Picking a Market
A market has three key elements (because everything comes in threes. It makes better looking Venn diagrams.)
First, the market must be viable. A viable market has enough people with enough money, and should be growing rather than declining. There is a lot written about market sizing, and this requirement is fairly well understood.
Next, you have to be able to reach people who represent the typical buyers in the market to do Customer Development. You will eventually have to reach them to sell to them. If you want to make something for doctors or senior citizens or new parents and you cannot find anyone to talk to, your odds of success are the same as playing lotto.
Finally the market has to be obsessable — you have to really really care about the market, the people in it and the desires they have. Otherwise you will run out of steam. Building a startup is slow and time consuming. I have seen so many entrepreneurs fresh out of B-School who picked a sexy growing market they were indifferent about beyond the financial promise it help. But as time moved forward, and they faced hardship, struggle and setback like so many startups do, they give up.
I’ve seen more entrepreneurs run out of heart than money.
Those entrepreneurs who truly wish to help the people in the market stay longer. Startups are hard. It takes a missionary to undertake the journey to success.
2 of 3 ain’t bad?
You really do need all three to succeed. If you are passionate and you can validate your ideas with people but the market is small you may not make enough money to keep the business afloat. In this overlap, you get side projects you do while holding down a “day job.” In a best case scenario, there are enough people with enough money to provide a lifestyle business. You won’t have enough potential to raise money, and you’ll never be big enough to IPO. But if you make enough money to support yourself while doing something you love, is that so bad?
If you have a viable market with people you can reach but you don’t care, you run the danger I mentioned above. Sure there are people for whom money is an obsession. Just make sure you are one of them before you walk this path.
And finally if it’s a big market you love but you can’t seem to reach anyone in it, you’ll end up with a high-risk situation: an untested solution. If you really love this market, you better put all your energy into connecting with the people in it. Or choose to walk away.
Picking a Problem/Opportunity Space
A market emerges around the desires of a group of people to solve a problem or optimize a pleasure. Some of these market desires are easier to build a business from than others.
Begin with user research to understand people in the market. The book for this, hands down, is UX for Lean Startups. Then you will analyze your information based on how often do people in your market encounter this desire/problem and how strongly they want to address it.
This model is based on the idea that money is water, and all water is good (even salty water. Please don’t mess with the metaphor. )
It also assumes you want to build a very big business the easiest possible way. Some people want lifestyle businesses, this I understand. Some people like doing things the hard way. This I don’t get, but ok. You’ve been warned.
If a lot of people frequently face a desire or problem they deeply care about, you’ve got an ocean. This is an easy area to monetize. Now it’s possible a lot of other people have also noticed this, and competition makes it harder to find your corner of the Ocean, but that’s a problem for another essay.
If people don’t run into this desire/problem often but when they do they really care about it, you’ve got a well. Small but deep. Examples include marriage and divorce, vacation airfare, textbooks and car purchasing. You also need to make sure you reach people at the point of purchase. Like a swamp, it will require marketing skills.
A swamp is big but shallow, just like the shallow feelings people hold toward the issue. First it needs to be a market with a lot of people, as you’ll probably end up with a low price point. You’ll need powerful marketing here to find and connect to people who care, or to convince people they care more than they do. I’ll suggest socks, lighting solutions, and writing implements are likely candidates for this corner.
Now I really really really care about pens. But I’m not a typical lady on the street, I’m a visual thinker. Micron has to use their mastery of channels to find me. I’m actually in the well quadrant, along with an interior decorator who cares about lighting solutions.
Bic sell pens in the swamp and uses ubiquity to be where people are when they need a pen. There are strategies for thriving in either wells or swamps.
I really can’t recommend the last quadrant. But perhaps you know something I don’t. Good luck with that!
Why Start with Market?
Many entrepreneurs start with an idea for a product and/or service. The more complete the idea is, the lower I place their chances. There are exceptions, of course, especially for people with domain knowledge. But entrepreneurs who have fallen in love with a solution often fall into that painful situation where they are trying to find a market who will fall in love with their baby also. This is doing things the hard way.
The entrepreneurs who have the best success are those who fall in love with a market and that market’s problems.
What does it mean to fall in love with a market? It means to truly care about the people. If you can’t care profoundly about the success of salespeople, you won’t enjoy interviewing them, spending time in customer development and you’ll struggle to care about making a solution that will make them so happy they’ll open their wallets for you.
And that market needs to have a real desire, preferably the kind that the people in the market are aware they have.
We’ve all seen solutions in search of a problem, from Segway to Google Glass.If you have a choice of where to start your entrepreneurial journey, why not do things the easy way?
It maybe be the last easy thing you do.