1. This presentation is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this presentation are the sole responsibility of Rick Rasmussen and do not necessarily reflect the views of USAID or the United States Government. Market Types 1 2. References 3. Three Types of Markets • Existing Market – Faster/Better = High End • Resegmented Market – Niche = marketing/branding driven – Cheaper = Low End • New Market – Cheaper / Good Enough can create a new class of product/customer – Innovative / Never existed before Existing Market Resegmented Market New Market 4. Type of Market Defines Everything • Market – Market size – Cost of entry – Launch Type – Competitive Barriers – Positioning • Customers – Needs – Adoption • Sales • Sales Model • Margins • Sales Cycle • Chasm Width • Finance • Ongoing Capital • Time to Profitability Existing Market Resegmented Market New Market 5. Existing Market • Faster/Better High end • Existing markets are fastest for early growth • Best when customers need the most performance possible – Highest speed CPU – Largest capacity memory – Most enjoyable first-person shooter game • New customers and upgrades Existing Market Resegmented Market New Market 6. Existing Market = Linear Sales Growth 1 2 3 4 5 6 7 • Timeframe is market dependent • Weeks • Months • Years 7. Existing Market Chasm No Chasm 8. Issues when entering an Existing Market • Large established companies almost always win – Incumbents defend their high-end, high-margin business • Worry About: – Network effect of incumbent – Sustaining innovation of incumbent – Industry “standards” • “They’ll never catch up” is a false hope, not a business strategy 9. Two types of Resegmented Markets • Taking a current market and attacking through differentiation • Low-end Resegmentation: New, lower cost segment – Dollar stores – Freemium games • Niche: Branding strategy – Regular goods with high-end brand – Starbucks coffee, Nike shoes Existing Market Resegmented Market New Market 10. Resegmented Market = Complex Sales Growth It takes time for customers to learn about your Resegmented opportunity, Then comes growth Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 11. Resegmented Market Chasm 12. New Market • Innovative/never existed before • Is there a large customer base who couldn’t do this before because of: – technology, – business methodology, – availability, – skill, – geography…? • Sales Channel: Did they have to go to an inconvenient location? • Are there sufficient barriers to competition from incumbents? Existing Market Resegmented Market New Market 13. New Market Risks • New product/service has to be unique enough that: – There is a large customer base who couldn’t do this before – They can be convinced they want or need this… • Company needs to manage adoption burn rate – Patient investors with deep pockets 14. New Market = Hockey Stick Sales Curve Customers cross the chasm and growth ends up meeting full potential Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 15. New Market Chasm 16. Three Types of Markets Existing Market Re segmented Market New Market Customers Existing Existing New/New Usage Customer Needs Performance 1. Cost 2. Perceived Need Simplicity & Convenience Performance Better/faster 1. Good enough at the low end 2. Good enough for new niche New customer metrics Competition Existing Incumbents Existing Incumbents Non-consumption / other startups Risks Existing Incumbents 1. Existing Incumbents 2. Niche strategy fails Market Adoption Cash burn rate 17. Appendix: Market Entry: Cost Summary Market Share Cost of Entry (Vs. Leaders Sales/Mktg Budget) Entry Strategy Monopoly >75% 3x Reframe/New Duopoly >75% 3x Reframe/New Market Leader >41% 3x Reframe/New Unstable Market >26% 1.7x Existing/Reframe Open Market <26% 1.7x Existing/Reframe 18. Appendix: Market-Type Questionnaire Customer Focus • Does the customer understand the business you are in? • Does the customer understand what you do at this company? • Does the customer understand the top three problems you have? • Do you believe that the startups product will solve these problems? How? Market Focus • Are there other products in the market that are similar to the startups? • If so, how are the startups products different? • Which products do you like the best? Why? • If not, how would you describe the space the startup is in? • Are the startup and its products unique? If so, why? Competition • Who do you think the startup will compete with in its first year? • Who do you think are the startups ultimate competitors? • What does the startup need to do to win against these competitors? Positioning • Have you heard the startup describe its positioning? Do you believe it? Is it right? Would you change it? • Have you heard the startups mission statement? Do you believe it? Is it right? Trends • What technology/product trends should the startup worry about? • Who are the key opinion leaders in this technology? Whom do you respect? • What business trends should the startup worry about? • Who are the key opinion leaders in these business trends? Whom do you respect?