Choosing Your First Market
Market Research
December 2009 / January 2010
Volume 7 Number 6
Last week I met with an entrepreneur I'd been working with for a while. We'll call his efforts in the medical industry Company A. We had previously discussed his potential markets, and there were two segments in the medical market that he felt had the most interest in his product: a certain type of medical center and primary care physicians. We talked about the market research he had done so far, and the items and issues that he needed to research in order to be able to make a decision. He originally felt that centers were the way to go, but then thought that primary care physicians (PCPs) would be a much bigger market for his product. I should note that the product application is the same for both markets and that the level of competition and operational aspects of the product class are similar.
When I met with him last week, he almost apologetically said that after looking at PCPs (a lot of effort went into that research), he felt that his original idea of the centers market would be best for his product. Somehow he felt he was being indecisive, but in reality, what he had done and his decision is exactly why market research is beneficial—€”to figure out the best opportunities for a product and how to succeed in those opportunities.
Let's look more specifically at his choices and decisions. In the medical center market, he knew of a few large centers in the private sector and a few very large efforts, though not necessarily centers, in the federal government. He also knew that there are more stand-alone centers but could not find a number for them. The market size was sufficiently large to attract some funding but not large enough for a slam-dunk for most venture capitalists. However, he felt comfortable with the market because he knew a few key people at such centers.
After doing more research into the market problem he was solving with his product, he realized that PCPs might be the best market for his product. He did more research, and then came to the conclusion that his original assessment was the right one for him and his company.
The pluses for the centers were: (1) he knew key players, which gave him credibility; (2) the market size was sufficiently large for VC investment, at least as a first best market; (3) he could gain traction more easily and quickly because of his contacts; (4) with under 10 major centers, his marketing and sales options were more focused and cost-effective; and (5) the product would offer patient coverage at a lesser price but more revenue for the centers. The minuses were that this was a smaller market than the PCPs.
The pluses for the PCPs were: (1) the market is much larger than the centers; (2) the PCPs could serve their patients better; and (3) the product might enable them to increase their revenues. The negatives were: (1) marketing efforts to many different offices and locations would take a fair amount of effort and money; (2) PCPs did not always have the money to purchase additional equipment and train people to use the equipment; and (3) without contacts and references, it would take longer to build credibility and traction in that market.
Given the pluses and minuses in the two markets, it was apparent that medical centers would be the first best market. As that market is being developed, strategic marketing plans can be put in place for reaching the PCPs as the second market.
Another client, Company B, had a similar experience. Initially, it had identified three potential markets: small to medium sized businesses (SMB), continuing medical education (CME), and graduate schools. SMB presented the largest market, although it was somewhat diffuse and scattered throughout the country. However, there were ways to focus marketing activities, and indeed, the founders had already chosen certain trade shows as the most targeted and cost effective means of reaching that market. CME was also large, or so they thought: there are many trade associations offering CME and many medical professionals needing to update their credentials periodically. Graduate schools were less numerous, but offered many programs that might need the company's product. The company had great state-wide recognition but little on the national scale, and other factors such as competition were equal for the three potential markets. In terms of market size and marketing efforts, the founders really felt that SMB was the best initial market.
The founders then talked with someone who got them excited about CME, and they decided to do more thorough research into that market in order to focus on it. What they found was a very fractured market with a few smallish companies that they felt could use the product. The market size was very small, much more so than they had anticipated.
While Company B spent several months researching the CME market, it was still finalizing its product development. The product launch was imminent, and the company decided that CME was not the best initial approach. In the process of the latest research, it found that there was great interest from graduate and associated education programs, and they were already gaining traction. This, then, would be the first market, followed closely by the SMB market.
So, the moral of the story is never apologize for flip-flopping on your first best market as you do your market research. Doing market research as you are developing your product and before you launch it is the appropriate time for this soul searching and testing of your market hypotheses. Use your best, objective judgment to help analyze your data properly to make this important decision. If for some reason you realize that you've made the wrong decision after launch, well, you've still got the data to use for course correction to the right market.
Betsy Gillette is market research director of Technology Ventures Corporation.
More
Copyright © 2012 | Innovation America