Aside from the timing and growth trajectory of the market you enter, defining the type of market you enter may be the most important thing you do to set your company out on the right foot. Essentially, there are three types of markets you could potentially enter: existing, resegmented, and new.
Each require a different marketing approach and depending on your resources, some are better environments for your new business to succeed. First, let me define these three markets.
The existing market is characterized by multiple competitors and has been around for a while, perhaps more than seven years. If you are going to compete in this space you must differentiate yourself from others and have a huge bank account. You may also compete on price by lowering your cost structure, but this is generally a silly way to enter the market. Expect to pay more than twice as much as the smallest viable competitor does on marketing to get noticed and carve your piece of the market.
I like to describe this market as an existing market that is experiencing a fundamental shift of needs that most competitors can’t accomplish. So if you are marketing your new company in a resegmented market, you’ll need to both educate potential customers on the new issues of the market and explain how you solve these issues. Fortunately, you’ll be more readily able to compete against smaller subset of competitors in this niche market that is a smaller piece of the overall pie. Understanding how to develop demand for this resegmented market is crucial to your success.
A new market is easy to start in, but very difficult to make any money in unless you have some serious staying power. You are constantly educating prospects on why this market exists and need to get some alpha customers to fine-tune your solution and market. Demand creation is tough and even if you are successful in creating demand, other startups and competitors will be able to jump into the market and have the advantage of seeing what customers like and will benefit from all the education you’ve provided. Adoption of your new product will be limited and while you may have a few early case studies with more innovative customers, demand won’t likely ramp up until year three or four. Be prepared to persevere for many years before realizing the fruit of your labor.
While all these markets have their pitfalls they do have some advantages as well. But if you don’t have a ton of resources and need customers to fund your business, there is a hybrid market you should consider targeting.
My Ideal Market
My recommendation is to find a resegmented / early market that has high growth, proven demand and a few first mover companies competing for growing customer demand. Your advantage in this market is that you’ll be able to learn from the first-mover’s mistakes and success to develop a position in the market that meets customers needs but also avoids pitfalls. Stake your claim to this positioning and ride the demand development your competitors have so graciously provided and find success faster.
The key to this ideal scenario is timing your entry into the market. Enter during the initial ramp up of growth should provide you with sufficient customer demand. Enter at the tail end of growth and you may get boxed out by entrenched competitors of a market that by now is more like an existing market. Attempt to enter this market by year three (i.e. – by three years after the first product for this market was released) so you can be known as a primary player in the space, set your company up to hopefully ride the wave of demand that should ensue, and realize the fruits of your labor more quickly.
What growing markets would you consider ripe for starting a company?