Sheldon Whittle
February 27, 2023
Startups need to find out what kind of market they want to operate in early on. There are four different types of markets:
1. An existing market is one where people already buy things similar to what the startup sells.
2. A new market is one where the startup sells something that no one has ever bought before.
3. A re-segmentation of an existing market happens when a startup sells something similar to what other companies sell, but at a lower price.
4. A re-segmentation of an existing market by employing a niche strategy happens when a startup focuses on selling to a specific group of people instead of everyone.
The first two market types are different from each other and the second two market types are different from each other. The category that a new product falls into depends on the competitive strategy of the startup.
It is important to know the kind of market you are in because it will affect how you sell your product. This includes understanding what your customers want, how you position your product, and how many customers will want to buy it. Knowing the size of the market is also helpful when you are planning to launch your product.
Each market type is different. Here are some things you should know about each one:
In a known market, the users, market, and competitors are already known. In this case, companies compete based on product features and performance.
If your product helps a lot of people do something they couldn't do before, you create a new market. In a new market, we don't know who the customers are or what they like. There are no other companies doing the same thing, so product features aren't as important. The most important things are finding the customers and making them believe in your idea. This takes more time than being in an existing market, which is why it's extra important to manage your cash flow carefully.
This approach is based on the belief that there is a group of people who will start using a product even if it is not the best quality. As long as the price is low, they will use it to solve their problem. If this is true and you can make money from it, then the strategy is good. An example of this is low-cost airlines.
If you can find a way to solve a problem that nobody else has solved, you can be successful. This is called a niche strategy. You have to show that your solution is better than any other solution that people are using. If you can do this, people will start using your solution instead of the other ones.
In The Entrepreneur's Guide to Customer Development: A cheat sheet to The Four Steps to the Epiphany, Vlaskovits and Cooper advise startups that it is not a good idea to try and target an entire market or challenge a leader in an existing one. This is because there would not be enough resources to do this well. They say that it is much better to focus on a narrow niche instead.
Blank, S.G. (2005). The Four Steps to the Epiphany. Self-published: Cafepress.com.
Maurya, A. (2011). Running Lean. Self-published.
Ries, E. (2011). Lean Startup. New York: Crown Business.
Vlaskovits, P. and Cooper, B. (2010, July 29). The Entrepreneur’s Guide to Customer Development: A cheat sheet to The Four Steps to the Epiphany. Self-published.