The Goldilocks Problem of Market Selection & Timing
The Goldilocks Problem of Market Selection & Timing
Not too hot, or very stagnant, where the buyer's habits can be shifted and 100 other tiny details.
The Goldilocks Problem of Market Selection and Timing
#systemthinking#think/solutions/approaches#marketentry
Good team, good product, wrong market timing. As a founder, I launched a product I thought was significantly different into a mature over-supplied market and climbed the wrong mountain face for eight years. Timing trumps team and product. But picking the right market (big enough and your timing is good) is incredibly difficult.
It’s well documented most startups fail (circa 90% according to the SBA), and timing is one of the top reasons ( no one needed your product enough to buy it in quantities that would generate a sustainable profit). CB Insights covers it well here.
Rather than thinking about picking good timing, it’s easier to start by thinking about what isn’t good timing and if you see those signs, avoid.
New Markets
There are no current buyers for the product/service you envisage. They don’t spend any money on anything similar and have no buying habits built up to buy such a product. They may have a problem that they either know they have ( this is good) or don’t know (harder). Your product has to solve those problems in a way that is so delightful it’s like magic.
A flying car is a new market product.
Typical errors are being too early with a technology that is still half-baked. I have also done this with a spinning led-display. It kept breaking down and was a nightmare to maintain. Another is buyers not caring about the problem as much as you think they should!
A well-known example of this is the Segway. 19 years too early! If it was launched now it would be a runaway success. As the effects of Covid has buyers searching for personal transport solutions to avoid public transport. Hence the electronic scooter market really taking off. (Halfords sees the sale of electronic scooters rise 700%)
AVOID:
For new markets, if the technology is still very early and the buyers don’t care about the problem, wait. Be a fast follower.
Existing Markets
Buyers are spending money and market norms of rules, regulations, and buyer behaviors are in place. The market has competing products and clear market leaders. Existing markets can be in the heat of an innovation period or very stagnant. Or somewhere in between.
Stagnant
When Google began taking over search, the market had become stagnant with over 50 search companies that had come before it. Leaders were MSN, Yahoo & AOL. The leaders had stopped innovating and instead concentrated on commercial monetization (maximizing ad revenue), not on a good search result experience. Google’s innovated by focusing on the user’s key needs (first principle thinking), transformed the market and the rest is history.
So existing markets that are stagnant/mature are good, innovation is typically low and you can find unsatisfied users.
Innovative Markets
Fintech is on fire right now. More capital from venture firms has gone into the market in the last two years than in the previous 10 years. There is an enormous amount of capital and innovation from existing incumbents too. New and old are innovating at breakneck speed. With payments and lending embedding into other software services at the point of need for users. Competition is at its peak. Not a good time to try and enter as a young fintech start-up. One of our businesses Liberis has been innovating in SMB lending for over four years and has established a lead via its API platform and machine learning approach to credit risk management. This is giving it a compounding advantage even as others copy and enter. It’s got the Goldilocks timing problem just right.
AVOID:
For existing markets, in the heat of innovation with significant investment from new and incumbent companies, pass and look elsewhere.
Summary
There are two obvious market timings to avoid. Unfortunately, markets exist in many shades between these two more obvious extremes. And that’s where it gets harder to judge if you should enter or not. It’s highly context-specific to your capabilities, resources, and market factors including investment levels, regulation, and other forces ( e.g. Porter five forces).
Protect yourself with a deep, detailed understanding of the problem to be solved in the mind of the buyer and be clear on how your product or service is unique in its approach. You can do a ton of testing and research to derisk. And once you are on the pitch and selling, you can frame the value proposition in a number of ways to pivot and gain traction.
Key points
Is my market new or existing?
Understand the level of innovation in the market already
Existing buyer behavior:
is it regulated or controlled or free?
what habits do they have that could be complimentary or blockers?
do they know they have the problem and how meaningful is it to them?
The readiness of the technology
The uniqueness of your approach. Is it just incrementally better or a step-change for the user?
What are the trends in the key market factors? Such as growing urgency by buyers, more investment from competitors & planned regulation changes.
How big is it?
Who else cares about it and is working on similar solutions?
You should also read Four Steps the Ephiphany, by Steve Blank. It will help with practical approaches to many of the above points. I wished I had read it sooner, as a founder. In fact, I literally kicked myself as I read it.