How to assess a market opportunity

/ Robert Pease / Leave a comment

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:

  1. What market are you talking about? Define it in broad but measurable terms.
  2. 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)
  3. 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?

The case for case interviews

/ Robert Pease / Leave a comment

I was asked a question today (via email) about case interviewing somewhat indirectly by someone going through the interview cycles with management consulting firms.  I weighed in along with a couple of others on what they are all about and how to best approach them.

I have been on both the delivering and receiving end of these types of questions during my time with Arthur Andersen Business Consulting (now mostly part of Bearingpoint).  Although we were not a tier 1 strategy firm like Mckinsey, Bain, etc. we did similar (albeit it cheaper) work and had many of the same approaches, methodologies, and operating models. Here are my two cents on how to best approach the case question.  Feel free to weigh in in the comments about your own experiences:

  • The answer is not as important as how you get there.
  • Case
    interview questions are an exercise in the employer understanding how
    you think and you showing off how you can apply a structured framework
    to solving a problem where you have minimal information    .

Take this example (one from my vintage):  How many plumbers are
there in the U.S.?  The actual number is not important but
think about how you would calculate this:

  • What information
    sources would you use, professional associations, unions, publications,
    blogs, etc.
  • How would you segment this population – professionals, handymen,
    weekend warriors, etc.
  • How would you quantify the size and
    growth of the population – demographics, trends like more building
    requires new plumbing/less building requires more maintenance, is this a
    different skill set or one that the same population can use regardless
    of need    ?
  • And so on…

Consulting is all about taking
imperfect data inputs, structuring them in a salient way, and extracting
some meaningful and actionable insight then managing the process of
using that insight to change strategy, process, or systems.

Hands vs. Mind

/ Robert Pease / Leave a comment

I had a nice chat this week with someone I had met in the past and with whom I recently reconnected.  We talked about a wide range of topics related to technology, marketing, and the types of work we do.  I did not explicitly ask if I could reference him so in the spirit of "journalistic integrity" I will not but will definitely update the post when I get the green light.

One of the more interesting parts of our discussion was about doing "hands" work vs. "mind" work.  Although it would be easy to separate this as tactics vs. strategy that is not so much the case.  It is about being in the weeds to get something done like writing copy and delivering pitches to prospects, analysts, or journalists vs. spending cycles on what needs to be said, how to position the company, and who to target as a customer or influential all the while tracking performance and making tweaks.

The challenge, at least in a startup, is to focus on getting things done (hands) no matter what it is while keeping an eye on it through a strategic framework (mind).  Although it is a bit of cliche, I never ask anyone on my team to do something that I haven't already done myself or wouldn't be willing to do.  There is no time or cycles to spend on someone who deems tasks below them – this is radioactive in a startup so if you see it, address it immediately.

Given the speed, resource constraints, and workload in a startup, it is a definite challenge to balance these two types of work so think it about it as hands vs. mind and be sure to make time for both.

You don’t need a business plan for your startup

/ Robert Pease / Leave a comment

I recently tuned into a webcast hosted by Dharmesh Shah & Brian Halligan (founders of Hubspot) about startups, raising capital, and launching a new venture.  There were lots of great nuggets in the presentation and I am definitely a fan of what they are doing around owning "inbound marketing" as a concept at Hubspot.

Their contention, which I agree with in principle, is that going through the effort of drafting, editing, and constantly updating a lengthy business plan is not a wise use of your time or energy as you are trying to hash out an idea and/or raise capital to support it. 

Here are the three items Shah & Halligan suggest (with my commentary):

  1. A Powerpoint deck – how did we possibly communicate before Powerpoint came along?  Keep it short and sweet as nobody likes 30+ slide presentations.  See if you can nail it in 10 including a title and conclusion slide.
  2. An Executive Summary (1-2 page) – probably the only thing that will actually be read so keep it tight and to the point. This is for investors, potential hires, and just about anybody else so don't (please) think you need an NDA signed to share it.
  3. Three year proforma P&L – yes, the actual numbers are mostly fiction at this point but it is essential to understand cost and revenue drivers as well as the dynamics related to scaling the business to profitability.

Not having a lengthy and detailed business plan does not mean not having a thorough plan with details worked out…it just means that maintaining the "plan" does not take 30% of your time.

To really hash out your thinking and easily share with others use something interactive like a wiki (I like Pbworks but there are many others).

Also, here is the link to their presentation "Money, Marketing, and Management with the Hubspot Founders"

Slow posting here but busy over on the Gist blog

/ Robert Pease / Leave a comment

Apologies for the slow posting here recently.  I have definitely not run out of things to say and have several posts about half written at this point.  I'll get focused and finish them off soon.

In the meantime, we've been posting quite a bit to the Gist blog and here are a few recent posts that I've written that you might find interesting:

Three reasons social media should be part of your business plan

Use retweet to introduce yourself

Gist is your virtual foot in the door

Going It Alone: Four Tips to Becoming a Consultant

/ Robert Pease / 1 Comment

Having spent a bit of time as a consultant, I thought this was a good article in the Wall Street Journal about how to do it right.  Here are the four tips with my commentary.

  1. Think Long Term – have a business plan and understand what you offer vs. being reactive to doing anything.  Don't be afraid to say "no" but make sure you know what you want to say "yes" to.
  2. Join a Network – cannot emphasize enough networking and even formal referral selling relationships with others.  This means doing more than joining a group on LinkedIn but truly having and engaging with a professional network.  The time to get involved is not when you are looking for business. 
  3. Have Your Own Space – working from home can be a challenge without a designated place preferably with a door to separate where you live from where you work.  If you don't have one, find a company with some excess space and see about renting or bartering for a desk.
  4. Think Like an Entrepreneur – you are running a business so you must be look at it from that perspective.  Understand your cash flow needs as well as have a plan (see #1) around what you want to accomplish on a quarterly and annual basis.

The interesting data point that jumped out to me in this article was that "20% to 23% of U.S. workers are operating as consultants, freelancers, free agents, contractors or micropreneurs."  Wow!  That's quite a large number and an interesting trend to grasp as it relates to the services and support this category of worker needs.

*Thanks to Scott Stanzel for pointing me to this article.

Marketing and advertising will not save you

/ Robert Pease / 1 Comment

I have been fortunate to get to know the guys at the Foundry Group over the past year as they led the Series A investment in Gist.  They are a good group and being a bit of a Boulder, CO fan boy myself, I have definitely enjoyed getting to know the team there.

This past November, I really enjoyed dining with Jason Mendelson of Foundry (and a few others) ahead of the Defrag conference in Denver.   

Jason recently did a presentation for the University of Colorado New Venture Challenge on "How to Build a Company" and I thought I would share it here (slides below).  Here is a link to the summary of it on the University of Colorado New Venture Challenge site and there is also a link to video of his presentation on the same site.

Lots of great stuff in here including this point that I definitely agree with:

"Marketing and advertising will not save you: Every marketing guy
knows that half of his budget is wasted; he just doesn’t know which
half.”

Jason Mendelson – CUNVC Crash Course Series January 13 2010http://static.slidesharecdn.com/swf/ssplayer2.swf?doc=crashcourseseries1132010-100114211515-phpapp01&stripped_title=jason-mendelson-cunvc-crash-course-series-january-13-2010

How to say something by saying nothing

/ Robert Pease / Leave a comment

Watching White House Press Secretary Robert Gibbs try to explain why President Obama is not broadcasting the healthcare negotiations on CSPAN as he repeatedly promised during the campaign is painful enough but the timid questions from the press are even more concerning. 

The strategy of directing an audience to previous comments you didn't make is actually pretty clever however in our connected, real-time and overly documented world, it falls down pretty quickly.

I also suggest reading this great article from techPresident that talks about the passion and energy that the Obama campaign tapped during the election but seems to have forgotten now that they are governing.  The ability to connect and organize via social media has only accelerated and not embracing it as a way to drive change and deeper involvement in government by citizens is more than a bit disappointing.

Video here for your enjoyment…

Nice outing in Redmond tonight

/ Robert Pease / Leave a comment

Redmond is known for mainly one thing – being the home of Microsoft.  It is also just a few miles east of Kirkland and is where Marel I headed tonight on a date night.  Our first stop was Redmond Cycle for a bit of bike shopping.  Highly recommend this place as it was our first visit and Ernie greeted us warmly and helped sort through lots of options. 

We then headed on to Matt's at Redmond Town Center.  Yes, it is in a shopping center…but…it is worth the trip and, given the crowd that always seems to be there, many agree with me..  We have met the owners through friends and they deliver great food and a great experience.  Highly recommended.  We finished our evening at The Grape Choice in a downtown Kirkland.  A finishing glass of wine made for a nice end to the evening all before 9:30…