Great startup marketing goes from specific-to-general, not the other way around. And, yet, we often see too many startups that make assumptions the other way around (general to specific). In a sense, this is a situation quite unique to startups. Larger organizations have the resources to understand general market opportunities in order to target specific segments with products that fit those segments. Startups do not have that luxury. Yet, we frequently hear startups say, “the market for XXX is YYY and so we’re going to get just ZZ% of that and then grow into AA in BB years.” If often doesn’t work out this way.
It goes back to the idea that I often harp … existing markets are protected not only by vendors but by customers who do not need anything new. Want new vs. need new are different. Startups create new wants – not new needs. To create a new want, effective startups reinterpret the needs for the customer and make them want its new offerings. To know what they’ll want, you have to start with rigorous analysis not of market sizes and market opportunity in a macro sense but rather customer behavior, motivations, patterns, actions, and thoughts in extreme detail. Many startups conduct such customer interviews but it’s very shallow and limited. I’d encourage teams to conduct deep analysis with as many customers as possible.
All of this really means that startups are often in the unenviable position of creating new opportunities out of the old. To do so effectively, startups have to begin its market analysis with very detailed studies of specific benefits of all the segments that make up a particular market. Then, it’s the startups job to start grouping those segments so that it can assess which ones they are best suited to address competitively. I’ll turn to restaurants to more specifically make the point – such cross-indexing is something I like to do a lot.
General-to-Specific: Conventional But Risky
So, let’s look at restaurants. Before you can become a popular national chain restaurant, you must start as a neighborhood restaurant. You may never aspire to go national (or even international) but the point is … you have to start somewhere. Startups work the same way. While the VCs may fund the early stage startup based on its longer term potential and plans to fully exploit that potential, the first dollars are expended on getting off the ground floor with some early customer traction.
Now, let’s get back to the example. A restaurant can either look at the demographics surrounding its potential location. From that information, a restaurant can tailor its theme and menu. During the course of assessing potential opportunity and risk, this restaurant will look to see how other restaurants in the area are faring. If there are a lot of Italian restaurants, he will assume that another Italian restaurant will be successful because the (market) opportunity is so huge. This doesn’t always work.
Markets (such as the San Francisco) have lots of thriving Italian restaurants not just because of the local demographics but due to the transitory customers or tourist population. Other markets (e.g., New York) do have a local demographic that fuels the perpetual popularity of Italian restaurants but they may be characterized by static market shares per restaurant. Maybe a bit of oversaturation, as well.
Specific-to-General: Unconventional But Strategic
A more effective approach to assessing market opportunity is to look excruciatingly into details. Then, draw out general patterns you can effectively market into or against. If you look at only the general information, you’ll conclude that Italian restaurants are popular. Five years ago, there were ten such restaurants. Today, there are fifteen restaurants. All of these places are averaging healthy growth. So, let’s open up another Italian restaurant. If the Italian restaurants are somewhat new to the area, this kind of conclusion could work. Quickly open yet another Italian restaurant then compete to win on customer service, food, ambiance, or whatever.
Fact is, however, the mere presence of a lot of Italian themed restaurants probably means that the market is steady and the growth could be more of an indication of market share consolidation AND market size growth (not just growth alone). Big companies enter late so they could be attacking the market with big time resources and enlarging the size of the pie. Hence, it’s critical to understand who is driving the growth – not just what but the “who.” These risks are important to understand in detail – not just guess.
Now, a very good way to conduct analysis precisely would be to look at what is popular at each of these restaurants. That is, I’d love to know what menu items are selling like hot cakes at each of these Italian restaurants. That bit of detailed or specific market knowledge will give me the powerful insight to make a better decision. If I see that spaghetti is the top seller at every restaurant, it gives me actionable intelligence to form my market penetration or entry strategy. I’ll likely open up a restaurant catering to diehard spaghetti fans … call it Spaghetti Junction … promote it both to the local market as well as through convention and visitor’s bureau and tour operators … build a brand around the spaghetti brand.
In doing so, I’ll have turned specific knowledge about a general market and turned it on its head to enter that market. This approach is only a niche method if you intend to stay static. Truth is, it’s a market entry strategy likely followed by many adjustments in a dynamic marketplace. As my restaurant grows, my brand promise (of “best spaghetti”) will evolve into promises around “spaghetti concierge” and “customer service.” As that brand gets stronger, my ability to expand my market will increase and I’ll eventually be able to take more business away from the surrounding Italian restaurants. I’ll shed my niche to serve a more general population of diners and push the old guard restaurants into niches themselves (catering to their tiny, loyal customers).
Tip: If you’re marketing at a startup, don’t simply look at “addressable markets” and attack it with the assumption that mere words and offerings can effectively differentiate and create value. Value creation and marketable offerings come from deeply understanding the extreme specifics of market segments, including buyer behavior and user personas. And, those specific don’t come from understanding addressable markets … they come by knowing details about the customers who make up the market. Go bottoms-up to shoot for the moon!
- John
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