The document discusses six market dynamics that determine the likelihood of startup success: customer, product, competition, timing, team, and financial. It provides criteria for evaluating each dynamic, such as ensuring the customer has an unmet need, the product solves the need with low adoption barriers, competition faces low barriers to entry, timing coincides with market innovation, the team has relevant expertise, and financial requirements involve low startup costs. Analyzing these six dynamics through the provided lenses can help founders understand market opportunities and the viability of a new venture.
2. What Are Market Dynamics?
PROBLEM STATEMENT
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
(4ming)
x
Direc4on
(customer
need)
Drag
(compe44on)
Velocity
(hard
work)
3. Identifying & Locating Opportunity
Timing
Customer Product
Startup Competition
Opportunity
Finance Team
You cannot work simply work hard
and expect to have a desirable
outcome. There are many dynamics
at play that all determine whether
we’re likely to succeed. Some may
get lucky but they are the exception
not the rule.
STARTUP HEURISTICS
4. The 6 Market Dynamics
STARTUP STRATEGY
CAPTURING THE WHOLE STORY
THE 3 APPLIED TOOLS
We’ve identified 6 market dynamics
That are interactively defining the
Market opportunity at any time. The
conceptual framework is the basis of
the Startup Scorecard.
customer
product
compe44on
4ming
team
financial
The
6
Market
Dynamics
5. Customer Criteria
WHAT’S 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.
MARKET DYNAMICS
UNMET NEED OR DESIRE
Unsatisfied Customer Desire
RIGHT-SIZE MARKET OR SEGMENT
Need to Segment? Too Niche?
RELIABLE ACCESS TO CUSTOMERS
Diversified Channels? Gatekeepers?
6. Unmet Need or Desire
FOCUS ON HELPING OTHERS
FOCUS ON CREATING VALUE
CUSTOMER CRITERIA
Mom was right! Focus on helping others and
everything else will fall into place. Find a need
or desire that is not yet sufficiently addressed,
where the customer is so passionate they’d
happily pay for a solution. This approach is
much more likely to create real value than
copying an existing solution.
7. Right-Size Market (or segment)
CUSTOMER CRITERIA
Select a market to service that meets your needs and abilities. You must have enough opportunity to warrant
the effort. Be weary of large markets however, if you do not have significant funds and plan to be aggressive.
BIG MARKET STRATEGY
PURSUE LARGE MARKETS
BIG FISH STRATEGY
PURSUE QUIET NICHES
8. Reliable Access to Customers
A sustainable business requires control over customer supply. Don’t rely on a single marketing channel (Google
SEO). Government or monopolistic manipulation of markets can also be challenging (Online Gambling).
CHANNEL DEPENDENCE
SINGLE POINT OF FAILURE
MARKET MANIPULATION
GOVERNMENT, MONOPOLIES
CUSTOMER CRITERIA
35000
30000
25000
20000
15000
10000
5000
0
March April May June July
9. Product Criteria
WHAT’S 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?
MARKET DYNAMICS
CUSTOMER FOCUSED SOLUTION
Solves Unmet Need or Desire?
LOW BARRIERS TO ADOPTION
Low Switch Cost, Usability
CLEAR VALUE PROPOSITION
Compelling Reason to Buy
10. Customer Focused Solution (benefit)
PRODUCT CRITERIA
The purpose of your product is to create value by addressing a specific need or desire. Stay Zen focused.
Don’t ambiguate the value created with distracting features that aren’t aligned with the goal.
ADDRESS NEED OR DESIRE
FOCUS ON CLEAR GOAL
KEEP IT SIMPLE!
DON’T AMBIGUATE THE VALUE
11. Customer Focused Solution (benefit)
PRODUCT CRITERIA
Any intelligent fool can make things bigger and more complex... It takes a
touch of genius - and a lot of courage to move in the opposite direction.
Albert Einstein
Physicist, Professor
12. Low Barriers to Adoption (cost)
PRODUCT CRITERIA
Even if you create new value, customers may hesitate to adopt your product if they’ve already invested
too much in an existing solution that is good enough, or if adopting your solution is too disruptive.
FINANCIAL IMPACT
PRIOR INVESTMENT & NEW COSTS
LEARNING CURVE
INVESTED TIME & NEW COSTS
WORKFLOW INTEGRATION
DOES IT EASILY INTEGRATE?
13. Clear Value Proposition (value)
Solves My
Problem
Addt’l Benefits
(value complex)
Easy Workflow
Integration
Learning
Curve
Existing
Investments
IS THE VALUE CLEAR?
VALUE = BENEFIT - COST
PRODUCT CRITERIA
Perceived
value
must
exceed
cost.
If
you
can
clearly
describe
your
product
is
beneficial
and
a
compelling
case
for
purchasing
it,
then
you
have
created
sufficient
value
to
overcome
cost.
Theodore
Levitt
People don’t want quarter-inch
drills. They want
quarter-inch holes. cost
benefit
14. WHAT IS GOOD TIMING?
Timing Criteria
Every market has a natural lifecycle
driven by innovation and circumstance.
Look for new demand or interest in
something that wasn’t possible just a
couple years ago. Be a “fast follower”
into a validated emerging market rather
than speculating on new opportunity.
MARKET DYNAMICS
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.
15. Innovation Life Cycle
TIMING CRITERIA
Every market has a natural lifecycle driven by innovation and circumstance. Look for something that
wasn’t possible just a couple years ago & ramp up before the market capitulates (supply > demand).
Innovators
(2.5 %)
The Golden Era The
Squeeze
Early Movers Consolidation
Early adopters
(13.5 %)
Early majority
(34 %)
Laggards
(16 %)
Late majority
(34 %)
Capitulation
*
Innovation Adoption Curve
16. Innovation Life Cycle
TIMING CRITERIA
Opportunity to enter diminishes as the market matures. Geoff Moore suggests entering at “the
chasm” after demand is validated but still early enough to ramp before the market capitulates.
New Entrant Opportunity
Innovators
(2.5 %)
Early adopters
(13.5 %)
Early majority
(34 %)
Laggards
(16 %)
Late majority
(34 %)
Chasm
Innovation Adoption Curve
Ideal point to
enter a market
- Geoff Moore
17. Commoditization of Technology
TIMING CRITERIA
It is difficult to imagine a more perfect commodity than a byte of data.
As information technology’s power and ubiquity have grown, its
strategic importance has diminished.
Nicholas Carr
Harvard Business Review, 2003
18. $5,000,000
Commoditized
Technology
What cost $5 million to accomplish
12 years ago can now be done with
less than $5,000. Mark Suster
observed that commoditization and
availability of more building blocks
has radically reduced cost and risk
of developing a software product.
Hosting Commoditized
Cloud Services (SaaS/PaaS)
MLS
IDX/RETS
Feeds,
SendGrid
Email,
etc
$500,000
Open Source Software
WordPress
Pla=orm,
Real
Estate
Themes,
RESO
&
Placester
IDX
Plugins,
$50,000
$5,000
A
Web/Mobile
App
19. Commonplace
Commodity
As cost has fallen, so has the
competitive barrier to entry.
Competitive positioning is now the
key strategic issue, not
technological capability for most
consumer Internet products. How
do you cut through the noise?
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Data From NetCraft 2013 Web Server Survey
50x
20. Competition Criteria
GOOD COMPETITIVE LANDSCAPE?
Avoid being marginalized by excessive
undifferentiated competition. That
drives margin compression, commodi-tization
and market consolidation. Look
for inefficient markets where there’s still
‘play’ and find ways to develop a
sustainable competitive advantage.
MARKET DYNAMICS
CLEAR MARKET INEFFICIENCY
Stagnant or Fragmented Market
LOW BARRIERS TO ENTRY
Easy & Cheap to Compete?
DIFFERENTIABLE POSITION
Something Special or Different?
21. Inefficient Market
COMPETITION CRITERIA
NEW MARKET
DEMAND EXCEEDS SUPPLY
FRAGMENTED MARKET
NO CLEAR MARKET LEADER
STAGNANT MARKET
READY FOR DISRUPTION?
When a market is efficient, a single entity captures
all of the value of a market. Look instead for a
market that isn’t efficient either because it is new,
stagnant, or splintered (fragmented).
22. Low Barriers to Entry
COMPETITION CRITERIA
The general who makes many calculations before battle is wise. He who
knows when he can fight and when he cannot will be victorious.
Sun Tzu
War Strategist, Wrote The Art of War
23. Low Barriers to Entry
COMPETITION CRITERIA
Avoid a fight you cannot win! A market can be much harder to enter if a
competitor already has a mature offering that you must catch up to.
THINGS TO AVOID
• Existing Economies of Scale
• Existing Mature Product (feature set)
• Well-Established Brand (halo)
• Price Competition
24. Differentiable Position
LOW PRICE LEADERSHIP
FOCUS ON VOLUME & COMMODITY
SEGMENTED MARKET
FOCUS ON SPECIFIC CUSTOMER
DIFFERENTIATED PRODUCT
DISRUPTIVE OR INNOVATIVE
HOW ARE YOU DIFFERENT?
WHAT MAKES YOU SPECIAL?
COMPETITION CRITERIA
In order to be a desirable signal that stands out against a background of noise, you need to have a
compelling value to some customers that others do not. There are 3 viable positioning strategies.
Porter’s Generic Competitive Strategies
25. Financial Criteria
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.
MARKET DYNAMICS
LOW SUNK COSTS
Up Front Capital at Risk?
WORKING CAPITAL FLOAT
Gap Between Payable/Receivables
ECONOMIES OF SCALE
Margins Increase With Volume?
26. Low Sunk Costs
FINANCIAL CRITERIA
HOW MUCH CAPITAL RISK?
OPPORTUNITY COST
How much up-front capital must you commit to
develop this product or business? Sunk capital
represents risk since you don’t know if you’ll get it
back, as well as opportunity cost since that money
could be committed to other opportunities.
27. Working
Capital Float
Some businesses require large cash
outlay every month and payment can
take 3-4 months to arrive. As a result
the business may need to have cash
or credit to cover the gap of 3-4
months of operating costs. This is
both a cost (interest) and a risk!
DO YOU NEED A LINE OF CREDIT?
WHAT’S THE COST & RISK?
Accounts
Receivable
60 - 120 Day
"Capital
Accounts Float"
Payable
28. Economies
of Scale
Look for opportunities where profits
increase with volume (scale). Supply,
development, and distribution costs all
diminish on a per-unit basis when working
in volume. As a result profit margins and
competitive advantage both increase.
Quantity
Profits
Marginal Cost
Scalable Profits
29. Team Fit & Fitness Criteria
WHAT’S GOOD TEAM FIT?
Just because an opportunity exists, doesn’t
mean your team is likely to succeed. Are
you fit to compete? Does your team have a
competitive advantage? Do you possess
deep knowledge, technical skills to deliver,
& access to key partners and resources?
MARKET DYNAMICS
SUBJECT MATTER EXPERTISE
Deep Knowledge of Market?
FUNCTIONAL COMPETENCE
Technical Skills to Deliver
SUPPLIER PARTNERSHIPS
Access to Materials at Good Cost
30. The Hacker & The Hustler
TEAM-FIT CRITERIA
A team needs deep subject matter expertise and technical skills to design a solution, in order to
succeed. It is difficult for a single person to be efficient at “heads up” and “heads down” work.
Subject Matter Expert The Functional Expert
“The Hacker”
Technical skills to design &
develop a well-crafted and
scalable solution.
“The Hustler”
Knowledge of customer or desire, and
understanding of market dynamics to
effectively position an offering.
31. Supplier Partnerships
TEAM-FIT CRITERIA
Consider the dependencies you may have on external sources of materials, data, and services. Do
you have access to the necessary resources to deliver your product and to price competitively?
Preferred Sourcing
Are you able to procure
supplies at competitive prices?
If affiliate mktg, can you get
preferred commissions?
Available Data APIs
Are you able to access the data
or integration APIs needed to
build your product?
Outsourced Vendors
If planning to manufacture
physical products or software, do
you have a quality vendor you
can rely on?