The 6 market dynamics that determine whether a startup or product opportunity are going to succeed.
Text of The 6 Market dynamics
SmarterStartup.org The 6 Market Dynamics
PROBLEM STATEMENT The Great Mystery 8 in 10 Startups Fail in the First 5 yrs WHY DO SOME SUCCEED? Weve all met people who worked very hard to make a business succeed and yet it failed. Weve also met people who did seemingly everything wrong and yet they succeeded. Hard work is a necessary component but it is not the entire story. WHY DO SOME NOT?
Benjamin Franklin PROBLEM STATEMENT Conventional Wisdom Diligence is the mother of good luck. Popular maxims (wise quotes) taken in isolation, only give a one-dimensional view of what you must do to succeed. But its not the entire story.
Diligent Negligent SuccessFailure IS HARD WORK THE ANSWER? Hard work alone is NOT a reliable predictor of success however. Hard working people sometimes fail and negligent people sometimes succeed.So whats missing? PROBLEM STATEMENT Conventional Wisdom NOT ENTIRELY
THE FUNDAMENTAL CRITERIA START HERE There are 6 different market dynamics acting upon the market and affecting opportunity, that must be considered in order to determine a good opportunity or to identify relative strengths and weaknesses. 6 MARKET DYNAMICS The 6 Market Dynamics Timing Customer Product CompetitionStartup Opportunity Finance Team
x 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 (;ming) Direc;on (customer need) Theres More to the Story? PROBLEM STATEMENT Drag (compe;;on) Velocity (hard work)
IS IT A GOOD OPPORTUNITY? THE 3 APPLIED TOOLS Weve created 3 applied tools for implementing the 6 market dynamics: Startup Heuristics Startup Scorecard Evaluation Matrix 6 MARKET DYNAMICS Applied Tools customer product compe;;on ;ming nancial team The 6 Market Dynamics
6 MARKET DYNAMICS The Startup Heuristics Startup Heuristics Finance 13. Low Sunk Costs 14. Working Capital Float 15. Economies of Scale Timing 7. Recent Innovation Enabler 8. Demand Already Established 9. No Signs of Commoditization Competition 10. Clear Market Inefficiency 11. Low Barriers to Entry 12. Differentiable Position Team 16. Subject Matter Expertise 17. Functional Competence 18. Supplier Partnerships Product 4. Customer Focused Solution 5. Low Barriers to Adoption 6. Clear Value Proposition Customer 1. Unmet Need or Desire 2. Right Size Market or Segment 3. Reliable Access to Customers 2014 Cabage & Zhang
WHATS 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. STARTUP HEURISTICS Customer Criteria UNMET NEED OR DESIRE Unsatised Customer Desire RIGHT-SIZE MARKET OR SEGMENT Need to Segment? Too Niche? RELIABLE ACCESS TO CUSTOMERS Diversied Channels? Gatekeepers?
WHATS 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? STARTUP HEURISTICS Product Criteria CUSTOMER FOCUSED SOLUTION Solves Unmet Need or Desire? LOW BARRIERS TO ADOPTION Low Switch Cost, Usability CLEAR VALUE PROPOSITION Compelling Reason to Buy
WHAT IS GOOD TIMING? Every market has a natural lifecycle driven by innovation and circumstance. Look for new demand or interest in something that wasnt possible just a couple years ago. Be a fast follower into a validated emerging market rather than speculating on new opportunity. STARTUP HEURISTICS Timing Criteria 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.
GOOD COMPETITIVE LANDSCAPE? Avoid being marginalized by excessive undifferentiated competition. That drives margin compression, commodi- tization and market consolidation. Look for inefcient markets where theres still play and nd ways to develop a sustainable competitive advantage. STARTUP HEURISTICS Competition Criteria CLEAR MARKET INEFFICIENCY Stagnant or Fragmented Market LOW BARRIERS TO ENTRY Easy & Cheap to Compete? DIFFERENTIABLE POSITION Something Special or Different?
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. STARTUP HEURISTICS Financial Criteria LOW SUNK COSTS Up Front Capital at Risk? WORKING CAPITAL FLOAT Gap Between Payable/Receivables ECONOMIES OF SCALE Margins Increase With Volume?
WHATS GOOD TEAM FIT? Just because an opportunity exists, doesnt mean your team is likely to succeed. Are you t to compete? Does your team have a competitive advantage? Do you possess deep knowledge, technical skills to deliver, & access to key partners and resources? STARTUP HEURISTICS Team Fit & Fitness Criteria SUBJECT MATTER EXPERTISE Deep Knowledge of Market? FUNCTIONAL COMPETENCE Technical Skills to Deliver SUPPLIER PARTNERSHIPS Access to Materials at Good Cost
Weve also developed an easy-to-use worksheet called the Startup Scorecard for scoring your opportunity (A- F). Consider the 3 heuristics for each market dynamic and give a letter grade for each. This exercise will walk you through considering all aspects of the opportunity ad surface any weaknesses that need to be considered or resolved before proceeding. The Startup Scorecard Startup Scorecard Finance Low Capital Requirement Clear Profit Model Economies of Scale Finance Score ______ Timing Recent Innovation Enabler Demand Already Established No Signs of Commoditization Timing Score ______ Competition Clear Market Inefficiency Low Barriers to Entry Differentiable Position Competition Score ______ Team Subject Matter Expertise Functional Competence Supplier Partnerships Team Score ______ Product Customer Focused Solution Low Barriers to Adoption Clear Value Proposition Product Score ______ Customer Unmet Need or Desire Right Size Market or Segment Reliable Customer Channels Customer Score ______ Overall Score _______ SmarterStartup.org Title _____________________________________________________________________ A A B- B+ D A- B Real Estate IDX Integrated CRM
6 MARKET DYNAMICS The Evaluation Matrix Customer Product Timing Compe33on Finance Team Overall IDX WordPress Theme C B B B A A Virtual Assistant Marke3ng CRM Property Search Site Lead Genera3on Alternatively, we can apply this same grading technique to multiple startup ideas by applying the market dynamics to a matrix t see how different opportunities compare (strengths & weaknesses).
EVALUATION MATRIX Score Your Ideas Customer Product Timing Compe33on Finance Team Overall IDX WordPress Theme C B B B A A B+ Virtual Assistant Marke3ng CRM Property Search Site Lead Genera3on Alternatively, we can apply this same grading technique to multiple startup ideas by applying the market dynamics to a matrix t see how different opportunities compare (strengths & weaknesses).
THE SMARTER STARTUP STRATEGY FOR STARTUPS The Smarter Startup looks at why some startups succeed while others fail. By taking a more strategic approach to entrepreneurship, founders can improve their own outcomes. Written by Neal Cabage and Sonya Zhang, PhD, and published by Pearsons/NewRiders. SMARTER STARTUP The Book
SMARTER STARTUP SmarterStartup.org The framework, including the part described here, are posted on the website, along with downloadable worksheets and reference material. Everything is free to use, so enjoy!. www.SmarterStartup.org