Whether you are starting a new company, launching a new business initiative, or spinning out a company, the first and most important thing you must do is know your market.
Before you commit your money or an investor's money, you need to do some research to assess what the customers are buying. This means that you have to really know the breadth and depth of the market segment your company plans to pursue.
I refer to this task as understanding the market landscape. Others call it market research or market analysis. Intel calls it understanding the ecosystem. Others call it understanding the food chain.
You can draw a picture of the market landscape. Imagine boxes named with companies, organizations, customers, suppliers, distributors, wholesales, integrators, resellers, competitors and investors, all appropriately interconnected with arrows describing their relationships. Within the landscape picture you then can focus on where your business or product will exist.
What Market are You In?
The first step is to describe the market landscape, including its size and growth trends, segmented into revenue categories. This requires some extensive research, although sometimes there are research reports that will provide most of the information you need.
Start with a broad description of the landscape. Examples of this step are: describing the need for a high bandwidth switch, the self-service segment of the online service market, the importance of a drug that lowers cholesterol, or the need for security encryption for business data.
At this point, you are simply trying to describe what the forest looks like and the kinds of trees that grow in it. You are not ready to describe the leaves on the trees, the weeds that grow on the forest floor, or the moss on the tree bark. After explaining what the landscape looks like, you are ready to isolate the market segment that you are pursuing in the context of the overall picture you just described.
The size and growth of the market can be determined with a simple analysis of market demographics like number of businesses of certain sizes, the size of the installed base of certain equipment, and census data. If you are establishing a new market, you will have to build it bottoms-up by looking at the market participation of similar companies and their respective revenue. Put the time dimension on this data, and show that your market segment is large and the opportunity is still growing. You and your potential investors need to be convinced there is an attractive market.
What Problem are You Solving?
Next, determine and explain the compelling business problem you will solve. In today's economy, with constrained budgets, companies are not spending money on nice things. They are strictly prioritizing their needs and making tough decisions to buy only what they need to succeed.
In the context of your market landscape picture, explain what problem you will solve, and how solving it will bring tremendous value to the buyer. Give some details about near-term cost savings, new revenue achieved, or new businesses that can be spawned. Do it in quantifiable terms that demonstrate a very attractive justification for the purchase of your product or service. You need to be sure companies will spend money on solving the problem.
Who are the Buyers, and Who Feeds Them?
The next step is to go deeper and describe who are the buyers, suppliers, and distributors and what drives them. Start with the buyer, your customer. Is it a CIO? Is it a VP of service? Is it the purchasing manager? Is it the buyer for a retail store? Is it the VP of development?
Whoever it is, describe the buyer's recognition of the problem you solve, their criteria for determining a purchase, the likely availability of resources to support the purchase, and their decision process. Take time to understand the real economics that drive the purchase decision.
This will later become the foundation of your value proposition for your marketing programs. Describe how the buyer is reached and who they buy from, for example, direct sales people, distributors, value added resellers, stores, product integrators, OEM suppliers.
Add these distribution channels to your landscape picture and describe who they are and how they operate. Describe their business drivers and who feeds them as well. This will give you a complete market landscape view that includes everything from the manufacturer to the buyer of the product or service. Understanding how this food chain works gives you the background necessary to establish your sales channel strategy.
Who are You Up Against?
A competitor could be simply another company offering a similar product or service. A competitor is also a company that offers a different approach to solving the problem or solves the problem in the context of others. Your constant competitor is the status quo, which is how the customer is dealing with the problem now.
In any case, you have to know the major competitors. Add to your market landscape picture, each relevant competitor, categorized by their approaches to the market. For each major competitor, describe their products and services and how you compare, feature by feature. Add to the description an analysis that includes their distribution strategy, value proposition, financial condition, recent successes, distinctive executives, partnerships, and funding sources. All this adds to your landscape picture the information needed to determine what you are up against, so you can then define a winning strategy.
Where's the Money?
Special attention should be paid to the sources of money in your landscape picture. Insert into your picture the major investors who are in your market segment. They fund your competitors, but it's important to also understand the mindset of the firms that are investing, and how they are performing. Describe the key stakeholders in your market, their investment strategy, expectations, and performance. This understanding gives evidence that there is interest in solving the problem you are addressing. It also helps you identify potential investors in your company.
Now are You Ready to Define a Winning Business Strategy?
With the market landscape fully depicted, you now have a solid foundation from which to explain how you are going to win in the marketplace. With a complete understanding of your market, you can confidently approach any customer, potential partner, or investor knowing that you have a well thought out market understanding. Your chances of getting help are improved and your likelihood of success is much greater.
© 2007 Bill Warner. All rights reserved.
Bill Warner Managing Partner Paladin and Associates