Being stuck inside on a rainy Sunday in Seattle, I thought I would share a post about how to use a framework/structured approach to assess a market opportunity.
This is primarily for a new venture but most of this can be applied to analyzing an existing business or launching a new product/service from an established company.
First, some baseline questions to answer:
- What market are you talking about? Define it in broad but measurable terms.
- Who is the customer? End-user, distribution partner, someone else? Detail the persona including name, role, etc. Even better if you know one or many of these people (so you can talk to them)
- What challenges do you face as a new entrant lacking a track record? What are the barriers to entry? Can you disrupt existing consumption/distribution models or are you dependent on a few partners to be successful?
Next, dig into the market opportunity:
1. Validate the market
- Market definition – per above but dig into the specific category and sub-category you are targeting.
- Target segments including both vertical industries and functional roles.
- Buyer profile(s) – not only who says 'yes' but who pays…and who can say "no."
- Needs vs. wants – are you addressing a pain or are you a nice to have? Elevating a want to a need or surfacing a yet to be realized pain takes considerable effort and resources.
- Structured '5 Forces' analysis including power of customers, intensity of competitors, power of suppliers/partners, threat of new entrants, and threat of substitutes.
Deliverable: Summarized data covering market size, segment definitions, and needs analysis. Also include background/learning conversations with thought leaders/influencers (analysts, bloggers, etc.) as well as results of discussions with assumed customers and friendly observers.
2. State of the market
- What does the adoption curve look like? Are you selling to early adopters or pragmatists?
- Will it be a long or short sales cycle? What are the barriers to yes?
- Strength/unique selling proposition of incumbents as well as challenges faced by a new entrant.
Deliverable: Analysis of most attractive markets, competitors, and customer traction/uptake potential.
3. Capabilities
- What is the offering and how will you deliver (distribute) it?
- Does the product/service address the market need? In what way? Does it solve a real problem?
- Do these capabilities already exist or will they have to be developed?
Deliverable: Gap analysis between what is currently available and what needs to be developed to align with market need and distribution realities.
4. Pricing
- How will you charge for your product/service? Per seat, per user, per transaction, per month?
- What are the scenarios and be sure to incorporate margin targets (you do want to make a profit after all).
- Include volume and contract duration discounts.
Deliverable: A pricing model that supports uptake scenarios and sensitivity analysis (test your assumptions and be prepared to have them informed/adjusted by reality). Test pricing and pricing assumptions during early customer validation discussions.
5. Go-to-market model
- Determine the best path to market including pros and cons of direct vs. indirect selling models.
- For indirect, understand what channels, available partners and how they distribute including sell through opportunities.
- What is the optimal go-to-market model to reach your target customer…and what is the forecasted cost of customer acquisition?
- Remember – you have to be able to sell it yourself before a distribution partner will be able to do it. Don't fall into the trap of thinking a partner will carry your product to market without you or without your help (a great deal of it at first).
Deliverable: Select an optimal go-to-market model to reach your target customer and detail how you will enable the model to be successful (what tools, techniques, dependencies, etc.)
6. User experience
- What does a "day in the life" look like for a target buyer or end-user?
- Map your product/service use cases against that day and define the gaps, pains, and workarounds currently being used.
- Write a narrative of this day. Use your persona and write a story that spans the start of their day to the end of it including all the tasks, systems, and steps they take during the day (this is hard…but very, very valuable).
Deliverable: Build a process flow of current state for your target user(s) and then one that shows how their daily activities would change for them and other key players by using your product or service.
This should get you started and provide a point of reference as you assess a market opportunity. Yes, there are many additional tasks and details but this (to me) represents the core elements to complete. What did I miss? What would you add?
Venture Vice 