Four Market Types
Taking steps forward without a roadmap is risky. All startups require designing a business model and interacting with customers, etc. So, the procedures look similar. However, There are four market types. And whether the entrepreneur knows it or not, every business owner selects one of them for his startup. The type of the market defines the type of the startup and vise versa. So, each type has its own map and is suitable for one startup type. Therefore, when an entrepreneur fails to realize the nature of the market map on which he, blindly, build his business, his business fails. Usually, the entrepreneurs decide about the type of their startup without being aware enough of the suitable market type for their startup. They end up developing a startup for a specific type of market while they hold in their hands a map for a different market type. And they wonder why the market doesn’t respond.
The four elements:
The four market types consist of similar elements, but the details are different
Each map shows four elements:
- A type of Customers
- Specific Customer needs
- A number of Competitors
- A type Risk
While the elements look so similar in the four market types, the difference in its details changes everything. It changes:
- The market, which determines the initial market size, the cost of entering the market, the kind of launch an entrepreneur does for the product, the way an entrepreneur positions or describes the product.
- The sales, which determines the sales model, the types of margins the entrepreneur should have, the profit, the sales cycle, etc.
- Finance, which determines the amount of money the entrepreneur needs to raise, and the time it takes to make a profit.
- The customer, which determines the customer needs the time it takes to adapt.
Let’s learn about those details in each of the four market types:
The following four market types, create four startup types:
- Existing Market
- Re-segmenting of an existing market
- New Market
- A Clone Market
Explaining the four market types:
They exist and we know them well.
The entrepreneur needs to interact with them to understand the details of their specific requirements. Usually, what they need is a performance from the entrepreneur that is higher than the competitor.
There are many competitors for this startup.
Entrepreneur risks his business when his team does perform well in branding, Sales, distribution. Or when he doesn’t perform any activities at all.
Additionally, the entrepreneur needs to keep in mind that competitors are innovative too. He needs to be aware of their innovation rate. Thinking that they are stupid is risky. In existing market, a startup needs to have a competitive product. The customer is already using a product that the competitor sells. It is easy for the entrepreneur to let the customer change his mind and try his product when the product is up to the standards.
The entrepreneur tries to redefine the market and the product. So, he has hypotheses about who the Customers are. There is a possibility that a specific group of people will be his customers.
The entrepreneur thinks that there is a specific niche need for these customers. And that he has a better fit for their need.
Normally, few entrepreneurs do market re-segmentation. When they are accurate about the customer and the different value they offer, they compete with few companies.
As explained, the entrepreneur is trying to redefine the market and the products.
However, some entrepreneurs don’t know that they are building a startup that’s following a market re-segmentation map. Consequently, they don’t prepare the startup to match the specific requirement of the same. Thus, they end up offering the same product. And competing with a lot of competitors. Because practically, they hold in their hand the map of an existing market not the map of the re-segmented market. This way, they build a re-segmenting startup the does the activities that fulfill a map for an existing market.
Although the entrepreneur is redefining the product, the customers he targets think that he is a competitor that offers the product they buy from another company. So, sales go high in the beginning, then go down if the entrepreneur is wrong about his assumptions. Because once the customers realize the difference, they decide whether the product is good for them.
The customer is unknown. The entrepreneur needs to know the customer that fits this market.
Also, the customer has to know about the entrepreneur. Yet, the challenge is the entrepreneur will create the need of the product. Or, will spend efforts and money to make the customer aware of his needs.
All the entrepreneur has is a vision and a set of hypotheses. He offers to the customer a product that may change his lifestyle forever. A sort of transformational improvement. Therefore, there are no competitors.
The entrepreneur has to create the market. The same will cost a lot of efforts and money. Additionally, the initial customer attraction to the product deceive the entrepreneur. He thinks that mainstream market started to adapt. Consequently, he decides to increase his budget and spend more on hiring people, advertising.
Yet, he doesn’t make the expected sales. Because the truth is, the mainstream market just hasn’t adapted. Furthermore, it will take more years to adapt. The entrepreneur might be lucky and the market adaptation happens sooner than he expects. When the entrepreneur doesn’t realize that there is no market for his startup. And doesn’t know that he has to create it from scratch. He gives up quickly. Because in reality, it will take years to make the first sales. Yet, the entrepreneur thinks that not making sales is a failure.
Additionally, the entrepreneur needs to spend a lot of money and efforts for teaching the customer about his product. And increase the customer awareness about his needs. However, the entrepreneur never does that. Instead, he starts the business spending money on hiring people and expanding as if he is dealing with an existing market.
This is when an entrepreneur finds a product or a service that people love in a foreign country. Then he tries to clone it for the people who live in his country. In this case, he takes a foreign business model and adapts it to local conditions. Local conditions are the language, the culture, etc. This works well in countries where the number of people who are expected to buy the product is larger than 100 Million.
So, he probably knows the customers.
However, the entrepreneur is going to create a local version of the product that fits the culture and habits of the people of his country.
There are no competitors.
The risk lies in misjudging the local needs.
In conclusion, the type of the startup must match the map of market type the entrepreneur holds in his hands. The awareness of the market type and the type of the startup makes a big difference in decisions. In some market type, the entrepreneur needs to spend money on creating the market instead of hiring people. With other market type, he needs to spend money on advertising and branding as early as possible.
Muhammad Helmy is a Business coach, Lawyer, Training package designer and Content writer. When coaching, Muhammad Helmy considers not only assisting Entrepreneur in solving the startup problems, but also developing a business model that offers unique value to the community.