets is no mean feat regardless. While the De Beers monopoly on the global diamond market has been eroding for decades, and was widely declared destroyed in 2014, the diamond market is still almost entirely controlled by a handful of companies. The top 3 companies, led by De Beers, cooperate to control more than 70 per cent of the world’s diamond production.

De Beers’ marketing efforts are widely credited with establishing diamonds as the highest standard for engagement rings and luxury jewelry in the 20th century. Leveraging that same marketing prowess, the world’s diamond giants responded by simply refusing to consider their competition legitimate. At first, this worked, but market forces and cultural changes quickly turned the tide.

Turning criticism into a selling point

Artificial diamonds have been available on the market for some time, but haven’t been widely accepted by consumers. Incumbent diamond sellers worked to represent these as “fake” and inferior diamonds, with significant effect on the market. This was partly true, because, until recently, diamonds couldn’t be grown in a lab at gem-quality. Diamond Foundry changed this by pioneering a new process for growing diamonds.

With lab-grown diamonds that were qualitatively indistinguishable from mined diamonds available on the market at lower prices, consumers, especially environmentally and ethically conscious millennials began to seek them out deliberately. Today, the lab-grown jewellery market is worth nearly $2 billion.

Putting a giant on the defensive

Seeing a large part of their market and more importantly, their future market slipping away, De Beers had to act. In 2018, they launched their own answer to Diamond Foundry, called Lightbox. By entering the artificial diamond market themselves, the company has gone into direct competition with Diamond Foundry, in hopes of recapturing its lost market share. In doing so, however, it has delegitimised its own prior marketing stance that its mined diamonds are the only real option for jewellery.

What we can learn

Roscheisen’s approach to entering the diamond industry might seem obvious, but it’s also ingenious. Instead of attempting to compete with established businesses on their terms, he systematically disrupted them by using their own marketing against them. The world’s diamond companies specifically prided themselves on selling mined diamonds, but the origin of those diamonds was precisely why consumers were ready for an alternative.

Forcing competitors to fight on your terms

By opting to grow diamonds, instead of, for example, attempting to ethically source mined diamonds, Roscheisen found the Achilles’ heel of the industry. There is simply no way a traditional mined diamond can be sourced ethically with the same level of certainty that a lab-grown diamond can. This gave Diamond Foundry an advantage that forced established competitors to attempt to meet them on their own ground, nullifying some of the competitive advantage they previously enjoyed.

For an entrepreneur, this is a critical insight. When established businesses can successfully influence what consumers want, it can be incredibly difficult to establish a new niche in an industry. By understanding the differences between that influence, and what markets actually want in the real world, entrepreneurs can disrupt and find their place in those industries.