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The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
The 6 Market dynamics
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The 6 Market dynamics

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The 6 market dynamics that determine whether a startup or product opportunity are going to succeed.

The 6 market dynamics that determine whether a startup or product opportunity are going to succeed.

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  • 1. 6 MARKET DYNAMICS SMARTERSTARTUP.ORG
  • 2. What Are Market Dynamics? PROBLEM STATEMENT Working hard is analogous to throwing a ball hard. The velocity is an important part of reaching the target, but you cannot ignore other interactive forces like gravity and drag. Gravity (4ming) x Direc4on (customer need) Drag (compe44on) Velocity (hard work)
  • 3. Identifying & Locating Opportunity Timing Customer Product Startup Competition Opportunity Finance Team You cannot work simply work hard and expect to have a desirable outcome. There are many dynamics at play that all determine whether we’re likely to succeed. Some may get lucky but they are the exception not the rule. STARTUP HEURISTICS
  • 4. The 6 Market Dynamics STARTUP STRATEGY CAPTURING THE WHOLE STORY THE 3 APPLIED TOOLS We’ve identified 6 market dynamics That are interactively defining the Market opportunity at any time. The conceptual framework is the basis of the Startup Scorecard. customer product compe44on 4ming team financial The 6 Market Dynamics
  • 5. Customer Criteria WHAT’S A GOOD CUSTOMER? The ideal customer has an unmet need or desire. The size of this market should match your ability to compete and ability to deliver justify solving the problem. Validate you can control means of customer acquisition along the way. MARKET DYNAMICS UNMET NEED OR DESIRE Unsatisfied Customer Desire RIGHT-SIZE MARKET OR SEGMENT Need to Segment? Too Niche? RELIABLE ACCESS TO CUSTOMERS Diversified Channels? Gatekeepers?
  • 6. Unmet Need or Desire FOCUS ON HELPING OTHERS FOCUS ON CREATING VALUE CUSTOMER CRITERIA Mom was right! Focus on helping others and everything else will fall into place. Find a need or desire that is not yet sufficiently addressed, where the customer is so passionate they’d happily pay for a solution. This approach is much more likely to create real value than copying an existing solution.
  • 7. Right-Size Market (or segment) CUSTOMER CRITERIA Select a market to service that meets your needs and abilities. You must have enough opportunity to warrant the effort. Be weary of large markets however, if you do not have significant funds and plan to be aggressive. BIG MARKET STRATEGY PURSUE LARGE MARKETS BIG FISH STRATEGY PURSUE QUIET NICHES
  • 8. Reliable Access to Customers A sustainable business requires control over customer supply. Don’t rely on a single marketing channel (Google SEO). Government or monopolistic manipulation of markets can also be challenging (Online Gambling). CHANNEL DEPENDENCE SINGLE POINT OF FAILURE MARKET MANIPULATION GOVERNMENT, MONOPOLIES CUSTOMER CRITERIA 35000 30000 25000 20000 15000 10000 5000 0 March April May June July
  • 9. Product Criteria WHAT’S A GOOD PRODUCT? A good product will be a direct response to a customer need or desire. If the value is well articulated and the customer is passionate about your new solution, the reason to buy will be compelling. Consider deterrents also – are their high switch costs and is the solution easy to use and understand? MARKET DYNAMICS CUSTOMER FOCUSED SOLUTION Solves Unmet Need or Desire? LOW BARRIERS TO ADOPTION Low Switch Cost, Usability CLEAR VALUE PROPOSITION Compelling Reason to Buy
  • 10. Customer Focused Solution (benefit) PRODUCT CRITERIA The purpose of your product is to create value by addressing a specific need or desire. Stay Zen focused. Don’t ambiguate the value created with distracting features that aren’t aligned with the goal. ADDRESS NEED OR DESIRE FOCUS ON CLEAR GOAL KEEP IT SIMPLE! DON’T AMBIGUATE THE VALUE
  • 11. Customer Focused Solution (benefit) PRODUCT CRITERIA Any intelligent fool can make things bigger and more complex... It takes a touch of genius - and a lot of courage to move in the opposite direction. Albert Einstein Physicist, Professor
  • 12. Low Barriers to Adoption (cost) PRODUCT CRITERIA Even if you create new value, customers may hesitate to adopt your product if they’ve already invested too much in an existing solution that is good enough, or if adopting your solution is too disruptive. FINANCIAL IMPACT PRIOR INVESTMENT & NEW COSTS LEARNING CURVE INVESTED TIME & NEW COSTS WORKFLOW INTEGRATION DOES IT EASILY INTEGRATE?
  • 13. Clear Value Proposition (value) Solves My Problem Addt’l Benefits (value complex) Easy Workflow Integration Learning Curve Existing Investments IS THE VALUE CLEAR? VALUE = BENEFIT - COST PRODUCT CRITERIA Perceived value must exceed cost. If you can clearly describe your product is beneficial and a compelling case for purchasing it, then you have created sufficient value to overcome cost. Theodore Levitt People don’t want quarter-inch drills. They want quarter-inch holes. cost benefit
  • 14. WHAT IS GOOD TIMING? Timing Criteria Every market has a natural lifecycle driven by innovation and circumstance. Look for new demand or interest in something that wasn’t possible just a couple years ago. Be a “fast follower” into a validated emerging market rather than speculating on new opportunity. MARKET DYNAMICS RECENT INNOVATION ENABLER Was it Possible 2-5 Years Ago? DEMAND ALREADY ESTABLISHED Build It & They Might Not Come! NO SIGNS OF COMMODITZATION Shrinking Margins. More Products.
  • 15. Innovation Life Cycle TIMING CRITERIA Every market has a natural lifecycle driven by innovation and circumstance. Look for something that wasn’t possible just a couple years ago & ramp up before the market capitulates (supply > demand). Innovators (2.5 %) The Golden Era The Squeeze Early Movers Consolidation Early adopters (13.5 %) Early majority (34 %) Laggards (16 %) Late majority (34 %) Capitulation * Innovation Adoption Curve
  • 16. Innovation Life Cycle TIMING CRITERIA Opportunity to enter diminishes as the market matures. Geoff Moore suggests entering at “the chasm” after demand is validated but still early enough to ramp before the market capitulates. New Entrant Opportunity Innovators (2.5 %) Early adopters (13.5 %) Early majority (34 %) Laggards (16 %) Late majority (34 %) Chasm Innovation Adoption Curve Ideal point to enter a market - Geoff Moore
  • 17. Commoditization of Technology TIMING CRITERIA It is difficult to imagine a more perfect commodity than a byte of data. As information technology’s power and ubiquity have grown, its strategic importance has diminished. Nicholas Carr Harvard Business Review, 2003
  • 18. $5,000,000 Commoditized Technology What cost $5 million to accomplish 12 years ago can now be done with less than $5,000. Mark Suster observed that commoditization and availability of more building blocks has radically reduced cost and risk of developing a software product. Hosting Commoditized Cloud Services (SaaS/PaaS) MLS IDX/RETS Feeds, SendGrid Email, etc $500,000 Open Source Software WordPress Pla=orm, Real Estate Themes, RESO & Placester IDX Plugins, $50,000 $5,000 A Web/Mobile App
  • 19. Commonplace Commodity As cost has fallen, so has the competitive barrier to entry. Competitive positioning is now the key strategic issue, not technological capability for most consumer Internet products. How do you cut through the noise? 2000 2002 2004 2006 2008 2010 2012 2013 &#!$!!!$!!!" &!!$!!!$!!!" %#!$!!!$!!!" %!!$!!!$!!!" #!$!!!$!!!" !" !"#$%&'%()*+%)& Data From NetCraft 2013 Web Server Survey 50x
  • 20. Competition Criteria GOOD COMPETITIVE LANDSCAPE? Avoid being marginalized by excessive undifferentiated competition. That drives margin compression, commodi-tization and market consolidation. Look for inefficient markets where there’s still ‘play’ and find ways to develop a sustainable competitive advantage. MARKET DYNAMICS CLEAR MARKET INEFFICIENCY Stagnant or Fragmented Market LOW BARRIERS TO ENTRY Easy & Cheap to Compete? DIFFERENTIABLE POSITION Something Special or Different?
  • 21. Inefficient Market COMPETITION CRITERIA NEW MARKET DEMAND EXCEEDS SUPPLY FRAGMENTED MARKET NO CLEAR MARKET LEADER STAGNANT MARKET READY FOR DISRUPTION? When a market is efficient, a single entity captures all of the value of a market. Look instead for a market that isn’t efficient either because it is new, stagnant, or splintered (fragmented).
  • 22. Low Barriers to Entry COMPETITION CRITERIA The general who makes many calculations before battle is wise. He who knows when he can fight and when he cannot will be victorious. Sun Tzu War Strategist, Wrote The Art of War
  • 23. Low Barriers to Entry COMPETITION CRITERIA Avoid a fight you cannot win! A market can be much harder to enter if a competitor already has a mature offering that you must catch up to. THINGS TO AVOID • Existing Economies of Scale • Existing Mature Product (feature set) • Well-Established Brand (halo) • Price Competition
  • 24. Differentiable Position LOW PRICE LEADERSHIP FOCUS ON VOLUME & COMMODITY SEGMENTED MARKET FOCUS ON SPECIFIC CUSTOMER DIFFERENTIATED PRODUCT DISRUPTIVE OR INNOVATIVE HOW ARE YOU DIFFERENT? WHAT MAKES YOU SPECIAL? COMPETITION CRITERIA In order to be a desirable signal that stands out against a background of noise, you need to have a compelling value to some customers that others do not. There are 3 viable positioning strategies. Porter’s Generic Competitive Strategies
  • 25. Financial Criteria GOOD FINANCIAL PROFILE? Look for opportunities to maximize returns without excess capital risk. Look for opportunities to start cheap and to realize higher margins through focused efforts and economies of scale. Avoid locking up too much capital. MARKET DYNAMICS LOW SUNK COSTS Up Front Capital at Risk? WORKING CAPITAL FLOAT Gap Between Payable/Receivables ECONOMIES OF SCALE Margins Increase With Volume?
  • 26. Low Sunk Costs FINANCIAL CRITERIA HOW MUCH CAPITAL RISK? OPPORTUNITY COST How much up-front capital must you commit to develop this product or business? Sunk capital represents risk since you don’t know if you’ll get it back, as well as opportunity cost since that money could be committed to other opportunities.
  • 27. Working Capital Float Some businesses require large cash outlay every month and payment can take 3-4 months to arrive. As a result the business may need to have cash or credit to cover the gap of 3-4 months of operating costs. This is both a cost (interest) and a risk! DO YOU NEED A LINE OF CREDIT? WHAT’S THE COST & RISK? Accounts Receivable 60 - 120 Day "Capital Accounts Float" Payable
  • 28. Economies of Scale Look for opportunities where profits increase with volume (scale). Supply, development, and distribution costs all diminish on a per-unit basis when working in volume. As a result profit margins and competitive advantage both increase. Quantity Profits Marginal Cost Scalable Profits
  • 29. Team Fit & Fitness Criteria WHAT’S GOOD TEAM FIT? Just because an opportunity exists, doesn’t mean your team is likely to succeed. Are you fit to compete? Does your team have a competitive advantage? Do you possess deep knowledge, technical skills to deliver, & access to key partners and resources? MARKET DYNAMICS SUBJECT MATTER EXPERTISE Deep Knowledge of Market? FUNCTIONAL COMPETENCE Technical Skills to Deliver SUPPLIER PARTNERSHIPS Access to Materials at Good Cost
  • 30. The Hacker & The Hustler TEAM-FIT CRITERIA A team needs deep subject matter expertise and technical skills to design a solution, in order to succeed. It is difficult for a single person to be efficient at “heads up” and “heads down” work. Subject Matter Expert The Functional Expert “The Hacker” Technical skills to design & develop a well-crafted and scalable solution. “The Hustler” Knowledge of customer or desire, and understanding of market dynamics to effectively position an offering.
  • 31. Supplier Partnerships TEAM-FIT CRITERIA Consider the dependencies you may have on external sources of materials, data, and services. Do you have access to the necessary resources to deliver your product and to price competitively? Preferred Sourcing Are you able to procure supplies at competitive prices? If affiliate mktg, can you get preferred commissions? Available Data APIs Are you able to access the data or integration APIs needed to build your product? Outsourced Vendors If planning to manufacture physical products or software, do you have a quality vendor you can rely on?
  • 32. SmarterStartup.org CONCLUSION www.SmarterStartup.org We have posted in-depth articles, diagrams, and downloadable references and worksheets on our website. Everything is free to use, so check it out.

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