I’ve just met four great startups in the last three days.
An Existing Market
All four were trying to resegment an “Existing Market.” An existing market is one where competitors have a profitable business selling to customers who can name the market and can tell you about the features that matter to them. Resegmentation means these startups are trying to lure some of the current or potential customers away from incumbents by either offering a lower cost product, or by offering features that appealed to a specific niche or subset of the existing users.
Some of the conversations went like this:
Entrepreneur -“I’m competing against Company x and have been following the Customer Development process and I’ve talked to lots of customers.”
Me – “Have you used Company x’s product? Do you know have they distribute their product? Do you know how they create demand? Do you know how many units they are selling? Do you know the archetype of their customers?
Entrepreneur -“Well no but my product is much better than their product and I have this great idea….”
Rule 1: In an existing market Customer Development means not only understanding potential customers, but your competitors in detail – their product features, their sales channels, their demand creation strategy, their business model, etc.
Entrepreneur -“I’m competing against Company x and we are going to offer a lower-cost, web-based version. We’re about to ship next week.”
Me –“That’s a great hypothesis, do customers tell you that they’d buy your version if it was cheaper or on the web?
Entrepreneur -“Well no but my product is much cheaper and everyone’s on the web and I have this great idea….”
Rule 2: In an existing market Customer Development means understanding whether your hypothesis of why customers will buy match reality. This is easy to test. Do this before you write code you may end up throwing away.
Entrepreneur -“I’m competing against Large Company x and we solve problems for a set of customers – I’ve talked to many of them and they would buy it.”
Me – “So what’s the problem?”
Entrepreneur – “We just started letting early customers access the product and adoption/sales isn’t taking off the way we thought it would. We only have 20 customers, and Large Company x has millions.”
Me – “How are you positioning your product?”
Entrepreneur – “We tell potential customers about all our features.”
Rule 3: In an existing market directly compare your product against the incumbent and specifically describe the problems you solve and why Company x’s products do not.”
Entrepreneur -“I have something really, really new. No one has anything like it.”
Me – “Isn’t it kind of like Twitter but better?”
Entrepreneur – “You don’t get it.”
Rule 4: You may want to think twice positioning as a New Market. If customers immediately get an analogy for your product, don’t dissuade them. Save the “New Billion Dollar Market” positioning for the investors, not customers.
- Deeply understand the incumbents that make up the Existing Market
- The “hypotheses tested to lines of code written” ratio ought to be high
- Position against the incumbents weaknesses – their customers will tell you what they are
- Existing Markets adoption rates are measured in % market share gained, New Markets have adoption rates which may occur in your company’s lifetime