Do You Truly Understand Your Market?
An honest analysis of your market is a major success factor.
We are now ½ way through my series I call the “Framework for Business Development” that I started in May. The series is meant to complement “Mitch’s Pocket Guide to a Great Business Plan”, which is a high-level overview of the information you should know to be able to develop and implement a successful long-term business plan. The real key to long term success comes from understanding the various components of your business as well as possible, and better than your competition: Problem Definition, Solution Definition, Opportunity/Market, Competitive Advantage, Business Model, Culture/People/Structure, and your Business/Financial Plan. Let’s discuss the Opportunity/Market.
The key attributes to defining your opportunity and market, the things you need to document your assumptions about and then validate them, include: Market Size; Target Markets/Segmentation/Ideal Client; Competitive and Industry Trends; Regulatory and Compliance Issues; and your Go-to Market Strategy & Tactics. Let’s discuss each of these.
Market size is something that most businesses don’t fully appreciate until they are actually selling product. Your challenge in developing a plan and understanding your market is to figure this out beforehand….at least start making and testing your assumptions. If you are selling bubble gum, your market is not all of the food sold in the world. It is bubble gum, and your market is people who want bubble gum. Defining how fast the overall food market is growing is an interesting point of reference, but it does not define the growth of your market. You need to determine the actual size of the real market you plan to be in and document it’s growth and dynamics.
In addition, your market includes your competitors, not just your potential clients. In defining your market, you must outline the different types, numbers, geography, and growth in the competition. Yes, you will compare yourself to competition later in your development cycle. However, it is in your Concept stage when you need to document and test your high-level assumptions, so you know exactly who and what you need to compare to later. Neglecting to do so means you have only studied half of your market.
Once you have a good handle on your high-level market it is time to look at your target markets. That is the submarkets and segmentation of your market. Are you going to sell healthy bubble gum? Bubble gum geared towards people trying to quit smoking? Who exactly are the people that have the problem you are trying to solve? How are they segmented (sugar free/sugary, kids/adults, rich/economically challenged)? How are they dispersed geographically? Most importantly, and something that is often overlooked, what exactly do they look like (a nervous habit chewer/love blowing bubbles/looking to quit smoking). I like to call it your “avatar” for a perfect client. Based on all of the above, then define who are you going to go after first, and why. Second…why? Third, etc. It is the various “why’s” that will be the assumptions you want to test.
Understanding your high-level market and trends is just the beginning
It’s not enough to understand and be able to articulate the high-level trends and targets. The next thing you need to really understand are the important trends within your industry that matter. Are people eating more sugar free gum? What’s the trend? Are new methods of quitting smoking being developed that may be more effective than your gum? Are there trends in treatments that gum will be the best method for delivery?
Every market has regulatory and compliance issues. What are they for your industry? This could include the patent environment if applicable. Which regulatory agencies do you need to understand now? As you implement your plan? What technical specifications do you need to meet and what is your plan for attaining certifications? These are the type of things that not only can be costly (FDA approval for example), requiring additional funding along the way, but they are also the things that can bankrupt a business if they are not well understood. The more you can understand these issues, the more you are able to de-risk your business…and my investment.
Finally, what assumptions are you making about your go-to-market strategy and tactics? How do people in your market find resources? How will they find you? What type of marketing tactics are utilized within the industry now? Which ones do you believe will work best for you? This is not your marketing plan, that is for a later date, rather what are your assumptions and how can you test/verify them.
There is a lot of meat in the development of your business opportunity and market. At this point in my series you will have at least documented your assumptions and hypothesis regarding the Problem you are addressing, the Solution to that problem you plan to develop and sell, and now your Opportunity/Market. This is the minimum requirement for a business to advance from the Concept stage to the Early Development stage of their development.
In Early Development you will need to accomplish two main tasks. The first is to document your assumptions/hypothesis surrounding the rest of the components of your business development including your Competitive Advantage, Business Model, Culture/People/Structure, and your Business/Financial Plan. The second, and as important step, is to begin actually testing and validating the assumptions you have documented to this point regarding your Problem, Solution and Opportunity/Market. This may mean you find some assumptions are not valid, that is okay. It means you need to tweak your assumptions accordingly and test again. Hey, you are starting to develop a real business plan!
Your task for this month is to determine whether or not you have a good handle on the Opportunity/Market for your business. If not, you have some work to do!
Mitchell Bolnick – The Excel Consulting Group