John Mullins in “The New Business Road Test” says
“the odds against hitting the jackpot as an entrepreneur can be nearly as daunting as those in Las Vegas or Monte Carlo. One way to mitigate the long odds,…, is to make sure you’ve identified an attractive market segment, one where the customers, according to evidence you’ve gathered, are almost certain to buy what you’ll offer.”
The above statement is ignored by too many. Time and again I meet startups where the founder is convinced that their idea is the path to wealth and that customers will flock to their door. It simply is not true.
The key is doing due diligence in discovering a market segment that badly needs and wants your product.
Discovering that market is not a trivial undertaking. While you may be convinced that of course customers are more than willing to buy your product,that’s not enough. What you want is answers to the following:
Market Size and Growth Rate
- Is your market large enough to allow you to attract a specific segment that will prefer you over the competition?
- What are the forecasts for your market’s growth ?
Market size and growth rate are two basic factors when evaluating a market. The larger the market is, the more opportunities exist to sell a product.
In a market of any size, however, it is important to also consider the growth rate. A market with a low growth rate is probably a saturated one, with many competitors in the same space fighting for the same sales. This will lead to lower market share for all participants, as well as lower margins.
How are the margins in your target market? High margins means that customers are able and willing to pay your price. Low margins imply a fight with your competition over customers and low profits.
Are Prices Increasing or Decreasing?
Are you are able to raise your prices without losing customers ? If so it means that your target market very much needs your product. If not it means that they can do without you.
Are you offering a product that’s unique or differentiated?
Do you have a competitive advantage not easily met by your competition?
If so then a segment of your market will chose you over the competition. If not,they will leave you for a better (cheaper) alternative.