Start-ups: Understand what you mean when you say "market"

http://blog.intercom.io/chinese-gloves-and-addressable-markets/

by eoghan • 14 years ago

121 9 14 years ago

blog.intercom.io

NickNam• 14 years ago

This is a great breakdown of the different markets that exist. I think it can even help in calculating "back of the envelope" numbers, because you know you need to, "drop some zeros" a lot of the time. Pricing is kinda glossed over. But isn't Freemuim disrupting some of the 'Age old formulas'?

wisty• 14 years ago

The biggest point this is missing - the cost of acquisition. If you sell your product to 0.1% of China, you'll have tonnes of revenue. If you have to send salesmen out to knock on half a billion doors to get that 0.1% to buy, your profits won't be so hot.

Or, you could buy adwords. You can try a "viral" strategy, which magnifies your acquisition (by a factor you can calculate - if 90% of your customers can sell to a friend, you get 1/(1-0.9) = 10X the acquisitions you'd get without the viral strategy), but it's not a holy grail unless every customer brings in more than 1 friend. Guess how often that happens?

destraynor• 14 years ago

Hey Wisty,

Good point. I left this out as I wanted to do a separate post on the importance of profitably acquiring customers for start-ups, but there's a big overlap here with the dangers of hitting large markets that I should have included it.

Cheers, Des

debacle• 14 years ago

> but it's not a holy grail unless every customer brings in more than 1 friend.

Only one customer in ten has to bring in more than one friend for you to see exponential growth. While I don't disagree with you, that's kind of the idea behind most Internet startups.

davemel372• 14 years ago

"Happy customers beat the crap out of any marketing team you could hire..."

You should beat the crap out of your marketing team if they aren't bringing you happy customers.

K2h• 14 years ago

I dunno.. I hate marketing as much as the next engineer, but just because a customer is happy doesn't mean they will bring you as many new customers that a good marketing strategy will. They could be happy and never come back.

davemel372• 14 years ago

The only thing I disagree with is the limiting mindset of who your addressable market is... A better formula would be deciding who you WANT your addressable market to be, and finding a way to reach them.

For example, a local cafe might appear to be limited by geography, but could just as easily build a reputation beyond their borders and become the Omaha Steaks of Coffee.

I think you subtly made the point that things like making your product and experience remarkable, will expand your addressable market, but I think it is important for businesses and startups to realize that "Their Market" could be by design, and doesn't have to limited to the apparent cards they were dealt.

In fact, any marketer worth their salt should be able to find any consumer or target market no matter how big or small, no matter where they are and no matter the barriers and limitations and find a way to engage them.

ChuckMcM• 14 years ago

I too prefer this way of thinking. It is the kind of thinking that leads to coffee 'trucks' rather than coffee 'shops'. As in "Hey my potential customers are all over the city, but not all at the same time ..."

dkrich• 14 years ago

It's called market segmentation and is fundamental to most businesses. I say most businesses, because there are always cases of businesses that succeed because of dumb luck or just being in the right place at the right time.

The statement "Happy customers beat the crap out of any marketing team you could hire" is pretty ridiculous because it downplays the importance of great marketing, without which, most products will get ignored.

Start-ups: Understand what you mean when you say "market"

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