The Ultimate Cheat Sheet on Market Evaluation
With traditional barriers to market entry becoming increasingly low, startups today seem to pop up everywhere like mushrooms after the rain. However, as the rate of venture-backed startup failure today is almost at 75 percent, it makes sense to take a step back and perform solid market evaluation before jumping into the game. Let’s look at the goals of market evaluation, questions you might want to ask along the way and a review of some helpful tools.
Goals Among key goals of market evaluation is to assess whether the market has potential profit in the short and long term. Based on good market evaluation you will be able to solidify a winning positioning statement that includes who you serve, the value you will provide (which the competitors do not) and evidence of your ability to deliver on your promise.
Filling the gap Customers are the first ingredient in our recipe for a firm market evaluation. How successful are competitors with your potential customers? Do consumers display a particular customer loyalty to an existing brand? For example, Apple customers are quite diehard about their products. Entering a new market where the consumers have long standing purchasing habits is particularly challenging. Therefore, it is important to assess whether you are capable of offering value which the market has yet to experience. Offering your service for free is a good initial step to encourage people to test out your offering at reduced risk. Moreover, it holds potential for an even greater added value that is often overlooked. By offering your service for free, users start getting used to it and it becomes a habit, rather than a decision. Reducing the decisions people make by reinforcing behaviors that are easily adopted is a strategy that worked early on for Twitter, Facebook and Google to name a few.
Acknowledging your competitor’s strength is necessary if you plan to offer a value your competitor does not possess. Even a big hitter such as Amazon came to recognize that Barnes and Noble's strength lied in providing a personal experience at the store. Instead of competing for the in-store audience, Amazon, at least in its first stages, provided a fast no hassle way to purchase books online. By targeting busy professionals who did not want to spend the time at the store, Amazon got a big win. If you are offering a physical product, look at online reviews of current products in the market while paying particular attention to the negative comments that bring to the surface deficiencies in the product or process. These can turn out to be hidden gems you can capitalize on.
Tools for market evaluation Having robust data from varied resources is essential for an accurate marketplace read. Keyword search as well as social media mentions can be strong indicators of trends. Two tools for learning about market trends are GoogleTrends, which provides hot topics according to categories and buzzsumo. which offers similar results in social media. Since many of today’s startups are in the online space, another tool worth mentioning is Nielsen’s e-commerce solution. This tool help users benchmark growth opportunities and gain insights to improve online performance. Additional tools that may be useful to assess market attractiveness are Boston (BCG) Matrix, Porter's Five Forces and the GE Matrix . We all know that starting up isn’t about playing it safe. That being said, there is value in taking the time to perform market evaluation, write down a solid positioning statement and get it circulated throughout the company. At the end of the day, if your salespeople can clearly recite who their customers are and what unique value you bring to the table, then you are one step ahead of the game.
1 Why Most Venture-Backed Companies Fail/Fast Company