Finding the Right Market
Market Research
February / March 2010
Volume 8 Number 1
It's my season for reading business plans and that means trying to figure out what markets entrepreneurs are going after with their products. This can sometimes be hard to discern.
First, let's address the actual markets. In many cases, entrepreneurs list multiple, yet diverse, markets. "My widget can be used in the medical field, semiconductor industry, food industry and music industry." Wow. I immediately question if the product is exactly the same for each market without any tweaking. Then, I start questioning how on earth any entrepreneur with limited resources can go after all those markets. Usually, it just isn't possible.
(Please don't say that all you need is a Twitter account and viral marketing will take over from there with no effort on your part.) There will need to be tweaks for each market and there aren't enough resources to market your product to different industries with different infrastructures. The key is to focus on one market, and possibly two, to go after in the initial phases of your company. This first market should be one in which your product, with its differentiated value proposition, has a validated customer need and can get your company established. Choosing a first market requires a lot of research and the analysis isn't easy, but it is critical if you want to attract funding for your company.
Next, many entrepreneurs use fuzzy and irrelevant market numbers in an effort to pump up the market. For example, we see more and more social networking sites and related plays. The business plans typically drone on about the big social networking sites, such as Facebook, YouTube and Twitter and include information on the large sizes of those markets, the number of users for the sites, the growth rates of social networking, and the growing importance of the sites. We know already! It's fine to discuss the overall market, but unfortunately, many business plans forget to talk about their products in the context of those large markets.
Unless you are going head to head with the Facebooks of the world, you should instead focus on your part of the market. Perhaps you have a social networking site that targets amateur astronomers. Are there such sites now? How may amateur astronomers are in the U.S.? How many currently use or might use social networking? How would the site earn money and how much potential is there? These are some of the more targeted numbers that should be addressed.
Another example is the stepped-up effort to help analyze all that's on the social networking sites, and business plans again tout the large number of users on those sites. They should instead look at their software, figure out who can use it, and build the market numbers from that perspective. The point is to make the market numbers as relevant as possible. That will impress venture capitalists much more so than showing those large but irrelevant market numbers.
Who is the customer? Once again, this is fuzzy in many business plans. The answer to this question is really very simple: it's the person or entity paying for the product.
Let's say you manufacture an orthopaedic pillow for consumer use. The pillows are sold in retail stores and their associated web sites. Who pays you for the pillows and thus is your customer? It's the retail stores. The business plan should talk about which retail stores you will do business with, their numbers, and other information that is pertinent to your customers. Consumers who buy your pillows from retail stores are end users, and while you want as much feedback from them to ensure that you make the best product possible, you should focus on the retail stores as the customers.
Likewise, if your product is imaging for medical diagnostics, the customers are medical offices, hospitals and the like who will buy your product; the customers are not the patients who have the procedures. The exact offices or medical centers—€”and their numbers —€”that you target will depend on the specialties that can use your imaging product.
How will you reach them? If you aren't focused on the right market and customers, you will not be able to easily reach them. If, on the other hand, you have a focus on the correct customer in the right market, your marketing strategy should fall into place fairly easily and should be effective and efficient in terms of reaching buyers at a reasonable price. In the pillow example, if you were incorrectly targeting consumers as the customer, you'd be looking at very expensive mass market advertising. For an entrepreneur, that's expensive and doesn't translate into shelf space in the retail stores.
Retailers are more likely to buy from trade shows, targeted advertising (think trade journals), and direct sales to corporate offices. Those tactics are much more manageable for entrepreneurs in terms of resources, and are much more likely to produce the intended result: lots of sales.
Clarity on your markets in your business plans will not only make you look more credible, but it truly creates a good foundation for going forward with your product marketing.
Betsy Gillette is market research director at Technology Ventures Corporation.
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