Key Concepts ~ This blog series will examine the critical questions every startup needs to answer on their way to market. We’ll explore twenty-five key questions that need to be answered in order to drive success.
Working with first time entrepreneurs, coaching them through their strategic planning process, I consistently observe a common challenge they all seem to encounter early on. We always seem to move briskly through examining their Vision and Intention. The Self-Assessment process (strengths, weaknesses, and core competencies) is relatively straight forward, albeit highly self reflective. But once we get to the Market Assessment phase, the foundation for their Sales and Marketing Plan, the real challenges begin. What I quickly realized was it is difficult to come to the right sales and marketing answers if you don’t know what questions to ask. That’s what we’re going to cover in this blog series; identifying the right questions we need to ask ourselves in setting the foundation for a well researched, validated Market Assessment.
Whether you’re a sole entrepreneur, running a firm that will require funding for growth, or intend to sell your company someday, you’ll need to create a well researched and validated sales and marketing plan. Failing to do so can send you off in the wrong direction, mis-prioritize your opportunities, and cause you to invest poorly in marketing with little return on investment. It can mean the difference between reaching traction (positive cash flow) or falling off the map because you’ve burned through your seed capital. If you will be seeking investors or intend to sell your company someday, documenting the answers to the following questions will also be critical for your success.
1.) What is the projected market segment consumption capacity for your product or service? Simply put, how much of your product or service can the market consume if you were to capture 100% of the market. Granted, nobody does this, but what this does is identify the total size of your targeted market segment. It identifies whether or not the market segment is worth pursuing.
Example: My firm, Performance Transformation, LLC, provides professional coaching and strategic development services for nascent entrepreneurs (people considering starting a business). The Small Business Administration’s Office for Advocacy has identified that, at any given time, there are 12.6 million nascent entrepreneurs in the U.S. who spend more than $60 billion annually trying to figure out how to start a business. That’s a segment worth pursuing!
2.) Is this a growing segment? You will see the term CAGR (current annual growth rate) used to define segment growth in your research. If you have competing opportunities in various segments for the same product, technology, or service, answering this (in combination with question #1) will help you prioritize your sequence of focus.
Example: Some years ago, I was creating a strategic plan for a life science technology company. The core business of selling cryogenic freezers was very mature and only growing by a few percent a year. The demand for centralized cryo-storage repositories, a service business, was growing by more than 20% per year. Our strategic focus shifted from box manufacturer to service provider and the company’s valuation grew tenfold in four short years.
3.) What are the key barriers to entry? Barriers to entry can be organic or competitively derived. These are hurdles you will need to clear in order to secure market traction. Understanding these barriers will help you forecast how long and how expensive it will be to access your target market segment and secure profitable customers.
Example: Organic barriers to entry emerge from the nature of the business. They relate to the expense and time it will take to set a foundation. Launching a new automotive company would represent a huge investment requirement and years of construction, design, and advertising to launch simply due to the nature of the business. Competitively derived barriers relate to the entrenchment and anticipated response of well established competitors in the segment. Toyota and Honda have economies of scale and high brand equity…and they may not embrace another competitor on the scene.
4.) Is this a disruptive technology? A disruptive technology is a game changer in the marketplace. It challenges the dogma of the market and is so new in concept and enabling capabilities it can take your target prospects time to get their heads around the value proposition of your product. Launching a disruptive technology takes missionary zeal!
Examples: How do you listen to music today versus fifteen years ago? The iPod and iTunes are examples of disruptive technology. They displaced the entire business model of the recording and music industry.
A business-to-business example is an adult stem cell (meaning it was not from human embryos) line I was engaged to launch back in the early part of the century. The cell line, derived from human umbilical cord blood, post-birth, was genetically stable, naturally occurring, and highly naive (meaning it could be differentiated into many kinds of tissue – neural, cardio, bone, liver, pancreatic, etc.). It was so revolutionary the scientist we spoke to couldn’t believe it was real. The other disruption the cells represented was the fact that research scientist had built all their research models around murine (mice) stem cells. Their entire research platform had to shift to accommodate the new, enabling technology. But as one of our sales people said to a researcher, “I don’t think the National Institutes of Health are spending $28 billion annually to cure cancer in mice!”
We’ll pick this thread up next time…I sincerely hope this is helpful and, as always, your thoughts and comments are welcome!
© 2011, Terry Murray.